How blockchain can make your business’s procurement process more efficient?

According to the UK’s annual fraud indicator in 2017, it was found that the annual cost of fraud in the UK is £190 billion, equal to around £10,000 per family. A significant portion of this is accounted for frauds happening at different stages of a procurement process in different organizations. Procurement fraud is a malpractice where someone dishonestly gaining an advantage by avoiding a debt or stealing or redirecting funds during the procurement process of goods or services. Despite the advancements in digital technologies, these malpractices happening in a procurement process is still not controlled. Such inefficiencies in procurement processes will be a hindrance to the growth of the organization.

What is blockchain?

What are the importance of Blockchain in the procurement process?

Blockchain technology’s inherent qualities like reducing the cost of transactions, avoiding middleman, controlling fraud, and transparency makes it the best fit solution to build an efficient procurement system for any organization. This technology of incorruptible digital ledger of economic transactions derives the solutions for the problems in a procurement process. Let’s see the benefits of implementing a procurement system on top of Blockchain;

Transparency as a trust builder

As stated earlier, the biggest pain point of procurement professionals is the lack of trust between multiple parties. The integrity of data passed between different parties on a procurement supply chain can be tampered or manipulated on its way. For example, tampering the bill with a couple of extra zeroes can dishonestly earn a person more money. Though the internet has revolutionized commerce sector across the world, it still has trust issues among people when it comes to financial transactions. Blockchain presents a channel to run trustless transactions, where the trust of running a system is not bestowed upon a single entity. The majority of the participants in the system has to agree upon any event happening in the system.

A blockchain based procurement system essentially records every data about ‘who spent how much on what commodity/service’. And this information is stored in the decentralized immutable network so that every participant have visibility on what is happening throughout the transactions. Still, fraud transactions can happen, but the fraudster cannot hide, as the transaction is visible to everyone else in the network. For every new transaction or update, a new record or block is automatically added to the chain as a digital fingerprint. This makes it impossible for the fraudster to alter the data since the technology notifies every system when a transaction occurs.

Better invoice management

The blockchain technology helps in invoice management where it ensures that an invoice is not changed from any point. As all parties are registered in the digital ledger, transactions are stored and a tamper-proof audit trail is maintained. No individual will be able to change the invoice for their own gain since the transactions have to be verified by supplier and customer. In a procurement process when its events are bind to smartcontracts, invoicing can be automated to minimize human involvement and thereby reducing chances of mistakes or frauds. For example, when a shipment has reached the destination (tracked via GPS) invoice can be auto-generated and sent to the recipient.  This can also save a lot of paperwork, time and money for the stakeholders. This technology is already being used to fight against blood diamonds and money laundering.

Faster Transactions

Cryptocurrency transactions know no borders or geographical limitations. The fund can fly from sender to receiver in a matter of minutes with zero (or almost zero) transaction fees. This can help the procurement department of an organization to clear the funds for purchasing different goods, commodities or services. The blockchain completely cuts off all the mediators and make the processing of payments and transactions faster and secure.

Procurement processes account for a big share of any organization’s expenditure chart. A fraud-free procurement system in place can help an organization to block the exploits and fraudsters who drain the money out from them. With blockchain technology, we can now imagine a near perfect fraud-free supply chain and procurement systems that can help organizations to grow faster.