Concept of Blockchain of Blockchain Technology and Procurement

Potential is provided by this technology for upending the management of financial services and data through which industries try to maintain a consistent track of growth. Some examples include Education, Hospitality, Travel, Insurance, Healthcare, Government, Food sectors, and etc.

In the technological world, various methods and technologies are offered by the Block chain technology for authorization and authentication. Meanwhile, the requirement for several centralized authorities or administrators is also precluded. Due to it, new digital values, relationships, and bonds are created.

To create a central point for an internet’s layer, the block chain revolution is actually practiced for interactions and transaction of value. It is often referred as “Internet of Value” as well.

 1       Block chain in supply chain Management of Block chain Technology and Procurement

Digital continuity is provided by Block chains in the world of finance. Withing the system of supply chain, sharing or exchanges bring various parties together which are not in a place to trust each other. Here, the key role is played by block chains which assists in eliminating error-prone or duplicate transactions and it also helps in creating an identity which is digital (Brody, 2017).

Diagram 1: Opportunities with Blockchain over the ecosystem of supplychain

Source:(Kehoe, O’Connell, Andrzejewski, Gindner, & Dalal, 2017)

 According to the Diagram 1, there are various opportunities in different departments such as operations and executions, asset management, visibilty, supply chain finanicals, manufacturing and procurement, and forecasting and planning. From a variety of raw goods, brands are allowed to show a path by blockchain to a resale market, consumer, a retailer, a distributor, and to a manufacturer. The question concerning the enhancement of supply chain by blockchain still remains (Francisco & Swanson, 2018).

 Through following method, the answer can be detailed:

 Supply chain product certification (Framework of supply chain which is Blockchain-protected):The key specifications of custody, quantity, and quality at a certain time will be held by the product ledger. In a safe infrastructure, such qualities can be store and cane be illustrated in applications which are consumer facing. It will not only be linked but also readable from data sets which are pre-existing. Each and every regarded participant will also be an intrigued party in performing getting verification, auditing the network, and perfroming an assessment of quality. The list of participants includes auditors, certifiers, customers, standard organizaitons, registrars, manufacturers, and producers (Marucheck, Greis, Mena, & Cai, 2011).

 Blockchain-powered, industrial Internet of Things (A safe digital marketplace of IoT can be provided by Blockchain): With the utilization of blockchain, distribution and communication of smartly developed information and a safe machine-to-machine environment is provided. A security’s layer is added by its server which is decentralized to storage of files, transfer, determining permissions and roles, providing trustless messaging which is peer-to-peer, and offering healthy sharing of data along with coordination of equipment. Automatic detection of problems for initiating rapid cost-effective responses, consumption and distribution, and tracking the production rate, they all are faciliated by it (Sadouskaya, 2017).

 Tracking and traceability of goods (Around goods’ origin, information is provided by Blockchain): Transaction data’s shared, trusted, and immutable record is provided by Blockchain. Considering its decentralized and verifiable nature, manufacturers, and retailers can keep the track of location and origin of a specific product along the supply chain at any time. Blockchain actually is capable of eliminating the pressure on a centralized and trusted party while dealing with several groups or parties in various judiscritions which exchange multi documents, goods, and settlements through authority’s decentralization.

 Supply chain smart contracts (Multiple hours of research regarding the marketplace are reduced with Blockchain) : All documentation’s secure coding is held by the blockchain related to a specific object, inespection certification, provenance, warranty, and patent which assists a lot in achieving control over that certain object. With the implementation of such an infrastructure, an option of car lease can be selected by a user that is interested, and sign the record that is documented in the blockchain. All the while, eliminating the requirement or participation of other parties for signing for the approval.

If the vehicle is considered, it is one of the best intelligent objects in the marketplace of blockchain. It has the power of diagnosing, scheduling, and paying for its own services regarding the maintenance The vehicle itself, being one of the intelligent objectsin the blockchain marketplace, has ability todiagnose, schedule and pay for its own maintenanceservices (Fridgen, Radszuwill, Urbach, & Utz, 2018).

Example: Shipping’s chain

Situation

As far as logistics and shipping indistury is concerned, the traditions systems of BOL are suspectible in producing inefficient outcomes.

Real life problem

At present, a physical BOL is a contract which is non-enforceable along with insecure and replicable. It really is not easy to exchange documents with stakeholders and external parties. Regarding the contract, the terms are not self-executing for triggering an alert through devices which are connected.

Solution through blockchain

In shipping, a BOL is actually a pivotal paper or document for both consignee and consinger. The digitization of a BOL and the policies concerning the contract can be also be executed in codes on the absis of real time data. Following figure is actually explaining shipping chain

                                                           .

Diagram2: Chain of shipping

Source: (Heutger & Chung, 2018)

 Through the utilization of distributed ledgers, firms within a system of supply chain gain no reflection or transparency into supplier processes, diversities, and many other projects where there are not many inherent risks (Mills, et al., 2016).

2.0       Explanation on the concept of blockchain in procurement of Blockchain Technology and Procurement

When it comes to procurement professionals, they are not like common individuals and likewise don’t need to know deeply about the model sich they alsrady know about it. Although the work is nothing but technical, it is still very difficult and significant as well for  understanding concepts and trying to grasp them. There are some strategies, however, they can benefit the individual withouht showing any value to it (Wang, 2018).

3.0       Justification on the impact of blockchain for procurement

A very important and powerful promise concerning innovations on the basis of blockchain has been produced and what they are supposed to do with it. There are countless applications and features that can be used for authenticating supply chain and procurement chain (Pilkington, 2016):

 Smart Contract: Smart contracts which are tamper proof could be created by Blockchain which automatically integrate the policies of multiparty agreement. Such contracts don’t need someone for self-verification and self-execution. After all, they do it themselves. For including several parties over the whole supply chain, contracts could be designed. Moreover with the deployment of requirements at each stage can also be initiated by such contracts (Bharadwaj, 2016).

 Enhanced Purchase Order Management: Tbe approval of order, validation, multi-way matching, invoice processing, and process of request-to-request could be upgraded with integration of blockchain. With the modification at a process’ any part, an exception will atuomatically be created and it will decrease the completion time. It will also permit high transcitions’ automation.

 Visibility and Traceability: The buyer will be empowered by Blockchain in terms of traceability and authenticit of good over the cycle of purchasing. Audit trails which are verifiable of goods of suppliers will be developed. Qualification of critical supplier, certificates, and credentals will be safe from compromise and forgery (Kharlamov & Parry, 2018).

 Streamlined the payment system: Considering the fact that blockchain is a secure log by design of value of exchanges and transactions (its origin is found in Bitcoin by blockchain), the applications expand over to streamlining payments as well by eliminating intermediates and by taking a digital form.

 Improved transparency: Other than covering the aim of safe transacting, transparency can also be increased by blockchain in the supply chain. At value chain’s each step to the customers from the extraction of pure or raw materials, the technology can also be utilized for recording and storing all exchanges and transactions of ownership. No wonder this application is quite common when it comes to blockchain and its investigation (Wüst & Gervais, 2018).

 3.1       Justification on the Impact

If we take cash from an individuals, we don’t suspect that something is wrong. If it is digitally transferred in the mail, it becomes suspicious then. A person or a party has to verify its authenticity. The same thing could be said about this bank. A tract of authenticity is kept securely. After each and every transaction, the money that a person sends is deducted from the overall amount. Fees are charged with it and it becomes costlier overall.

These fees can be saved with the blockchain as the technology is peer-to-peer. It is actually a platform using which transactions can be recorded when made on a digitial ledger which is secure. From the normal technologies, it is different as it isn’t centrally ledger-based. Using it, all the stakeholders who participate, they are enable to record and make transactions. Considering the ledger’s copy which is maintained at each node, fraud and failure are evaded by the decentralized network (Wu, 2017).

The value of blockchain relies on the recording and linking of data to the database. This technology secures the integrity of digital information. In a blockhain network, all computers are storing and verifying data, all the while causing it to be robust. The new transaction is connected with the previous ones and it notifies all users. Thus, altering the data becomes impossible. With the recording, systems are potentially transparent. Additionally, there is not a fixed or specific authority. That is why, trusting blockchain is not difficult (Hwang, et al., 2017).

Nascent stage of this technology is not availed. However, it has still been getting a lot of interest since the past 12 months. It has been the efficient disruptive technology with the absence of borders which is possible to affect and remold the whole procurement procedure and supply chain.

 4.0       Challenges faced by the organization in adopting blockchain in procurement

The implementation of blockchain is being practiced in many industries covering finanical services and supply chain. No doubt, technology of distributed ledger is one of the best. However, it is possible that a sufficient amount of time will be taken by it before the global adoption. After all, there are various hurdles linked with the adoption of blockchain which must be removed before the global integration. According to Figure 3, technology is actually more visible compared to the slope of enlightenment. Meanwhile, disillusionment is quite close to maturity.

Diagram 3: Gartner’s “Hype Curve Model” - a conceptual representation of five stages of a technology’s maturation.

Source: (“Obstacles for Blockchain Adoption in Supply Chain,” n.d.)

 Regardless of its wide implementation and huge advantages, its hurdles and caveats should also be mentioned. Such hurdles might occur at the initial stages or phsases of this disruptive technology. Sure, companies can have their own difficulties but these challenges are all that could occur:

 Uncertain regulatory status: National governments regulate and create modern currencies usually. A hurdle is faced cyrypto currencies in the global adoption by no one other than finanical institutions which are pre-extinsing with the status of government regulation remaining unsettled or unstable.

 Large energy consumption: For creating a block, computer power is required by miners of crypto currency for solving the block. Since mathematical formulas are being solved, computers and their power is required. This, however, requires energy which increases the cost. But considering the return, it can be seen as investing if nothing more.

 Control, security and privacy: Some concerns must be addressed before the global adaption of technology such as privacy, security, and control. It can also be said that concerns surround the possibility of hacking of blockchain.

Integration concerns: It has been stated above as well that complete processes and systems require complete adjustments and replacements. However, companies have to first plan the investment and transition.

Cultural adoption: A complete shift is represented by blockchain to a network which is decentralized and needs its users’ buy-ins. Users have to purchase Bitcoin for traditing within a ledger mean buy-ins.

 Investment costs: Sure, large savings are offered by blockchain due to efficient operations. However, there is a huge investment at the primary stage. Such costs of investments are connected with integration concerns and buy-ins.

 5.0       Summary of Blockchain Technology and Procurement

For completing the cycle of procurement, there are many steps in the process of documentation. The cycle of procurement is necessary to buy a pay cycle. It is stated by accountants that documentation is necessary for recording the purchase. Meanwhile, it is carried out for creating trust among parties. The process of payement will be carried out the instance delivery of goods is made as per the invoice. But this has become quite old as it existed even before two decades.

Smart contracts along with blockchain processes make it easier for eliminating the possibility of trust among parties. With the storing of information in the form of payment details, delivery details, and order details in a single ledger, payement is not required. Consensus is present with the information in ledger. With the unmatch of information, ownership will not be received by the purchasing party. Thus, it is guaranteed that selling parties will get accurate or correct funds. It can work in the other way as well. The process of payment will be carried out with transfering of goods to the purchasing party. (Iansiti & Lakhani, 2017).

With the technology’s application, the important documentation is added when it comes to the ledger. Therefore, only a step is require for completing the documentation. Due to it, six steps are reduced to only one in the pay cycle. Thhe framework of time for purchase cycle is quite short as only 24 hours are required since 3rd middle party is not needed. Moreover, there is not a necessity of waiting for documentation from another group.

When it comes to the procurement process, the advantage of utilizing technology of blockchain are:

Due to fewer steps, framework of time is shorter

Trusting another party is not required

Costs of labor are less

Through human interaction, the risk of errors is less

Overhead costs are less like 3rd party’s payment

6.0       Conclusion of Block chain Technology and Procurement

At present in the economy, paperwork is actually common for documentation rather than blockchain which is a distributive database. With the utilization of this technology, keeping the record of informaiton among parties become safe and swift. Moreover, transactions become chepaer with the absence of a 3rd party. Actually, there is no requirement for a 3rd party or middleman due to the structure of Bitcoin. It acts almost like a central bank and avods the involvement of other parties. Withing Bitcoid, the underdying technology is nothing but the blockchain. Therefore, blockchain makes the process a lot more cheaper. The quality is improved and maintained with the blockchain because all the information about good is accessible easily. Moreover, the supply chain becomes quite transparent with the integration of blockchain technology. Even the security is improved with it and the credit goes to cryptography. Laslty, expenses are decreased with it as the frame requires less time and overhead costs. A case study cannot be reviewed though due to lack of research.

A worldwide survey of CPOs or chief procurement officer by Deloitte in 2016 stated that only forty percpent of the whole amount of CPOs had integrated a digital strategy. However, there was a rising interest in terms of increasing investments in new strategies of digitial methods. For illustrating the technology’s overall advantage, an ivestment of 1.8 billion dollars was pointed out in the study over three years. By the end of 2016, 80 percent of all global banks will have started integrating the technology and the savings would reach 20 billion dollars by the year of 2022. Americal Council of Procurement and Sourcing Executives’ Chairperson, Michael Show outlined the technology’s potential in procurement and sourcing in an article. Improved security is cited in the technology and transactions’ verifiability by netowrk respondents all the while deleting the possibility of including middlemen. Even the optimum governance of supply-chain is pointed out by him. After all, transactions become safe and secure once they are recorded. They cannot be changed and so is fixed in the technology which is quite important especially in terms of medicinal supply chain. It was added by him as well that capabilities change if the part of accounts recievable and payable are not eliminated.(Kehoe et al., 2017)

 References of Block chain Technology and Procurement

 Brody, P. (2017). How blockchain is revolutionizing supply chain management. Ernst Young.

Francisco, K., & Swanson, D. (2018). The Supply Chain Has No Clothes: Technology Adoption of Blockchain for Supply Chain Transparency. Logistics, 2(1), 2. https://doi.org/10.3390/logistics2010002

Heutger, M., & Chung, G. (2018). Blockchain in Logistics, 1–28. Retrieved from https://www.logistics.dhl/content/dam/dhl/global/core/documents/pdf/glo-core-blockchain-trend-report.pdf

Kehoe, L., O’Connell, N., Andrzejewski, D., Gindner, K., & Dalal, D. (2017). When two chains combine Supply chain meets blockchain. Deloitte, 2–15.

Obstacles for Blockchain Adoption in Supply Chain. (n.d.). Retrieved October 16, 2018, from https://www.sdcexec.com/software-technology/article/21005551/obstacles-for-blockchain-adoption-in-supply-chain

Solutions, I., Shahane, D., Vice, S., & President, S. V. (2017). How AI , IoT and Blockchain Will Shake Up Procurement and Supply Chains.

Bharadwaj, K. (2016). Blockchain 2.0: Smart Contracts.

Fridgen, G., Radszuwill, S., Urbach, N., & Utz, L. (2018). Cross-Organizational Workflow Management Using Blockchain Technology-Towards Applicability, Auditability, and Automation.

Hwang, J., Choi, M.-i., Lee, T., Jeon, S., Kim, S., Park, S., & Park, S. (2017). Energy prosumer business model using blockchain system to ensure transparency and safety. Energy Procedia, 194-198.

Iansiti, M., & Lakhani, K. R. (2017). The truth about blockchain. Harvard Business Review, 95(1), 118-127.

Kharlamov, A., & Parry, G. (2018). Advanced supply chains: Visibility, blockchain and human behaviour. Innovation and Supply Chain Management: Relationship, Collaboration and Strategies , 321-343.

Marucheck, A., Greis, N., Mena, C., & Cai, L. (2011). Product safety and security in the global supply chain: Issues, challenges and research opportunities. Journal of Operations Management, 29(7-8), 707-720.

Mills, D. C., Wang, K., Malone, B., Ravi, A., Marquardt, J., Badev, A. I., & al, T. B. (2016). Distributed ledger technology in payments, clearing, and settlement.

Pilkington, M. (2016). 11 Blockchain technology: principles and applications. Research handbook on digital transformations, 225.

Sadouskaya, K. (2017). Adoption of Blockchain Technologyin Supply Chain and Logistics.

Wang, A. (2018). Blockchain technology and its applications.

Wu, H. (2017). A Distributed Blockchain Ledger for Supply Chain.

Wüst, K., & Gervais, A. (2018). Do you need a Blockchain? 2018 Crypto Valley Conference on Blockchain Technology (CVCBT), 45-54.