Is your procurement team ready for Blockchain? Michael Shaw, Chairperson of the American Council of Sourcing and Procurement Executives, explains in this month’s SmartProcurement, that Blockchain – more commonly referred to as the Internet of Value, or Internet of Trust – will mature in five to seven years.
Impact of Blockchain technology
Blockchain technology will not only impact procurement and procurement professionals, but is expected to be more pervasive in our business and personal lives than the internet itself. To put the enormity of impact on procurement (and procurement professionals) in perspective, picture yourself twenty years ago trying to explain how the internet is going to change things. Where would you even have begun?
The nature and value of Blockchain
Like the internet, Blockchain is a network. In the case of Blockchain, the network comprises decentralized “ledgers”. Many are referring to it as Internet 2, or more commonly, the Internet of Value, or Internet of Trust. The most important thing to understand, is that Blockchain addresses many of the most critical problems we’ve encountered whilst doing business on the internet. These problems include:
- Security: practically speaking, Blockchain cannot be hacked.
- Transactions are verified by network participants by means of consensus, eliminating the need for third-party intermediaries’ such as banks, and costly, time-consuming and predominantly manual settlement processes. In addition to slowing down our supply chains, banks alone have estimated these processes are costing them more than $20 billion annually.
- Eliminating high transaction processing costs for high volume/low margin retailers who accept credit cards, could significantly add to their bottom line.
- Once transactions are verified in Blockchain, they are secure and immutable, as well as unchangeable.
- Blockchain’s immutability means that supply chain provenance can be assured. This is particularly important for conflict minerals, pharmaceuticals, food and many other supply categories where a provable chain of custody is critical.
- Payments can be made directly from buying entity- to selling entity “ledgers”, by-passing intermediaries such as banks, brokerages, clearing houses and title companies.
- Payments can be automatically triggered, based on the codified terms of “ Smart Contracts” stored in transaction blocks.
- Blockchain capabilities will change – if not eliminate – the role of accounts payable-, and accounts receivable departments.
- Blockchain enables the concept of micro-units and micro-payments. It is estimated that approximately one -third of the world’s economic opportunity include products and services, such as energy or digital rights, where back-end settlement costs currently constrain these markets.
- It is also estimated that 25% of the global population do not participate in the global economy, because they have no bank accounts or credit cards. Without these tools, they cannot participate in the internet economy. The primary reason they do not have these economic tools, is because they cannot prove their identities. Blockchain’s immutability can enable these people to participate in the internet economy.
Blockchain’s value for Procurement Professionals
The capabilities Shaw has outlined just scratch the surface of how Blockchain impact all of us. Aside from the aforementioned problems Blockchain addresses, as a procurement professional there are several important things to understand about Blockchain:
- Blockchain is a much wider and more pervasive concept than Advanced Cognitive Systems, Big Data, Predictive Analytics, Robotics, 3-D Printing or even the Internet of Things. In fact, these technologies will become infinitely more practical and secure because of Blockchain.
- Do not think of Blockchain and Bitcoin, FinTech or cryptocurrencies as synonymous. They are not.
- Do not think that Blockchain will take 20 years to mature, and become mainstream. The estimate is five to seven years to full maturity.
- Do not assess the progress of Blockchain by the US/Euro FinTech Community. While they were the first to recognize Blockchain’s inherent value – and arguably have the most to gain by adopting Blockchain – they also have the biggest hurdles to overcome, and could very well be last to cross the finish line.
- Don’t make the mistake of waiting to become knowledgeable about Blockchain. Blockchain is the most highly disruptive technology we’ve seen since the internet, and it won’t wait until you are ready for it.
For more information on Blockchain, join the Linked-In Blockchain Executive group.