How Procurement Can Benefit from Blockchain

by Amirmehdi A

Digital transactions are going through a revolutionary change. The reason is blockchain technology. Blockchain brings the promise of automated, faster and more reliable transactions across the globe. Businesses don’t have to rely on third-parties like banks, credit card companies, and financial institutions. Their transaction processes can be cheaper and hassle-free. Naturally, the procurement industry is looking into blockchain to figure out the technology. They are trying to understand what it means for their business processes.

What are Blockchains and Smart Contracts?

Business transactions are based on trust. In a transaction, there are generally three parties – the two transaction parties and the third-party who plays the role of the verifier or guarantor of the transaction. Modern banks, credit cards, and governments play the role of this third-party.

Blockchain eliminates the need for the third-party through using mathematics and computer networks. It works as a distributed digital ledger. In a blockchain universe, when two parties have a transaction, they record it on a block. Think of this block as a page of a ledger. Multiple transactions are recorded on a single page. Once the page gets full, it is advertised as ready for the blockchain.

On the network, there are volunteers who compete against each other to take this ledger page and add it to the blockchain. They are called miners. Miners are interested in the ledger because they get paid for adding the block to the blockchain. But there is a reason for the competition. Each block comes with a mathematical puzzle which is hard to solve and requires a lot of computer power. The miner who solves the puzzle wins the right to add the blockchain and collect the prize. The prize is a predetermined amount of blockchain currency.

Once a transaction is recorded on the blockchain, it is there forever. Also, every block on the blockchain depends on all the previous blocks. So no single party can manipulate the ledger. The copies of the blockchain are distributed to the whole network.

If designed properly, blockchains can record complicated transactions. Developers have taken this into account and created special blockchains that can run prewritten programs. For example, a gambling program can distribute winnings to the right party after a horse race. It will happen automatically. This kind of programs on the blockchains are called smart contracts.

Why Should the Procurement Industry Look into Blockchains?

Blockchains can provide the procurement industry with multiple benefits:

A. Automates Trust

The internet has revolutionized commerce across the world. But it has a trust issue. Initially, people were afraid to use the internet for financial transactions. Even though businesses have overcome some of the fears, still they are cautious. And there are reasons.

Phishing, malware, cyber attacks and identity thefts plague the internet. It’s often difficult to discern the real from the fake in the cyber world. It has been a factor that e-commerce businesses have been trying to overcome.

Blockchain provides a way for the procurement industry to run trust-less transactions. Trust less transactions mean there is no need to establish trust. The blockchain technology uses cryptography to ensure that the identities of the parties are digitally true. In order to replicate someone, hackers need the private key of the parties. It makes it impossible for hackers to impersonate anyone.

Another benefit of blockchain is that transactions are everlasting. As there is no central party owning the records, there is no way for anyone to change procurement records after the fact.

B. Faster Transactions

Blockchain-based transactions can run across borders and regions effortlessly. It can incorporate tax laws and local laws through smart contracts. This can dramatically extend business scopes and possibilities.

Further, blockchains maintain immutable records. And the digital ledgers are distributed throughout the network. So procurement transactions no longer need to be recorded on invoices. Imagine the number of invoices and records that need to be maintained for the same product across the supply-chain.

Blockchains can handle transaction records across multiple parties and supply-chain points seamlessly. It’s a big game changer for the procurement industry.

C. Reliable Audit Trails

Blockchains provide end-to-end visibility for any product. The immutable records add transparency and prevent frauds.

The technology is already being used to prevent child labor, blood diamonds, and money laundering. Procurement industry can leverage blockchain to create audit trails that can help save a lot of paperwork, time and money.

Practical Uses of Blockchain in Procurement

Businesses can use blockchain in different ways to procure goods and services. Here are some possibilities:

  • Meet Legal Requirements: Procurement departments can use blockchain technology and smart contracts to keep track of goods and services exchanged between trading partners. It can serve to fulfill legal requirements between the parties.
  • Human Resources Efficiency: Blockchains can become a record-keeping mechanism for businesses to track an external workforce and internal payrolls. It can simplify the process and increase efficiency.
  • Accounts Payable Improvements: Purchase orders, requisitions, invoices, and remittances make accounts payable a complex web of transactions. Blockchain can bring it all together and make it a more easy-to-maintain process.
  • Better Supply-Chain Management: Businesses often struggle with maintaining traceable contracts and invoices with their suppliers. Blockchain gives suppliers and consumers better understanding of the whole supply-chain and procurement process.


Blockchain can improve the procurement processes of any business and help save time and money. Also, this technology is the way of the future. More companies will start using blockchains to improve their processes. If you don’t invest early, it will be harder to catch up later.

However, it’s also important to understand that blockchain is an immature technology. Just like the internet needed time to mature, blockchain needs time to grow up. But that doesn’t mean you should ignore it. Rather you should try to incorporate it incrementally into your current systems. This will mitigate the risks while giving you experience in the technology and prepare you for the future

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1 comment

Charles C. July 23, 2019 - 5:10 am

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