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Strategic Sourcing in Procurement Outsourcing Oz Assignments
The invention of the Internet in the mid-1990s was one of the big achievements of human beings because of its radical impact on communication technology. The next big invention is Blockchain system. It is the most disrupted invention since the invention of internet technology. The blockchain is a secure distributed ledger system, which was first used in a Cryptocurrency (Bitcoin). The blockchain technology has the potential of redefining the future of e-commerce industries and supply chain management. The complex technicality of the blockchain system makes it impossible to hack or breach of security (Geer, 2018). Although the blockchain database technology has some enormous features that will add a marvellous value to procurement and supply chain. The blockchain system provides integrity and reliability that is an essential thing in a supply chain. Blockchain system provides a strong security feature that enables an e-commerce business organisation to do the online transaction without any fear. In the first part of the report, the fundamental of the blockchain system has been discussed and its role in supply chain management. In the second part of the report, the various benefits of the Blockchain system has been discussed in the e-commerce industry. Further, the role of the blockchain system also discussed in sustainable procurement and how it will be beneficial for the e-commerce industry (Lin and Liao, 2017). In the end, a conclusion has been added as a brief summary of the report. Further, some valuable recommendations added regarding the future challenges in the e-commerce industry and how e-commerce industry tackle such challenges with the help of blockchain system also included in the recommendations.
The blockchain is one of the major innovations in the 21st century that can be helpful in sustainability in both e-commerce and supply chain management. The blockchain is a real partner of the Internet of Things (IoT) because both technologies have many shared benefits and traceability is on par with energy efficiency (Apte and Petrovsky, 2016). Although, it is beneficial for the supply chain industry to track, integrate, and monitor its physical and online transaction without any worry of theft or security breach.
What is Blockchain?
According to Don and Alex Tapscott, “The Blockchain is an incorruptible digital ledger of economic transactions that can be programmed to record not just financial transactions but virtually everything of value (Hegadekatti, 2017).” It has been discussed by many researchers that blockchain is able to increase the transparency of transaction on e-commerce supply chain by reducing the cost, enhancing the quality of supply chain operations, risk reduction, sustainability, and flexibility. As most of the e-commerce companies facing so much pressure from consumers, regulators, suppliers, and its stakeholders to commit to social and environmental initiatives. Blockchain technology has emerged as a solution to make supply chain sustainable. The blockchain is a digital ledger that is accessible to its every user and stakeholders. It is highly secure and transparent because it connects every block link to the one before it and after it. If we talk about Blockchain system in simple words, then we can say that it is an advanced database system that is capable in holding a large number of records and it is the tamper-resistant network that provides security to its users and stakeholders (Kshetri, 2017). Blockchain also assists in several other sectors such as the banking sector to transfer the funds from one place to other without any use of the traditional bank. It is also helpful food supply management and procurement with highly transparent and secure ways of supply chain process. An Australian vehicle manufacturer pays its suppliers through the Bitcoin, which is totally based on blockchain system.
Blockchain System and its role in the supply chain
The Blockchain technology has enormous potential for sustainable procurements because of its strong security features. It also provides transparency to all its users and stakeholders about the transactions. As we can say that on its basic level of blockchain system means that not a single piece of inventory can exist in the same place twice. Supply chain provides the facility of exchange goods through a complex network of distant that helps in exchanging goods in a separate entity. The fundamental work process design of the supply chain has many similarities to how the blockchain systems are set up (Pilkington, 2016). The blockchain system helps the e-commerce company to trace the origin of goods and services and unmistakably trace the products included its material quality and quantity throughout the whole supply chain network.
Unlocking Value in Logistics
Fig. 1: The information flow in international trade (Source: Accenture, 2018)
Block Chain System and Sustainable Procurement
When we talk about sustainability, generally people think about the environmental sustainability. However, many researchers found that sustainability plays an important role in Supply chain as well. Sustainability can be defined as meeting the current needs without compromising with the needs of future generations. Although, it is tough to identify the future needs of our next generations- as we often struggle to identify our own present needs. In other words, sustainable procurement can be defined as a process that is used to secure the acquisition of goods and services in a way that does not affect the society and the environment throughout the full lifecycle of the product. Sustainability is a term that is highly used in the study of the environmental system (Kodiak Rating Community, 2018). However, it is also considered in supply chain management to ensure best practices that help in achieving sustainability in a flow of products from one source to another without any path deviation.
The blockchain system is so important and valuable for procurement because of its unique way of data recording and its connectivity with the database. It focuses on protecting the integrity of the digital piece of information. All the computer which are linked with the blockchain system, check the authenticity of the data and verify it, and making it so secure and robust at the first go (Sanjeewani, 2018). Thus, any new data added in computer or any transaction, which is linked with the previous one, blockchain informed to all users of the blockchain system. This process of data processing through blockchain system makes it so difficult to alter the data in any circumstance (Underwood, 2016). Even though blockchain system is in its initial phase, it attracts many e-commerce companies from last two years as a most disruptive technology without any limitations, which seems to influence whole supply chain and procurement function of the world. It could be so beneficial for those e-commerce companies that were suffering from poor Supply Chain management process and the threat of data theft and security.
Drivers of Sustainable procurement
Society and environment are two major drivers of sustainable procurement. The decision making of the procurement team decides the benefit of the procurement of goods and products to both organisations and society.
1. Environment: Procurement can play a vital role in sustainable production and consumption patterns of products. The growing issues of sustainable production and consumption are the real consequence of larger production and eco-efficient industrial systems. Good governance of a country covers an effective regulatory system, institutional set-up, perfect-designed processes, and proven capacity (Pettey, 2018). The objective of sustainable procurement should be to protect the natural resources from mass destruction by human beings. The product consumption of human being is directly related to the usage of natural resources. Therefore, through a systematic procurement process, we can manage the consumption pattern of human beings, and thus it could save our planet and protect us from natural calamities.
2. Social: Environmental factor is one side where human being involved in sustainability issues as it is essential for human survival and survival of all the planet resources. The concept of social sustainability can be defined as "the ability of a social system or of a country, to function in such a way that enhanced the level of social well-being indefinitely." The other side of human involvement where people live their lives and do the job, which it raises the concern of social society and is an important factor in the supply chain (Nowi?ski and Kozma, 2017). Even though there are many machines and technology invented by human beings, but the role of human still needed in any production and operating the technology, which is invented by human beings. Thus, it is important to considered society as a factor behind sustainable procurement, where a human being lives his/her life.
Current Challenges for E-commerce companies and in Supply chain
There are number of external and internal factors that affect the supply chain process of e-commerce companies. Some of them are macro factors such as global connectivity and globalisation, which are so complex and playing a critical role in supply chain management of various e-commerce companies. Other internal and relatively small challenges are cost in-efficiency, huge operation cost, and problem in managing large inventory. The Just-in-time, outsourcing, Lean manufacturing, reduce product lifecycle are some options available that brought both significant improvement and challenges for the e-commerce companies (Tapscott and Tapscott, 2017). There are several causes of risk and challenges in supply chain management are as follow:
1. Uncertainty in future demand and margin loss
2. Ripple effect due to the extended value chain
3. Futile and weak supply chain risk management
4. Lack of end-to-end visibility/Transparency
5. Security Breach
6. Obsolescence of technology
These challenges create needs for a strong technology that removes these challenges and problem in supply chain management (Cai and Zhu, 2016). The Blockchain system term to be as the latest technology by the current e-commerce companies that are able to remove such drawbacks of modern supply chain management. Thus, the need for Blockchain technology in various e-commerce companies is increasing day by day.
There are many e-commerce companies currently focusing on proper use of blockchain system that gives enormous benefits to the e-commerce companies. E-commerce Companies negotiate procurement discounts on the basis of their bulk purchases. However, it is very difficult to track a large stock of inventory across all subsidiaries, stakeholders, business partners, and everyone else in the supply chain management (Mattila, 2016). There are many benefits of using Blockchain technology in the supply chain and its procurement system.
Procurement: Transparency and Savings through Blockchain system
Generally, a company negotiate on procurement discounts based on the quantity of goods they purchased. Some e-commerce company may hire the third party to purchase the products on behalf of the companies. However, the problem is still it is very tough to track the product within your supply chain network. Blockchain system makes it simple with continuously refreshed the digital ledger that integrates data from all stakeholders and relevant partners of an E-commerce company (Bordy, 2018). In past, many companies were struggling in auditing of their stocks and inventories. Companies hire many people to audit their orders, stock, inventories, and volume purchase benefits. A large number of people and professionals appointed by the company spending days and nights audited to add up all the benefits they gained they supposed to earn. However, the blockchain system does this job without any staff and without consuming time. The blockchain system eliminates the extra expenses of the company and also provides transparency in the transactions of goods, funds, and any financial flow related to procurement. The main focus of sustainable procurement is to ensure least impact “throughout the life cycle of the product” on the environment, which displays how procurement function is so important for organisations (Davies, 2018).
Blockchain System Automates Trust
Trust is the key fundamental of any business organisation. Generally, it is need of a business that a businessman need to believe on their customers or on their suppliers is who they say they are and they need to trust the same about the businessman (Taylor, 2017). In the era of digitalisation, the number of cyber-crimes is also increasing with increasing modernisation in technology. Blockchain system provides security against such crimes through means of automating trust. The blockchain system, by using historical data to authenticate involve in a deal, each party keep transparency of their transaction with other parties that improve the level of trustworthiness (Ganeriwalla, et. al, 2017). The blockchain system also helps in identifying the nearest and cost-effective vendors, cutting the lead and work process time, and improving the operational effectiveness of the e-commerce organisations.
Better Data Analytics and Data Privacy/Security
Blockchain helps in tracking exact information about the product flow, storage quantity, and inventory information. To meet the future uncertainty and uncertain demand company focuses on putting extra inventory in warehouses. Blockchain helps to recognise the future demand of any product at any point of time (Iansiti and Lakhani, 2017). Through the blockchain, an e-commerce company track and manage resources at the ecosystem level. The other problem of current e-commerce companies is how to store a large amount of data, which is mostly collected directly from customers and retailers. Customers data privacy is one of the major problems of e-commerce companies because the centralized data is vulnerable to cyber-criminals or hackers. Blockchain platforms provide security against such threats of data theft or against cybercriminals. It is almost impossible to hack all the blocks (nodes) of blockchain platform, so data on a blockchain system is relatively safe in compare to other e-commerce technology.
Digital Payments and Contracts
The Blockchain system provides facilities of digital payment and contracts. It facilitates other companies to for quick payments. There is no chance of security breach in payment gateway of blockchain because it connected with the neighbour blocks. The transparency in payment and contract system almost eliminate any chance of fraud or cheating during any transaction. Blockchain reduces any chance of fraud in any online transaction by integrating delivery and payment in digital contracts that flow across enterprises, integrate with logistics partners, and bank. The current bank payment methods involved high processing fee and high fee charges by e-commerce platform on any sales. These fees often start around 2-3% of the total amount on purchase price of any transaction. Blockchain enables the secure and cheap transaction (Nakasumi, 2017).
As we observe a large number of benefits of e-commerce blockchain system in procurement and supply chain, it becomes imperious for large e-commerce companies and business organisations to hold it for extensive growth. The blockchain technology best for those e-commerce companies who need transparency and data security in the business and supply chain. It provides the best solutions to those companies that are dealing with large-scale business and dealing with numerous online payment and money transactions. The blockchain system in e-commerce companies reduces the burden of consistent monitoring of product flow and transaction after the product delivery. For the e-commerce companies, it is essential to hire the best technology collaborates to if they are looking to explore futuristic technology to take their e-commerce business on next level. The expansion and execution of new technology does not a guarantee of success, rather it is essential to use the technology in the right manner. Although the use of blockchain system give an advantage to e-commerce companies as it provides transparency and security, which fosters trust. Although because of the immense potential of blockchain system and it is still in its initial stage of implementation in various e-commerce companies and SCM, it can prove itself as a big innovation in Supply chain management.
If we consider two big e-commerce companies Amazon and e-Bay, the blockchain technology does not help them to build a big marketplace or acquiring customers through the use of blockchain technology. Blockchain companies are not going to out-Amazon Amazon at their own game. Instead, these companies need to think about those other alternatives and think about to implement advanced and new e-commerce channels and solutions that actually take real advantage of blockchain technology and improve the efficiency of the supply chain of various e-commerce companies. It is difficult that a decentralize commerce can fully replace the e-commerce, just as the commerce did not replace the physical retail, but a novel market channel can be created.
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