Though introduced as early as the 1960s, the concept of Enterprise Resource Planning didn’t gain widespread popularity until 1990, when Gartner coined the term “ERP.” Although “E” in ERP stands for “enterprise,” the term’s application has since expanded to include small and medium organizations. ERP software has added value to business processes throughout industries. However, as good as ERP is, it’s not without its shortcomings. The Blockchain technology, which companies are increasingly interested in, in part, due to improved education about its potential applications beyond Bitcoin, can be combined with ERP to create a 21st century approach to enterprise resource management.
Together, blockchain technology and ERP can overcome traditional business management obstacles and help companies build stronger business relationships. They add meaningful value and competitive advantage as part of a comprehensive forward-looking operational strategy for savvy businesses.
Where ERP Excels
An ERP system is inherently focused on the individual business and the streamlining of various company processes. ERP software is structured based on a single database schema that pulls in data from multiple sources and activities. This allows for the integrity of timely and sensitive information, which would be difficult to achieve if the data were spread across multiple systems. In addition, a single database helps to reduce data duplication, saving a company valuable time and money.
These systems are capable of handling real-time data, even when that data comes from complex manufacturing sources or a deeply layered supply chain system. In short, ERP excels at maintaining the flow of information that enables organizations across industries to optimize their day-to-day operations.
The Status Quo of ERP
As cutting-edge as ERP software once was, the industry as a whole is relatively stagnant when it comes to innovation. In fact, most of the changes to ERP over the last few decades have come from improvements to interface designs or performance enhancement capabilities. In addition, customization to existing ERP software is costly and usually requires a significant investment of time and patience to implement. Many companies have simply come to accept that “good enough” is just that. Even cloud-based ERP data storage solutions, which have been pushed for more than a decade, are only used in less than a third of all ERP systems.
Where ERP Falls Short
With limited non-surface-level changes taking place in ERP software design, few systems are operating optimally. Indeed, such systems often perform transactions that are both inefficient and expensive for business owners. These transactions are also likely to be difficult to track and audit.
Furthermore, while an ERP system does provide a higher level of data security than many other options, it also comes with some serious security risks, especially if a system has been designed to have broad applicability. Crashes and software integrations problems are among the most common threats, followed by a loss of data control should employees be unable to utilize the ERP system for normal data management and decide to store sensitive data by alternative methods (such as Google docs). For companies that handle credit card information, compliance is another important consideration, especially as many legacy systems lack the strong firewalls and data controls to keep sensitive data secure from hackers.
According to Kevin Lalor, President of Business Intelligence 101, 66% of ERP software users in 2013 weren’t using the latest version of their system. Many software vendors have a hard time keeping up with software updates, which puts many of the companies that rely on this type of software at risk of being attacked by hackers. Organizations that are aware of this vulnerability have begun to seek out ERP SaaS systems, which provide real-time software updates, as a more secure alternative.
The Basics of Blockchain
Blockchain technology is based on a shared peer-to-peer ledger. This ledger can be public or private depending on the needs of the members of the blockchain. Each transaction must be verified and agreed upon by all participants, by way of a complex algorithm that happens behind the scenes. Every transaction that posts to the shared ledger is unalterable and inherently secured via a hash-based signature unique to that particular transaction. Transparency is assured since all members of the blockchain are able to view transactions that post to the ledger.
How Blockchain Can Improve ERP
Communication and trust are important components of any business partnership. However, traditional methods of transacting business have often played a role in complicating both. Additionally, truth has historically been a matter of perception, determined by an organization’s records at a particular point in time. Together, blockchain technology and ERP can overcome these obstacles and help companies build stronger business relationships.
With blockchain technology, there is one truth – the truth of the distributed ledger. This truth goes beyond the organizational level to include all parties in the blockchain, which may include suppliers, banks, logistics providers, and other business partners. Likewise, privacy is also assured as only those members of the blockchain authorized to view it can do so. Proof of work, completed by data “miners” who run complex algorithms to verify each transaction, provides an additional layer of security and trust, which further streamlines operational processes and eliminates inefficiencies and unnecessary expenditures.
ERP plus blockchain provides a high level of transparency for a number of transactions including shipping manifests, order capture, and dispute-resolution processes. It also has applications across sectors, but particularly in manufacturing and supply chain. For such companies, blockchain and ERP can provide unprecedented real-time insight into the provenance of each component of a good, including information about the designer, machine(s) used, product specifications, and even serialization data.
What Lies Ahead for ERP and Blockchain
Jeremy Drane, Chief Commercial Officer at Libre Technology, believes that blockchain technology forces companies to consider their role in the wider business ecosystem in which they operate. While still new, this blockchain-enabled ecosystem is already beginning to influence the way that organizations conduct business and collaborate with one another, and this includes companies that use ERP systems.
In fact, Jack Shaw of the American Blockchain Council predicts that “by 2020, use of blockchain-enabled ERP will be widespread,” which will certainly expand the scope and amount of blockchain development services. Indeed, many industry leaders are heavily invested in blockchain R&D. IBM, which supports open source blockchain initiatives like Hyperledger, is currently considered the leader in blockchain technology, according to Juniper Research.
The benefits of ERP and blockchain technology are clear. When used together, the two can add meaningful value and competitive advantage to those companies that are savvy enough to apply them as part of a comprehensive forward-looking operational strategy.
