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.

Request a Consultation

Juliette: Good afternoon. Thank you everyone for joining us for today's call: The Role of Blockchain in ERP: Beyond Cryptocurrency.

Shawn Windle is our speaker for today. Shawn is the Founder and Managing Principal of ERP Advisors Group, based in Denver, Colorado. On today's call, Shawn will discuss why he thinks 2020 is the year blockchain ERP tools could possibly make sense for small and midsize businesses. Shawn, welcome.

Shawn Windle: Thanks, Juliette. Good to see you again.

Juliette: Good to see you. If you're ready, we can just dive right in.

Shawn: Let's go for it.

Juliette: Okay. So blockchain is so much more than Bitcoin or cryptocurrency. Why don't we start with a basic description of what blockchain technology is exactly, can you explain that?

Shawn: Yeah, I can a little bit. And honestly, it's kind of this evolving area. So let me tell you kind of what I think about it. And this is definitely from an ERP expert view, not a Bitcoin/ cybersecurity/cyber guy's or gal’s view — that would be a total different view.

But as I've really looked at our industry of enterprise resource planning or enterprise applications in general, and then you look at this — the blockchain technology — while you can buy a blockchain solution from IBM and other companies that are out there, but it's a blockchain solutions -- like, what does that mean? Well, I need to go buy an AP system. Well, you go buy an AP system, you buy -- when you buy a blockchain system, it's something different. So, it's really -- it's so new, and I think the full benefits aren't quite understood yet.

So, it's evolving is what I'm trying to say. And frankly, as is my understanding, as are our clients understanding. So this is a good topic for us to talk about though, but let me just add a couple of things here that I think are important from our research, from ERP Advisors that, you know, we kind of talk about it being a technology of creating, encrypting, validating, and distributing valuable and unchangeable records, transactions, or data. That's actually right from our Digital Marketing Manager. He did a ton of research to help me to prepare for the call today, which I really appreciate. But that's a good definition.

But when you really look at what blockchain is and you break up the two words, right? It's a chain that's made up of blocks. Blocks of what? Data. So that's where it gets kind of interesting, right? From an ERP Advisor's perspective and also from our client's perspective, because they're dealing with tons and tons and tons of data stories today.

And when you think about information and how it's stored in systems, and then you think about how different businesses or organizations need data — sometimes the data being in a bunch of relational databases isn't good enough.

So, if we take a simple example, how about seafood? How about shrimp? We have a client that's in this industry, and we'll talk more about this as we go, but I really want to set the fundamentals down with the folks that are listening today. So, if you think about a teeny, tiny little shrimp, they're kind of shrimpy, they're maybe that big. Maybe they're the jumbos or whatever they are, right?

But they're raised multiple ways that shrimp are raised, in some part of the world, and they're caught, and they're processed, whatever the processing is. And then they're sent to another company that may process them further, and then they may be sent to another company that will distribute them to different places throughout the world, the little shrimpies, then they're sent to maybe a cold storage, like a freezer, a company that's like a third party logistics provider for just freezers basically. Or for other kinds of cold storage where the shrimp sit. Until ultimately they're sold to a restaurant group, who then distributes them and puts them into their restaurant. And then you have a chef that will get the shrimp and cut it up and put it into your shrimp salad that you eat.

So, there's so many different groups that touch that shrimp the whole way. So, each one of those groups has information or data about that shrimp, or it's usually a lot of shrimp, it's called. There's actually a lot of shrimp, but it's put into a lot. Each one of those people, each one of those organizations that touches the shrimp, really by law, has to share certain information with those that are downstream.

So, they have their data that could be put into a block where all of the data could be stored and tracked for the shrimp all the way down to the restaurant.

So that's a really simple explanation of the blockchain. I always think about it in terms of a block of data. And then you put those together and you have a chain.

I'm sure some of the folks that are listening to this are going to say, whoa, it's much more than that, but you know, it's sort of like, that's the basics on it. Makes sense?

Juliette: Yeah. To simplify it, it's more about documentation, right? Everyone just plays their part in documenting and keeping track of where the item is.

Shawn: That's it, in kind of a distributed environment. That's exactly right. Yeah.

Juliette: Well, thanks for that. So, it sounds like a little bit like distributed ledger technology, but it's not the same, is it?

Shawn: Well, I mean, this is, again, the way I'm kind of thinking about this, right? I'm mean, I'm a CPA and I've helped a lot of organizations implement ledgers even.

When you look at one organization, it has its ledger. And so, there's, let's say, let's continue with the example that we're going with, okay? So, we have the farmer that that farms and grows shrimp, raises shrimp. So, they have — they get a purchase order from somebody who wants to buy their shrimp. Then they get a sales order. Once it's like, okay, we're going to sell this to them, and then we have all the documents internally to process that order, and then we get an invoice, or we send an invoice out to a customer, we get the customer payment back. Right? All of those transactions are stored in a ledger.

So, the farmer, the shrimp farmer, let's call them that, has a ledger with all of those transactions in it. And then there — that company is responsible for saying, here's the date that we pulled the shrimp out of the water. Here's the species, like very specific information, tons and tons of detailed information that they're probably going to capture on the sales order that says, here's the exact items that we sold to the customer, and then it'll go right onto the invoice and it's gone. So that information is stored in their ledger.

Now let's say it's a distributor who buys the seafood, who buys the shrimp, it's not the restaurant group or the food groups or whatever. It's a distributor, because that's all they do, which is a very big business by the way. And it's a cool business, too, like super cold -- because they're usually frozen. But — I'm sorry, I couldn't resist! That was bad.

But you've got — now the distributor then says, okay, this is who I bought the shrimp from. This is the cost, right? They really want to know the cause because their job is to sell the shrimp for a price, a sales price that's higher, and that's how they make a profit. We got to make a profit on this planet, or you don't sustain. So now they may put the shrimp in some other part of the world, they may do some value-added processing to the shrimp. They may add some chemicals for whatever reason, whatever they do, they have to track all that. And the chemicals are kind of a bad example. But the costing in that, that's all tracked in their ledger — inventory locations, their own lot numbers, they may assign their own lot number to it, right? So that's in their ledger.

Now, let's say another distributor buys from them who can take the big quantities of shrimps, and then break it down into smaller and maybe package it differently. They do their own processing on it too, and they keep track of that information in a ledger.

So, wouldn't it be great — I mean, that like makes me cry when I think about this, how amazing it would be for our clients. Is if instead of trying to track all this information on these electronic records — which frankly doesn't happen, there's no way to do that right now. Electronic data, interchange, EDI, web services description language, WSDL, REST, restful APIs, there's all of these technologies to do the integrations, but to pull all this data together is impossible. So wouldn't it be amazing if we could have a record that says, hey, I don't know all of the details about this transaction, but I know where to look to pull that information out, and it would be in this ledger, that ledger, that ledger, that's distributed ledger.

So, the actual blockchain itself can point to these different data sources wherever they are. And now if the person at the end says, "Oh my gosh, somebody got sick on the shrimp, I have to do a recall on the lot," you know, it would take months to figure out. I mean, that's not true — most of the guys that are in these supply chains have dealt with these issues enough that they know where to go.

So if they take days, they can pinpoint it today, but it could take a while, versus just go to the blockchain itself and then look at, okay, now what was this? Oh, it was here. That points down to this farmer. We get this information or vice versa, the farmer knows and they can look to the blockchain to see who bought their stuff.

So having this distributed ledger technology, DLT, I think it's called in the industry, is really super powerful and can really help with some of these instances today where all this data is everywhere.

And so you're getting on the phone and calling every person I've ever worked with in the seafood industry -- we've actually done a lot of projects in around food and beverage companies, but even specific to seafood, they have these amazing people that know everybody in the industry so that they can call and do whatever. But now we go back to the blockchain with the distributed ledger technology and find it.

Juliette: So is it almost like consolidating each individual ledger into the blockchain to keep track of it?

Shawn: Virtually. That's exactly what it is. And it's a virtual concept where the blockchain itself will have really key information embedded into it. And even in preparing for the call today, I was looking at a really interesting definition here, “How Blockchain Technology Works -- Guide for Beginners” on cointelegraph.com. And it gives a really super simple example there, which I would really, really refer to anybody who's listening today for sure.

But if you can imagine the encryption that's required for this blockchain, so it's like, Oh well I'm going to go in here and change this, or I'm going to hold the blockchain hostage. You know, this ransomware craziness that happens because then you're not going to be able to get to your data. These guys that have put together these technology solutions have really thought through a lot of that stuff, which is cool.

Juliette: Right. Okay. Well, it sounds a lot like any blockchain implementation is going to require a lot of infrastructure. So why bother to go to all the trouble?

Shawn: Well I mean, I think that's a really good point. And I think that's a reason why we see a lot of bigger companies doing it today because they have the infrastructure already in place.

If I think about one of the best examples that I'm sure most of the people that are listening this today have heard about is Walmart and their supply chain for food safety. I actually —several of our clients that are trading shrimp do a lot with Walmart. And so, they're being forced to follow this blockchain kind of paradigm, which is new to them.

And these are not big companies. Some of our clients, well, I mean a half a billion or under, right? They don't, they're not really in a position where they can invest in the technology, but, the companies like Walmart and others kind of lead the way and will provide some infrastructure for sure.

But if you think about it, we are talking about a lot of data. There's just a lot of data that needs to be tracked, and so that can require a lot of infrastructure and technology that maybe we don't have today.

And you have everybody from freight forwarders that get the — you know, again, going back to our shrimp example — they get the shrimp from, let's say Malaysia, to Canada, let's say, just in North America somewhere, right? There's a freight company, there's a shipper that has the shrimp at that point. And so, they also are contributing their data to the blockchain if it's all done right.

So, there's just so many different people that participate in the supply chain that, all that information being stored -- and again, all the kinds of encryption and everything that goes with it, there is some cost to that from an infrastructure perspective.

Juliette: Okay. Well, can you share some practical examples that we've seen of blockchain implementation?

Shawn: Yeah, I mentioned the one about the seafood company, but there's also some other things that are going on. If you think about it, in the medical industry, where with HIPAA and other regulations for employee health care records, there's some really important factors that drive that industry right now around data.

I mean, especially as we're going through what we are with this coronavirus thing — and I still think of beer every time. That is so politically incorrect.

Juliette: I'm surprised there isn't a shortage on limes, right?

Shawn: Yeah. No limes, but the toilet paper is a different story. We got that. Everybody hopefully stocked up.

Anyway, bad jokes, but if you think about even healthcare being more distributed than it's been in the past, you don't just have to go to a doctor, right? There's institutions around the world that are super strong. You're going actually more virtually to doctors.

So now how do we track information to ensure the validity of the information that a party receives? That's the real essence. I think when I think of blockchain, I think that's the problem we're really trying to solve, which is, hey, this recipient needs to know that what was put into this — that the product or the service that's here — they need to know that all the metadata about that thing is accurate.

Juliette: Everyone that touches that particular record for a person or an item is actually entering correct and valid information. Right?

Shawn: Exactly. That's exactly right. Any information that was entered is — and that we're reading today — is 100% accurate. And that's why I actually love the technology of blockchain, because it's sort of like the people taking control of these flows.

And saying I can certify this. The next person: I certified this. There's like — the technology is built in, so it's not like you just receive something and it's like, oh, it's been certified by some higher power.

I mean, that's kind of what a dollar — that's really what our currency, our normal dollars or pesos, pounds, or euros — you get this piece of paper, like I give you a piece of paper and you take it and you're like, yeah, I'm going to give you some work back. Right? Yeah. That's a good exchange. I just gave you a piece of paper. And yet you gave me all your time and all your effort. Don't get any ideas. I'm just kidding.

But there's a promise. The dollar is — there's a promise implicit in the dollar or whatever the currency is, that then you can take that and you can go get a Coca Cola for those that like to drink Coca Cola and those that don't, or whatever it is — services, medical care, anything that you need. But how do you know that that dollar is going to be accepted by the next person?

Juliette: That's right.

Shawn: It gets a little spooky when you really dig under the covers.

Juliette: It's under good faith, right?

Shawn: Under good faith. In 20 — was it 2007 — basically, that's what happened was that these major institutions were saying, I'm not going to take your securities, I don't believe in them. The whole thing went down.

Now we as a society, we will always come up, which is miraculous, but we will, no matter what's happening. I only go through that because the practical applications of blockchain are going to be surrounding that. Which is to say, how can somebody who really needs to make sure — like Aetna from an insurance policy or claim perspective — they're doing some work where they're doing kind of tamper-proof medical credentials for patients so that they know that the doctors are real doctors that are part of their medical program or insurance programs, and patients know this doctor is certified.

Some other things that we've come up with is like State Farm, that they'll be able to pay claims faster, because the data about the claim and what's paid and what's covered is literally right there. Versus, somebody goes, oh, I've got to go out and find the contract and the coverage.

Juliette: Do the research to find the information that's already right there.

Shawn: That's actually exactly it. And it's already authenticated or it's accurate. You got it.

Juliette: Well, it almost sounds a little too good to be true. Is it?

Shawn: Yeah, it is. No. It's a great question. And I think it's, well, I remember in 19 — gosh, I'm so old here — in 2001, when I was at an ERP company, we were doing a lot of research on the semantic web, which probably nobody's heard of. It was this concept of taking the — at that time you had HTML pages, but the concept at that time was, hey, how can we have systems talk to each other using web technologies versus proprietary technologies like EDI, but just open technologies. And today, we don't even think about that. Like applications talk to each other, and it just works. There's a lot of work that has to happen to make that work.

That's basically where I think we're at with blockchain, where the promise is there, the concepts are there, and that's kind of how we, again, as a society, start in technology — we get a concept and then different people try different things.

Different companies try different things, and thankfully the companies like IBM can really lead the way and their research and development. At that time, I was with J.D. Edwards, and they were able — I was on a research and development team, an R&D team, where we were looking at the semantic web and what that meant for ERP. And we had made big investments in webMethods — if anybody remembers that — which is still in existence: this integration, interoperability platform where an app could plug into it, another app could plug into it and the messages would go across.

That's happening today. The semantic web was the concept of being the website itself would be able — you'd connect to it and it would just automatically know. It's not quite automatic, but we're close. So, blockchain — again, like I said, there's applications that make a ton of sense to do this like Walmart knowing exactly in two seconds what the history of this — literally like a little bag of shrimp is, let's say.

Juliette: Or it could be salad — sorry to interrupt — it could be salad, it could be beef. You know, we've all heard of those things.

Shawn: Exactly. That's right. Fruit or it could be cheese — any kind of food item for sure. But even if you look at the Food and Drug Administration regulations, we have a lot of clients who do medical device manufacturing. And so having the entire block of all of the serial numbers and all the subcomponents that are put into a new laser, let's say, and have it available, that makes a ton of sense.

So, it is a little too good to be true. We do have to work through what some of the considerations are. And I think from our clients' perspective, too, I think what's going to happen is they're going to be pushed by their customers to go into these areas versus coming up with their own blockchain strategies.

Juliette: Right. Well, they may not need it themselves specifically today, but if they want to work with a particular client or customer or company, they may be required to do it.

Shawn: That's right. And that's how a lot of, I think, these kinds of technology trends kind of get kicked through to our clients, mid-size businesses, anywhere from maybe a billion to a half a billion under, where their customers are driving them towards certain requirements and they're like, oh my gosh, what do we do? And that's how we help our clients is let's figure out a rational way to respond and not go out and spend $5 million on something that may go away. But what's really real? What are the assets we have in the organization today? How can we leverage what we have today? And definitely do the quintessential crawl, walk, run approach. You're not going to run with blockchain on day one. That's not going to happen. But if we can figure out, okay, how do we play with the block? What data do we need to provide? How does that come in and out of our business? That’s a great way to start.

Juliette: So, I saw an estimate that global spending on blockchain solutions will reach a total of $9.2 billion by the end of next year. When do small and midsize businesses need to start worrying about a blockchain implementation? Can you speak to that?

Shawn: I can. And it's, I mean, that's an amazing number to think about that much in transaction flowing through blockchain. Like that's amazing, right? When most people have no concept of what it is, right? Is that like you put a bunch of blocks on a chain, like what are you talking about, right? But if you think about it, because it's an easy implementation, it just makes sense to do it in a supply chain.

Even for one business named Walmart, you know, Amazon, there's certain organizations that drive a lot of transactions, and if one or two or five or 20 of those businesses require blockchain, all of a sudden we're there. So, you have to understand that number, that it is a real number, $9 billion, you said?

Juliette: Yeah, $9.2 billion.

Shawn: That's a big number. And so, like I said I think our clients are going to need to figure out what their bigger clients are going to be doing for blockchain, and then that will kind of seep down into them and they'll figure out what the requirements are.

And as we've seen with everything from Sarbanes-Oxley to other kinds of requirements that are mandated — it starts at the higher level and the Fortune 500 larger organizations around the world. Then it kind of comes down and comes down. There is a reality that a midsize business, again — $750 million in revenue sounds like a big business, but in reality —

Juliette: In the grand scheme of things.

Shawn: — they're not, they're just not. And so, to be able to invest $10 million in a blockchain solution, it's not going to happen. There's always economic realities behind technology, always. And there should be. Don't just do technology for technology's sake. It just won't last.

But I do think our clients have to talk, like I said, to their biggest customers, find out how blockchain is impacting them and then drive into: how can we assist with that? Always better to stay ahead of the curve. You don't want to have to do a reactive investment in this area because it is so new and it is so expanding. You're going to have to play around with it and maybe do it in gradients — like I said, the crawl, walk, run approach.

Juliette: No, that makes perfect sense. And just to even be aware of it. So, thanks for chatting with us today about it and just giving us a brief overview. We appreciate that. So, thanks Shawn.

Shawn: Absolutely.

Juliette: So, thank you everyone for joining us for today's call. Please let us know if we can answer any questions you have. You can reach out to us through our email and we'll be happy to help in any way we can.

Our next call is April 15th: how ERP will power the self-driving fleets of the future. In this next edition of The ERP Advisor, we will discuss how now is the time to explore whether ERP tools for fleet tracking integration can reap benefits for you today. Please go to our website, erpadvisorsgroup.com for more details and to register.

Thanks again for joining us today. I'm your host, Juliette Welch. Our audio engineer is Shaun Orthmann.

ERP Advisors Group is one of the country's top independent enterprise software advisory firms. ERP Advisors Group advises mid to large size businesses on selecting and implementing business applications from enterprise resource planning, customer relationship management, human capital management, business intelligence, and other enterprise applications, which equate to millions of dollars in software deals each year across many industries.

This has been The ERP Advisor. Thank you.

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