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Purchasing: Blockchain Technology for transparent procurement processes

Supply Chain Management

by Editorial Office

The use of blockchain technology in procurement is transforming the way companies handle transactions, orders and the verification of product authenticity. Thanks to its decentralized network, which ensures transparency and security, blockchain technology makes a decisive contribution to optimizing procurement processes. In our blog article, we look at the many possible applications of this advanced technology and discuss how it can increase the efficiency and reliability of supply chains.

Blockchains for more transparency – from production to delivery

A blockchain is basically a decentralized ledger (accounting system) that records all information across a network of computers securely and immutably. Each transaction is stored in a block of data that is appended to a chain of previous transactions. This structure guarantees the integrity of the data and ensures a high level of protection against revision and forgery. Thus, there is great potential, particularly in the area of supply chain management, where added value is mainly generated across companies. Global supply chains are becoming more complex, the material flow needs to be controlled via several interfaces and the exchange of sensitive data is progressing rapidly. If different IT systems and different security standards are used, the exchange of important information becomes much more difficult.

A common communication architecture based on blockchains can simplify the entire process and streamline administrative processes. Blockchain platforms are accessible worldwide and enable all supply chain partners to network with each other and exchange data in a secure environment. By recording the individual process steps and making them traceable for all parties involved, the transparency of the supply chain is also increased – from the production of goods through to delivery to the end customer. Companies know at all times precisely where their goods are located and how they are being transported.

Procurement processes also benefit from these advantages: Based on increased transparency and security, blockchain technology creates a virtual network of trust and makes it possible to create a digital footprint of products that contains all relevant information. This pays off, especially in the event of a quality problem or a product recall, as those responsible are able to act quickly and in a targeted manner. The seamless traceability of process steps also strengthens the communication and relationship between companies and their suppliers and supply chain partners: as every transaction and every exchange of goods is recorded in a secure ledger, the parties involved can check the progress of transactions and processes at any time. This reduces the risk of misunderstandings and promotes a culture of trust.

Automated ordering processes through smart contracts

By using blockchain technology, companies can also eliminate inefficient, paper-based processes in purchasing, which are often error-prone and time-consuming. Smart contracts have proven to be useful in this context: These self-executing contracts with conditions written in code allow orders to be placed automatically as soon as predefined criteria are met. As an immutable ledger, the blockchain offers a trustworthy and transparent environment on which smart contracts can be executed – once implemented, contracts cannot be manipulated. This provides a high level of security for the contracting parties.

For example, a smart contract could be programmed to automatically trigger an order with a supplier as soon as the stock of a particular product falls below a critical level. This automation not only increases efficiency in the ordering process, but also reduces the risk of human error. In turn, during manufacturing and delivery, smart contracts can be used to check the authenticity of goods and components and only release payments once it has been confirmed that the delivered parts meet the specified requirements. In this way, costs can be reduced by avoiding incorrect purchases, the company’s own integrity can be strengthened and procurement processes can be optimized.

As every transaction is recorded on the blockchain, all parties involved can view the details and execution of the smart contract. Together, they form a synergetic combination of technologies in which the blockchain provides a robust and transparent basis for the secure and efficient use of self-executing contracts.

Less counterfeiting and fraud thanks to the blockchain

Companies that already use blockchain particularly appreciate the immutability of the content: Once entered, data cannot be manipulated or deleted – as a result, fraud and counterfeiting are significantly reduced. The implementation of mechanisms such as cryptographically secured transactions or distributed ledger technology (DLT) enables decentralized verification and storage of data via multiple nodes in the network. Every movement of a product is uniquely identified by a digital hash and central points of attack are eliminated. For example, responsible parties can thus ensure that the products they have purchased are genuine, meet the specified quality standards and have not been replaced by counterfeit goods. This is particularly important in industries where counterfeiting not only entails financial losses, but can also pose risks to safety and health.

Within blockchain applications, technologies such as zero-knowledge proofs also enable further safeguards by checking transaction validities without having to disclose sensitive information. In combination with tokenization, for example – physical goods are represented by digital tokens – a seamless and tamper-proof transfer of commercial documents can be guaranteed.

Conclusion: The future of procurement – blockchain technology for transparent supply chains

 Companies seek to map their supply chains as clearly, comprehensibly and tamper-proof as possible. Where has which product been manufactured? Who processed what? And: How was it transported and by whom? In the area of procurement, blockchain technology offers enormous potential to optimize processes, automate workflows and reduce fraud thanks to its inherent transparency. With the introduction of smart contracts, companies can also react faster and more cost-efficiently to market changes by enforcing contractual terms automatically and without manual intervention.

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