Blockchain For Supply Chain: Smart Contracts & Purchase Order Management

In the world of blockchain, it is the digitization and uploading of the contractual agreement to a Digital Ledger that becomes the driving force behind any transaction, the Smart Contract.

The first installment of Amber Road’s Blockchain For Supply Chain white paper series, entitled “Ghost in the Machine or Breakthrough Technology?”, analyzed the many ways in which blockchain can be applied to global trade. Fundamental to the theme of the first paper, we emphasized the role that Smart Contracts and business rules play in the development of trade-related blockchain applications. In this, our second publication, we will delve deeper into the importance of Smart Contracts as we study how blockchain can be used to manage the multi-step process of executing purchase orders with international vendors.

At its core, blockchain is attractive for global trade professionals because it can be used to create an indelible record of every step (block) in a given business process. Whether one speaks of applications related to finance, operations or logistics, blockchain’s ability to execute encrypted actions that include identification of the parties, authentication of a transaction and the time-stamping of blocks in a chain has a truly universal appeal. For reasons that we’ll study herein, the end-to-end management of purchase orders serves as an excellent use case for blockchain in supply chain. Blockchain offers the greatest potential for international trade when three factors are present: a contractual agreement, clearly defined rules that govern the agreement and finally, a transaction that involves an exchange of value (most often a funds transfer between buyer and seller). In the world of blockchain, it is the digitization and uploading of the contractual agreement to a Digital Ledger that becomes the driving force behind any transaction, the Smart Contract.