In recent years, the keyword “Blockchain” has increasingly attracted a lot of attention in both fields of technology and economy. It has been mentioned a lot along with the network of virtual currency, Bitcoin. Blockchain is a technical concept and Bitcoin is a specific system that implements this technology. In fact, Blockchain’s application potential surpasses far the virtual financial sector. Specifically, to the problem of Enterprise Resource Planning (ERP), it can appear in most of the business aspects of and in any industry.
Introduction to Blockchain
Blockchain can be considered as a distributed ledger managed on a peer-to-peer network, in which each network node is independently controlled. Nodes in the network can store a copy of data and access data if allowed. On the peer-to-peer network, no single user has centralized control. The approval or rejection of a transaction is made based on the agreement of the nodes under a rule (algorithm) that is followed by all members of the network. Thus, consensus members accept a transaction which will be encrypted and stored in Blockchain. Then, this data is almost unchangeable. This ensures that Blockchain maintains the integrity and security of data against malicious attacks.
Technically, Blockchain is a series of blocks, each of which contains several transactions. A block contains the hash value of the preceding one – a “fingerprint” to validate the content of the block based on the hash algorithm. If a transaction is repaired illegally, its hash value will change and that breaks the linking rule among the blocks. This ensures that data in Blockchain cannot be faked.
Management information systems in general and ERP, in particular, play an indispensable role to the management platform of all organizations and enterprises. It standardizes information and business processes for businesses, as well as provides tools for leaders and managers to assess the effectiveness of the organization in the most accurate and timely manner. In fact, the business model of enterprises is very complex. Every business is not the only oasis and always needs to interact, exchange and share information with other units, including partners, customers, management agencies, even individuals. This relationship creates an ecosystem development for enterprises. ERP system is not out of context. It needs to support the connection of information exchange and the integration of business processes in the most convenient and secure way between enterprises and other units in this ecosystem.
The traditional information system reveals the greatest weaknesses in the interconnections among systems (management systems of different business sectors or organizational units). Information transmitted from one system to another can easily be attacked, stolen or tampered with. It is easy to arise misrepresentation of the same transaction or documents saved on multiple systems. The centralized control and approval mechanisms are also weaknesses that lead to the collapse of the entire system if the part of central management is attacked or taken over.
According to a report by IBM Global Financing, which provides financial services to more than 125,000 customers in over 60 countries, each year they must handle more than 25,000 disputes about financial transactions among customers, and each time the total value of disputed bills amounted to more than $100 million. They take an average of 44 days to process a dispute. And IGF has solved well its problems, reducing 75% of the time it takes to handle financial disputes, thanks to the application of Blockchain technology.
What is the benefit to combining Blockchain with ERP?
The advantages of security, information sharing, anti-counterfeiting and transactional track record on Blockchain enable this technology to be applied to enhance the ability to link information, integrate business processes among units, companies in the ecosystem of the business. We will see that Blockchain not only is the network of virtual currency Bitcoin, but also will be available in all areas of commerce and industry.
In manufacturing businesses, Blockchain application will help businesses reduce recall requirements when problems arise. It allows sharing the production diary among all original equipment manufacturers (OEM). Therefore, when errors occur at any point, it is possible to accurately and promptly determine the affected products to recall. All manufacturers in the ecosystem can control strictly the flow of goods and payment transactions, thereby improving transaction processing speed and minimizing risks. Combining Blockchain with ERP helps financial firms minimize errors of recording duplicate financial transactions and make payments faster and safer. Transactions are guaranteed to be conducted transparently and reliably.
In global supply chains, the companies involved are subject to a growing number of regulations and commitments, such as Universal Product Code (UPC), Country of Origin (COO), Restriction of Hazardous Substances (RoHS). In that context, enterprises which have closed management information systems (or limited integration with external systems) as popular management models at present gradually reveal many disadvantages such as synchronous compliance among enterprises in the chain, reliability and transparency of information, automation in integrated business processes and speed of information collection/retrieval. The application of Blockchain technology helps businesses solve these disadvantages. The food supply chain would easily answer the question that which farm products were produced in, what fertilizers were used; or where animals that produced meat were fed and how their health was. The supply chain of garments can easily identify the source of each part that makes up the product, such as where the fabric was woven, how the silk thread was produced. The automobile supply chain allows to capture information of the entire production process of parts – components by thousands of different suppliers and can trace to every raw input material.
Today, the common method of interoperability among ERP applications is based on EDI (Electronic Document Interchange), the method of exchanging electronic documents such as orders, invoices, delivery notes. EDI exchanged among members joining Blockchain will become safer and more efficient. Attachments such as contracts, agreements, confirmations are stored on Blockchain and no longer need to be stored on the trading system. This makes the transaction completely transparent.
Integration of Blockchain and ERP can deliver the following key benefits:
- Blockchain allows sharing in the business connection network; transactional information cannot be altered, can trace and look up at any time.
- Financial transactions among parties on ERP system are processed transparently and reliably.
- Blockchain integrates with supply chain and production management to help minimize disputes involving invoices, purchases, shipments, returns.
- Blockchain helps to clarify the origin, transportation process, and owner of goods in the supply chains.
- Blockchain supports rapid retrieval of components of faulty products, especially in giant bills-of-material with the participation of many vendors, for example, in the automotive industry.
Blockchain and ERP integration solutions
Major technology brands in the world do not stand outside the development of Blockchain. On the issue that data reliability is not guaranteed among organizations with each other when each organization maintains its own database, IBM Blockchain solution establishes an objective trust mechanism for sharing data among all organizations in an enterprise network. IBM Blockchain supports integration with Oracle ERP applications on cloud computing. It was built with the goal of providing:
- A network connecting suppliers, customers, banks, logistics services and other trading partners who participate in ERP business processes;
- Digitized business processes, including transactions on goods, services and assets throughout the enterprise ecosystem;
- The only ledger shared with all participants in the network. Transactions recorded through Blockchain are guaranteed to be secure, reliable, non-destructive and completely transparent among organizations.
SAP provides SAP Cloud Platform Blockchain (SCP Blockchain) of SAP Leonardo solutions. SCP Blockchain does not replace existing Blockchain platforms such as Bitcoin, Ethereum, or Hyperledger fabric but sets up the intermediate environment interacting between SAP applications and the Blockchain platform. Currently, SCP Blockchain supports Hyperledger fabric and MultiChain. The figure below illustrates the architecture of SCP Blockchain. According to this architecture, other Blockchain platforms will be able to be connected to SAP in the future.
SCP Blockchain connects to Blockchain network and SAP applications through cloud services on SAP Cloud Platform. It consists of the main components:
- SAP HANA Blockchain service – Cloud computing service set up on SAP Leonardo Blockchain.
- SAP HANA Blockchain adapter – Smart Data Integration service to connect SCP Blockchain to SAP HANA.
These components ensure that transactions on Blockchain are also backed up on SAP HANA. This link is carried out in two dimensions, meaning that a transaction made on SAP HANA will also be backed up on Blockchain and can be accessed by other applications if allowed. Blockchain can be deployed on an independent infrastructure and connected to SAP applications via SCP Blockchain or can be installed right on SAP HANA Cloud Platform.
In this way, transactions on SAP applications such as ERP, CRM, SCM can be recorded on Blockchain to promote the advantages of this technology.
With the same model, Microsoft’s Azure cloud computing platform provides Azure Blockchain Workbench – Blockchain development environment and allows connectivity to management applications such as Microsoft Dynamics 365 or applications of 3rd parties. At present, Azure Blockchain Workbench supports Ethereum.
Today, ERP solution vendors are not just concentrating on developing pure business features on their products anymore. When the 4.0 industrial revolution with advanced technologies such as Internet of Things, Artificial intelligence, intelligence analysis, the mobile application is gradually changing the economy and society, ERP also cannot stand outside. ERP solutions increasingly integrating new technologies revolutionize the technology platform in this area. Blockchain applications are not imaginary, but they are actually developed and integrated with familiar ERP solutions such as SAP, Oracle, Microsoft. When applying this new technology, organizations and enterprises, instead of operating with the same isolation management system as before, are possible to interconnect the business processes effectively with partners, customers and actively integrate with the development of their large ecosystem.
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