By Saurabh Asthana
The emerging technology of blockchain is revolutionizing industries and processes. Blockchain is a sophisticated database mechanism that enables the transparent exchange of information within a business network. Therefore, it brings accuracy and intelligence to a business.
Procurement, as a business function, is also embracing the blockchain technology to increase supply-chain transparency, which is critical for today’s businesses. An increasing number of businesses disclose information regarding their procurement methods, raw-material sources, and other supply-chain data to external stakeholders. There are multiple reasons for this. The first being the increasing environmental consciousness and regulatory pressure to make supply chains green. Another reason is the modern consumer, who wants to know in detail how and where a product was made.
However, suppliers and vendors may be wary of disclosing too much information. They may lose their competitive edge or come under fire as a result. At times, suppliers themselves may not have complete details of the chain beyond the first few levels.
Blockchain as a Solution
Blockchain can be used to create smart supply chains that provide complete information at multiple levels and yet keep the data safe. Blockchain-based systems combine public key infrastructure, economic modeling, and cryptography to accomplish database synchronization through peer-to-peer networking and decentralized consensus. It can act as a deterrent to fraud and establish a seamless procurement process.
Blockchain has been adapted to a certain extent for the following processes:
- Transaction process automation
- Monetary use cases
- Vehicular networks
- Land record registry traceability
However, despite its advantages, there are challenges to blockchain’s complete adoption and uptake. For instance, many warehouses still operate with paper and traditional processes. If a company attempts to integrate blockchain into a system with unreliable record keeping, it may prove more harmful than beneficial.
Successful Blockchain Implementation
To use the blockchain technology successfully in the supply chain, a company must do the following:
- Decentralize the procurement process: Most supply chains are managed from the center, but to establish blockchain on a supplier basis, the procurement division would be required to operate at the regional level to capture the nuances of regional dynamics before creating the model.
- Monitor data: While blockchain can ensure the authenticity of a transaction, additional technologies such as RFID-based identification, cryptographically secure transactions, and automated record-generating can ensure the transaction is also done systematically. Data monitoring must be facilitated at the supplier’s end. Another option would be to have trustworthy third parties verifying the transaction.
- Cooperation from vendors: Some suppliers may not be willing to integrate their systems and processes with the blockchain technology. This may be due to the high initial cost of implementation or resistance to change. In such instances, it is advisable for an organization to work with more progressive vendors, use new technologies, and work on a smart contract basis.
- Initial investments: Blockchain is a complex technology, and its adoption requires significant investment of resources, time, and effort. Furthermore, the regulatory standards regarding the technology remain uncertain and differ from country to country. Therefore, organizations would need an overhaul of their technical infrastructure to integrate the blockchain technology into their processes.
Agricultural Raw Materials
There are restrictions on implementing blockchain in the industries that use agricultural raw materials, particularly the food and beverage industry. At the most granular level, the basic raw material for these industries comes from farmers working in rural areas who have limited access to internet, and very few use it for agricultural purposes. Hence, there exists an accessibility gap in receiving information.
Blockchain is still emerging, and there are only a few people well-versed in this complex technology. Thus, it presents the issues of scalability and performance. Another major challenge faced by the technology is the fragmented nature of supply-chain processes. For any organization to embed blockchain in its procurement process, an extensive backend is required to get the systems in place. Finally, change management, alignment of incentives, and reaching consensus among organizations seeking to work together are other major hurdles.
However, this change is necessary, and organizations need to undertake it gradually but surely.
The author is senior consultant-procurement, Aranca