What is blockchain in procurement

Blockchain in purchasing - smart contracts and more

A blockchain is a growing list of cryptographically signed, irrevocable transaction records that are shared by all participants in a network. By storing, managing and tracking inquiries, orders or invoices, blockchain has the potential to profoundly change purchasing processes. For example smart contracts.

Application example of smart contracts

The automation of purchasing processes continues to gain momentum and could be additionally driven by the use of blockchains. The advantages of blockchain technology - transparency and data protection - find their best possible application in smart contracts. These are contracts that are embedded in a program code on the blockchain and automatically handle a wide variety of administrative and process applications. In this way, property relations can be organized and controlled in real time and contractual clauses can be implemented automatically.

An example in purchasing is embedding the purchase price in the delivery reliability. After posting the goods receipt, the ERP system checks whether the delivery was made on time. The system then adjusts the delivery reliability indicator of the supplier and transfers the next invoice at the corresponding purchase price. By using blockchain technology in this area, a large number of transactions can be automated and thus the overall transaction costs in purchasing can be significantly reduced.

Status quo of blockchain technology

Blockchain is one of the most used buzzwords in the context of digitization and promises enormous monetary and time savings. Some large providers of purchasing solutions, such as SAP Ariba or GEP, recognized the possibilities early on and are currently focusing on stimulating the market through targeted blockchain marketing. However, even with the major providers, blockchain technology is not yet out of its infancy and often not more than prototypes. It is often unclear which applications bring added value in which industry and whether the business cases can even work.

So blockchain is by no means a technological solution that will flood the market within the next 6 months. Rather, this technology still needs some fine-tuning in order to actually move into the implementation phase. Despite this, blockchain will continue to fuel digitization and as soon as it is ready for the market, the technology will also quickly become relevant for medium-sized companies.

The time until then should be used to check and optimize the existing purchasing processes and to subject your own ERP system to a performance test. Then medium-sized companies will also be ready when the blockchain technology reaches the purchasing departments.

Do you need support in analyzing your processes in purchasing and supply chain? Our Smart Procurement Check is the ideal introduction to continuous further development towards smart purchasing. Contact us.

Oliver Kreienbrink

Managing Director, ADCONIA GmbH (Oberhausen)

Vivien Koch

Consultant, ADCONIA GmbH (Oberhausen)