Advantages and disadvantages of blockchain for ERP
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Compared to the decades-long history of ERP systems, blockchain is in its infancy. And with the taste of a Bitcoin crash in 2022 still sour in investors’ mouths, blockchain can be difficult to introduce or build upon in a corporate environment. But despite the bad rap given to cryptocurrency, blockchain has the potential to modernize ERP systems for today’s business environment.
Industry experts agree that ERP vendors must embrace new technologies, including blockchain, to stay relevant and address issues that did not exist in the era of on-premise systems and mainframes. Blockchain for ERP comes with a lot of potential to solve common business problems. ERP vendors such as SAP and Oracle are already constructing their own blockchain ecosystems, often focusing on obvious use cases such as supply chain operations.
How blockchain works with ERP
There are four main types of blockchain: public, private, hybrid and consortium. All are based on the same distributed ledger technology — a platform that uses ledgers stored on separate, connected devices in a chain maintained by a network of computers to ensure data accuracy and security. Each of the blocks in the chain contains a set of data. Since each block is linked to the previous block, it is very difficult to change or delete data on the blockchain. Any changes will be immediately visible to the entire network.
Unlike blockchain, ERP is a software system that integrates a company’s core business processes. ERP is used to streamline processes, while blockchain creates a secure record of transactions. Since ERP systems are considered the “system of record” for so many organizations, blockchain seems like a natural complement to ERP. In a supply chain, for example, ERP automates ordering and shipping, while blockchain can track the movement of goods. Integrating the two can make the process more secure and efficient.
Blockchain ERP Applications
ERP vendors have already added or are discussing adding blockchain to their offerings. SAP, Oracle and Microsoft have all jumped on the blockchain bandwagon.
SAP introduced SAP Leonardo in 2019, which builds on the open source Hyperledger fabric supported by the Linux Foundation and allows organizations to track goods and materials moving through the supply chain in real time. Oracle enables companies to create secure and transparent supply chain networks with its supply chain blockchain platform. After the discontinuation of the Azure blockchain service, Microsoft released the Azure confidential ledger to integrate the blockchain.
Blockchain has also been used for applications such as food safety, first with blade-based products for Walmart, according to Kevin Beasley, CIO at ERP software developer VAI. These types of products were reported to have the most issues and problems. By integrating blockchain, and using good IoT data, Beasley noted, the root cause of a product recall can be narrowed down to a specific point along the supply chain.
“ERP normally only sees data within its four walls,” Beasley explained. “Blockchain allows ERP and other applications to see data as long as they have permission.” Transport managers can, for example, see when shipments are picked up or plan when they are ready.
Blockchain also lends itself to predictive analytics, such as combining data with weather conditions to predict trends, Beasley added. “There’s a huge amount of analysis you can do on blockchains, especially consortium-based or private blockchains,” he said. “You can make extra money by letting others analyze data anonymously, like weather trends or rates of return. There’s a lot of useful information afterwards.”
Benefits of integrating blockchain into ERP systems
Integrating blockchain into ERP systems can provide a number of business benefits.
- Greater transparency. ERP is the system of record for the transactional aspects of running a business, such as purchase orders, inventory requests, and the supply chain. Blockchain provides traceability throughout the lifecycle of a product as well as transparency of financial transactions, said Kevin Miller, CTO, Americas, at ERP software developer IFS.
- Tighter security. The public key cryptography used by blockchain better encrypts data in the supply chain. As quantum computing and quantum-secure cypher keys become more available, Beasley surmised, blockchain could create immutable records and data to protect against ransomware.
- Faster recalls. Blockchain provides the entire story of a shipment, from a product’s origin to its destination along the supply chain. Product recall issues can be resolved more quickly.
- Better efficiency. When shipments arrive at a warehouse, they can be scanned into the system and automatically become part of the inventory without the need for manual intervention.
- Improved sustainability. The transparency and traceability offered by blockchain can help determine a product’s carbon footprint and environmental offset across a range of industries, Miller said.
Disadvantages of integrating blockchain into ERP systems
Integrating blockchain into ERP systems is not without its share of obstacles and challenges to overcome.
- Understand and take advantage of the full benefits of blockchain beyond simply meeting compliance obligations. “There are other things you can get out of it,” Beasley said, adding that many companies don’t maximize the information they collect and fail to use that data for applications like predictive analytics.
- Choosing the right transaction information to be processed on the blockchain. Some data may be too proprietary or confidential for a shared database blockchain system.
- The growing number of blockchain users. “If we suddenly add millions of users to the chain,” Miller surmised, “will we have trouble supporting them?”
- The amount of energy consumed by cryptocurrency and the blockchain and what will be required to maintain it.
- Lack of industry standards for blockchain, and not just for integration into ERP systems. “Some trade groups are trying to outline standards,” Miller reported. “But there’s not really a widely accepted general standard system that applies to blockchain, and it tends to be fragmented.”
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