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Blockchain, the distributed ledger technology that rose to prominence on the coattails of the cryptocurrency craze, has plenty of potential to bolster enterprise software platforms like ERP as a way to add layers of trust and efficiency to transactions that span diverse, multiparty networks.
ERP and blockchain
Although applications are still in the formative stages, enterprise software vendors and industry experts see blockchain as a natural complement to ERP, serving as a secure layer and immutable record for data shared extensively throughout a disparate supply chain. In addition, with a higher level of integrity established, ERP and blockchain can work together to automate certain manual, time-consuming tasks -- for example, triggering invoices or payments -- during the course of workflows that support cross-company interactions.
Based on blockchain's promise for automating and authenticating transactions across complex supply chains, market intelligence firm Tractica sees big market potential over the next few years. The company forecasted increasing adoption of enterprise blockchain to create a market surge from $4.6 billion in 2018 to $20.3 billion by 2025.
While ERP automates internal processes, once the use case transcends a company's "four walls" and its own systems, existing platforms fall short. Each company in a supply chain operates its own ERP system, typically as a silo, which impedes traceability and limits the possibility of automation for multiparty transactions. In fact, experts say the value of blockchain paired with ERP increases, along with the complexity of the supply chain.
"Blockchain is a natural fit with ERP in that it takes to a whole other level the concept of traceability of data and being able to track how things move through a complex supply chain," said Eric Kimberling, CEO and founder of Third Stage Consulting Group, an ERP consultancy. "ERP has always done that, but blockchain provides a more effective and efficient way."
The new ERP avatar
For real-time transactions that span multiple parties, ERP always had limitations given that enterprise data exists within individual companies' ERP silos. That makes it difficult to share information, particularly granular data, with others in the partner ecosystem without complex and burdensome integration efforts, experts say.
"One of the biggest criticisms of ERP is data transparency -- the ability to view data securely and safely and expose it in the same fashion to others," said Prasad Satyavolu, chief digital officer and consulting leader for manufacturing, logistics, energy and utilities for IT services company Cognizant. "ERP on blockchain could be the next avatar of ERP. It provides an ability to transact with a vast network of smaller suppliers in a network without establishing an EDI [Electronic Data Interchange] infrastructure."
Some industries are well down the pike of exploring proof-of-concept demonstrations and early pilots of blockchain-empowered enterprise applications. Industries including food and beverage, pharmaceuticals and aerospace are among those pioneering new blockchain-based applications in areas such as smart contracts, records management, payment and asset management, particularly in industrial scenarios that involve predictive and proactive maintenance.
However, it's a mistake to think of blockchain as just another integration technology for ERP, noted David Haimes, senior director of Oracle ERP cloud development. The real disrupter will be to break out some portions of data stored in ERP, agreed to in advance by the parties involved, and share it on the blockchain network. That way, with ERP and blockchain, companies can eliminate much of the back-office costs to settle and create relationships and execute transactions. "If you can automate with smart contracts and microtransactions that involve multiple, trusted parties on a shared ledger, it becomes economically viable to have multiparty relationships that weren't possible before," he explained.
For ERP and blockchain to really make an impact, it will require an industry-driven consortium to lead the charge and get supply chain players on board with new types of interactions. "If it's another technology you have to look at independently, not a lot of CIOs and CEOs will have the stomach for that," Kimberling said. "The key thing is spawning collaboration between software vendors and the various industries where use cases might apply."