Is Blockchain the Key to Future-Proofing Procurement?

November 21, 2018 Nikhil Nayab

Nikhil Nayab is Conduent's Global Head for the Blockchain business unit.

The last ten years have treated Chief Procurement Officers well. Globalization and digital technologies have lowered the costs of goods, services, and transport – helping procurement teams win cost savings from suppliers (and pass them on to customers).

But CPOs face an uncertain future. Inflationary pressures are rising, giving suppliers more negotiating power to raise prices or walk away from contracts. And with new tariffs and possible trade wars afoot, companies will need to be highly strategic about who they work with and where they source from.

As wringing value out of partners gets harder, it’s past time for CPOs to start future-proofing for the uncertainties ahead. If not, they risk passing new costs on to consumers (and losing market share fast).

It will take innovation in procurement to help companies compete. The key: Improving transparency, timeliness, and traceability through the power of blockchain.

Creating a foundation of trust

By now, every business leader has heard about blockchain. The world’s ten largest companies (among thousands of others) are exploring blockchain technology's potential for everything from cross-border payments to energy management to supply chain tracking.

Blockchain’s benefits stem from its distributed ledger – which allows an entire global computing system to trust and rely on a single, immutable version of the truth.

Every transaction in a blockchain database is logged chronologically in a shared, permanent record that is broadcast to all parties on the system. The record can’t be tampered with or deleted, so there is less need for an authority or intermediary to validate interactions on the network (be it public or private).

That model creates a foundation of trust for all parties on the database – which makes its potential for CPOs especially powerful.

Addressing procurement challenges

Trusting third-party partners isn’t easy for CPOs today. Consider sourcing: Despite the advances of cloud software and e-procurement tools, CPOs still have little visibility into supplier histories, on-time rates, legal liabilities, or interoperability among systems.

That leads to long selection cycles based on little verifiable data. And even once a vendor or supplier joins the value chain, CPOs receive few verifiable insights into partner performance.

Tracking movement and ensuring commitments still requires a ton of manual effort. Requisitioning, purchase orders, invoices, and payments demand multi-step authorizations and follow-ups across many different systems – making waiting periods, oversights, and errors all too common.

Blockchain will eventually change all that.

Step-by-step ledgering produces an instant, unalterable transaction record of what happens where and when – reducing the need for personnel to authorize interactions on the network. Smart contracts are an extension of that, making payments happen automatically when triggered by a specific transaction (such as a shipment being delivered).

Those functionalities will ultimately make procurement more strategic, automated, and globally cost-conscious – delivering savings that companies can pass on to consumers.

Exploring next-gen potential

In this early phase of the technology’s development, blockchain’s applications are limited only to the size of the network and the purpose of the ledger.

Blockchain technology delivers traceable, timely information in an automated way. As more applications take advantage of that, procurement will gain stronger intelligence for both partner decisions and performance management.

Imagine a world where you could understand the on-time rates, SLA adherence, and payment schedules of prospective suppliers or vendors – all based on time-stamped, global transaction data from their work with other companies.

The whole RFP process could be automated, or even be linked to dynamic tax information to help procurement leaders understand legal risks. With that toolset, CPOs could then choose suppliers based on a robust portrait of their performance and compliance by geography (not just the costs and capabilities they claim).

And at the process level, smart contracts and automatic transaction recording lessen the need for human interventions across the procure-to-pay process. Without the need for human validations, bottlenecks and waiting periods could be eliminated – allowing work services to be rendered faster, with fewer losses due to fraud or human error.

Accelerating a new future

Of course, those advantages are far from the reality of blockchain today. While smart contracts are in use at some tech-forward companies, most blockchain adoption is still exploratory. 

But already, blockchain systems are beginning to deliver trust and transparency around where goods come from, and how they move through the supply chain. As that kind of tracking becomes more commonplace, it will equip companies with traceable data on the global movement of both money and products.

By starting with blockchain now, companies can acquire smart information about their operational footprint to help them plan for the future.

It might create more leverage at the negotiating table, too, as many suppliers and vendors are eager to work with companies that are investing in the technology. Pilot projects and partnerships will help companies capitalize in smart-contract advantages and bring blockchain’s best uses to light.

Connecting for success

The more organizations innovate together now – whether on product projects, process updates, or end-to-end-transformation – the faster we’ll reach a future of more informed sourcing and faster transaction management.

But with economic and regulatory environments changing rapidly, CPOs need to start innovating now (if they haven’t already) to future-proof their strategy for what’s ahead.

No matter the blockchain application, all parties can be assured that the data is tamper-proof and agreed by all parties in a transaction – ensuring commitments are honored. The sooner CPOs apply those benefits to build a smarter foundation for procurement, the sooner blockchain will help them compete.

For more information or to learn more about our proof of concept process, click here.

About the Author

Nikhil is Conduent's Global Head for the Blockchain business unit.

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