A procurement executive has concluded that procurement professionals engaged in conventional supply relationship management activities remain crucial to blockchain technology’s ability to yield cost reductions in the supply chain.
Iain Steel, chief procurement services officer for the law firm TLT, explains that procurement practitioners seeking to make improved cost reductions via blockchain usually begin with implementing smart contracts – strings of digital code that reside inside an individual ‘block’ of the blockchain.
In turn, these code sequences automate actions, such as triggering a payment, when pre-specified conditions arise.
This ‘self-executing’ automation is usually promoted as the mechanism for attaining improved cost reductions, Steel notes, as it eliminates the need for labour-intensive procedures such as data verification and reconciliation settlement.
Admin and processing, he observes, usually account for a fifth of overall admin and logistics costs.
Trust is built into the technology as the blockchain itself is immutable and is backed by distributed verification across the entire network.
When the blocks are then ‘chained’, the content of each is considered trustworthy.
The weak point, however, is captured by the old adage ‘rubbish in, rubbish out’.
Precisely because blockchain removes human intermediaries in its transactional automation, it’s deeply reliant on the integrity and quality of the data placed into it.
The source data or ‘oracles’ referred to earlier that function as triggers for automated actions are unquestioned upon receipt.
If that code is faulty or malicious, then a very high level of risk arises for error or failure.
It’s at this point that Steel emphasises the indispensable need for some level of human intermediation in the blockchain system.
The technology undoubtedly does deliver real benefits and can indeed achieve valuable cost reductions for many businesses.
However, Steel warns against being naïve about the hype surrounding the technology, stating that “any savings will be realised by professionals chasing innovation, questioning the ‘old’ ways of doing things and by working closely with their wider supply chains to identify and drive out inefficiencies in processes and systems”.