Being bold with blockchain: How energy companies can solve a procure-to-pay headache
May 21, 2018
May 21, 2018
Oil and gas companies face many obstacles when it comes to the procure-to-pay (P2P) process. P2P is composed of multiple steps that connect customers to products or service providers. Traditionally, this has been a complex, transaction-heavy process. Current challenges faced by P2P organizations include improving transactional transparency and compliance and eliminating fraudulent transactions, among others.
These challenges are exacerbated by cumbersomeinvoicing procedures, a lack of visibility into the payment progress, and late payments, all of which increase the cost of processing transactions. Furthermore, additional human capital is required to process transactions from non-integrated systems.
For example, for every one million invoices processed, a 10 percent rejection rate due to incomplete information requires an approximately five-minute handling time per exception (a reasonably conservative number). This translates into a requirement for four full-time equivalents (FTE) just to handle these exceptions.
Also, errors, a low level of trust in data and lack of digital integration throughout the procure-to-pay process results in both extra costs and missed savings opportunities.
Blockchain-enabled transactions can enhance the future of procuring, tracking, and paying for products and services in the oil and gas industry. While the concept of smart contracts (event-driven transactions) is over 20 years old, its true application has only recently been enabled by the emergence of blockchain technologies.
“Smart contracts,” enabled by blockchain, are event-driven computer algorithms that facilitate, verify, or enforce the negotiation or performance of a transaction agreement. Current leading practices suggest recording transactions on the blockchain alongside traditional legal documentation. These blockchain-enabled transactions aim to supplement security and enforcement to traditional contract agreements and reduce the transaction costs associated with contracting.
Some benefits of blockchain-enabled transactions include:
Blockchain-enabled transaction considerations include:
It is time to think boldly about applying the power of blockchain-enabled transactions to solve the complex challenges in P2P. Mass adoption is only a matter of time, as more oil and gas companies keep experimenting with these new approaches. The enterprises that move ahead now with will be prepared to capitalize on opportunities for performance breakthroughs.
Contributor: Fred M. Vitale