The Role of Blockchain in ERP: Beyond Cryptocurrency

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If you have any knowledge or familiarity with ERP selection or ERP implementation for your business, you need to make yourself conversant with blockchain for business and how this technology could transform your business.

Most people who have heard of blockchain associate it with the cryptocurrency Bitcoin. Although they are related, these two concepts are not the same. Blockchain for business is so much more than Bitcoin or cryptocurrency.

What is blockchain technology exactly?

Blockchain could be called the technology of creating, encrypting, validating, and distributing valuable and unchangeable records, transactions or data.

Central to the blockchain is a shared digital ledger which is unalterable, in which transactions are recorded in a public peer-to-peer network, private or public. Because the blockchain is shared by members of the network, it acts as a single source of truth.

Blockchain is named because of the way it stores transaction data — in blocks that are linked together to form a chain. As the number of transactions grows, so does the blockchain. Blocks record and confirm the time and sequence of transactions which are cryptographically secured in the blockchain according to the rules agreed on by the network members.

Blockchain is more encompassing than distributed ledger technology

What makes blockchain so transformative? Blockchain technology as implemented for business combines several critical elements:

  • Distributed ledger (or shared ledger) is only one component of a business blockchain implementation. The shared ledger records all transactions across the business network; the shared ledger is the system of record. Each participant has a duplicate copy of the ledger and this provides end-to-end visibility of the business transactions, controlled by the permissions given to participants in the network.
  • Permissions is another concept employed in business blockchain technology. With a permissioned blockchain, each participant has a unique identity which makes possible the use of policies to precisely define network participation and access to transaction details. Cryptographic technology (using digital certificates) makes this possible. A digital certificate provides identifying information, is forgery resistant, and can be verified because it was issued by a trusted agency.
  • Consensus: In a business network where participants are known and trusted, blockchain transactions are verified and committed to the ledger through consensus (agreement). This eliminates the need to rely on third-parties or central authorities to validate transactions. Consensus mechanisms vary from blockchain to blockchain, tailored to the business network’s needs.
  • A Smart Contract is a set of legal or business terms of an agreement that governs a business transaction. The smart contract is stored on the blockchain and is executed automatically as part of a transaction. Smart contracts are programmed and embedded into a transaction record. Such contracts allow transactions and agreements to be executed among various business participants without engaging the services of a central authority, legal system, or arbitrator. Business process automation is thus made possible by using smart contracts.

What about the infrastructure required for blockchain?

Thankfully, big corporations have been leading the way in business blockchain implementations, and thus provide some of the infrastructure. Many mid-sized companies are going to be pushed by their customers to go into these areas. If they want to work with such a client or customer or company, they may be required to implement blockchain.

An example is Walmart: data input by freight truckers is matched against IoT and GPS data in real time to the blockchain so they have an immutable record of where the food came from.  In the case of a recall or an outbreak, the source can be rapidly traced and contained.

Another target for Walmart is streamlining invoicing: typically 50% to 75% of all invoices involve some form of dispute that requires resolution, and those disputes can take weeks or months to resolve. Traditionally, supply chain invoices have been generated primarily through third-party Electronic Data Interchange (EDI) systems that depend on manual data input. In the Walmart example, their blockchain network will eventually eliminate the need for third-party invoices — and with that, eliminate disputes and reconciliation.

The most immediate application is in supply chain management. Described here is a real supply chain business use case which has been transformed using blockchain technology:

  • Shrimp are farmed and harvested or caught wild, then processed. Then they're sent to another company that may process them further, and then sent to another company that distributes them to different places throughout the world, and then they’re put in cold storage by third party logistics provider for freezers. Then they're sold to restaurant groups, who then further distribute them and put them into their restaurants.
  • There can be so many different groups that touch the shrimp in their progress from ocean to plate. Each one of those groups has information or data about the shrimp, and by law has to share certain information with those that are downstream.
  • All of this transaction data existing in blockchains results in eliminating traditional friction points and providing entirely new degrees of transparency and trust. This allows for solutions that can elevate the quality of the food supply, speed the movement of product internationally, and much more.

Some practical examples we’ve seen of blockchain implementations

 


  • According to a Computerworld article, Seagate has a massive problem with counterfeit hard drives, and they are using blockchain to give their hard drives a digital fingerprint.
  • IBM reports that Aetna is working on creating tamperproof medical credentials that will include “promoting efficient claims and payment processing, to enable secure and frictionless healthcare information exchanges, and to maintain current and accurate provider directories."
  • State Farm has stated that they will be able to pay claims faster through the use of blockchain-powered smart contracts.

When do small and midsize businesses need to start thinking about a blockchain implementation?

Gartner is saying that organizations need to start exploring blockchain technology now. IDC estimates that global spending on blockchain solutions will reach a total of $9.2 billion by the end of next year.

Blockchain solutions require thinking about business processes in a brand-new way, and for this reason blockchain is a transformative technology. Is it right for your business? It depends on who you are working with. If you want to work with big companies, it may be required.

 

Are existing ERP systems incorporating blockchain?

For business use, this is still a relatively new technology. The infrastructure needs to be built out and vulnerabilities found and patched. But it’s happening rapidly. We aren’t trying to discourage anyone from exploring blockchain, quite the opposite. But you must go into it with your eyes open, and preferably with the help of a trusted advisor.

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