Blockchain Procurement

What can procurement do with Blockchain?

Staff fraud and corruption affects many organisations all around the globe, and in the UK alone businesses lost over £40million just last year due to fraud committed by their employees. Many businesses protect their systems from hackers and viruses, but how should organisations protect themselves from employees with malicious and dishonest intentions, and how can procurement play its part?

Even with the most stringent checks and measures in place, every financial transaction still relies on an element of trust at some stage from the individuals involved. But as statistics show trust is not always enough, and there’s yet to be system or process invented that has guaranteed 100% authenticity on every company transaction.

Blockchain is currently being tabled as one such fraud prevention solution. Although it’s one of the latest tech buzzwords, in reality few have yet to get to grips with its potential anti-fraud applications, beyond preventing double counting within the Bitcoin digital payment system. This is certainly the case in procurement, where both upstream and downstream eProcurement technologies have yet to incorporate Blockchain into their mainstream offerings to reduce fraud risk.

How does it work? We’ll keep it simple (ish!)

To understand how it could be used in eProcurement systems is to understand how it works. Put simply, Blockchain is a technology that enables data to be distributed to known members within an agreed network. Each item of data (for example documents, information records, transaction receipts etc) is shared and stored with every member in the network who can accept its authenticity.

Once an item has been created it can’t be copied or changed and it becomes a data ‘block’ that is added sequentially into the Blockchain database. Any subsequent changes to the item would require a new item (block) to be issued to the same network members, again all of whom would be required to validate it. Once validated the new block is again added to the end of the blockchain line. Ultimately this means 100% data transparency and protection against unauthorised changes.

So, what does it mean for procurement technology?

Taking this distributed sharing technology concept back into procurement, a huge potential application could lie in invoice management. Using Blockchain would guarantee that an invoice is not going to be changed unknowingly between the moment a supplier submits it to the time a buyer processes it. Any invoice transaction would have to be checked and approved by all participants. Any change to the invoice made by any individual, for whatever reason, would need to be re-submitted (as a new block – in this case an invoice) and validated by all the users within the network.

There’s other applications too, where it could help protect against unauthorised access or hidden changes to information, in areas of contract management and supplier information management for example.

As businesses expand into new countries around the world, their growing supplier network and payment operations will inevitably put them at greater risk of fraudulent activity. Here Blockchain could help, especially if they are starting to operate in territories more culturally prone to corrupt practices.

There’s another upside too. Because of the decentralised approach, it means that malicious cyberattacks and other external security threats will be less likely, given there will be no centralised server location to aim for. Instead with the data residing on multiple decentralised PCs the system would be inherently more robust.

A new way to tackle an old problem

The Internet of Things has given businesses greater access, speed and connectivity with data and information, but with it has come a greater risk to fraudulent activity. Blockchain opens up a fascinating new approach to tackle the problem, and we’re starting to see procurement leaders and the vendor community that serves them, ourselves included, taking steps to see how to harness it to give procurement greater transactional and operational security.