Challenges towards ERP in the digital age and the role of Blockchain

47

In this day and age, Enterprise Resource Planning – ERP has become a crucial part of any businesses, especially those that want to develop and prevail. With the global hype surrounding the 4th industrial revolution and digital transformation, ERP solutions also need to transform with time, in order to meet higher requirements regarding management ability.

Challenges towards ERP in the digital age

At the end, transaction is the core of management systems, and ERP’s most important role lies within sufficient and accurate transaction recordings for eventual accounting, evaluation and operation planning, with data derived from various activities of the organization. The popularity of Internet connection and mobile devices in the digital age also means that the scale and nature of transaction data has changed. The more devices are connected to the Internet, the more transaction data there is. (The below chart estimates the number of devices and Internet users by 2020 – Forbes Insights).

Source: Forbes Insights 2016.

Data, as such, will come from more sources, and become more scattered and diverse. The source of data will not be limited to traditional order and payment, but rather expand to machine-to-machine transactions (from mobile apps, sensors, Internet’s information flow, measurement systems, and so on).  Furthermore, Internet of Things (IoT), machine learning, and connection technology between humans, things, and procedures will lead to more complex transactions, with more parties involved.

As a result, future ERP systems should be on an ecosystem, not organization scale, with interactions coming from the business, its partners, suppliers, agencies, customers, and even individuals. This proves to be a challenge to the traditional ERP solutions, which are limited in processing capacities of complex, diverse and frequent transactions.

In order for the ecosystem and its procedures to connect, ERP solutions should be able to support data integration like web-based, API,… Yet, it is this integration (between data centers or between management applications from different organizations) that creates security vulnerabilities, leading to weaknesses in data adequacy, speed and stability of the operating process. During the process of extraction and input into the final system, data can easily be eavesdropped on or counterfeited by third parties, leading to slowings and interruptions of multi-system procedures. On the other hand, new ERP systems often focus on internal procedures, and automatic processing of inter-organization/business is still rather limited.

Blockchain technology

Blockchain technology is first introduced as the base of virtual currency transactions, or Bitcoin in particular, since 2009. Its practical capacities, however, way surpass that: Blockchain will be the technology to remedy the weaknesses of all management systems, including ERP ones. A blockchain will be treated as a ledger, which is managed dispersedly as a block that is connected to previous transactions, and in the end create a “blockchain”. A new transaction will be shared with all blocks on the same scale, where it will be approved and encrypted to store in those blocks. Data will as such be safely and securely stored, and cannot be counterfeited.

These following changes can be the result of Blockchain application in ERP:

  • Eliminate the need for a medium space: In more complex transactions that involve multiple parties, traditional methods will require a medium (or a central point) to collectively manage all transactions and verify them. The medium, however, will slow down transactions and increase costs. Also, it will be a weak point during attacks, as attackers can target the medium to gain full control of the system. With Blockchain applications, however, the system will be fully dispersed (via a peer-to-peer network), as this technology allows transactions to be made directly, eliminating the need for a medium. Peers involved can verify and store data using Blockchain protocols, leading to an almost ultimate security. Furthermore, Blockchain is not only suitable for large enterprises (the usual targets of traditional ERP systems), but also small businesses and start-ups with its easiness.
Source: Financial Times.
  • Reliable data-sharing: When the need for data-sharing arises, current ERP systems still run into various problems, including eliminating duplicate data, errors between input and output, cheating, duplicated transactions, and so on. These can be limited with work-around features, yet at the cost of the system’s capacity. As such, there is also a need for final assessment to detect errors and eliminate them. Blockchain, however, has the innate nature to maintain consistency during data-sharing, delivering reliable information to all involved parties. In the supply chain (where complex transactions often occurs between different parties), for example, Blockchain will allows efficient operations throughout the entire chain:
    • Accurate recording of goods, supplies and assets (like containers, tractors,…), as well as quantities of goods transferred within the chain.
    • Store all transaction papers between parties including orders, invoices, bills of lading…
    • Authentication and verification of goods (whether they are restricted or banned..). Mark goods with identicators like serial numbers, bar codes, RFID and maintain consistency of these throughout the chain.
  • Automatize multi-unit procedures: When one procedures is carried out throughout various units and ERP systems, there will be trouble regarding system differences, leading to interruption and slowing of processing. Conflicts of interest and information management between parties are also great concerns. Take an example of a simple situation, where the supplier had delivered goods and require pay on the point, while the customer try to delay payment for their own benefits. Conflicts similar to these may be detrimental to the mutual efficiency. However, Blockchain can counter them with the use of smart contracts. In smart contracts, terms are mutually agreed, and electronic bills and transactions will be carried out automatically after delivery. The process will eliminate human mistakes, thus save time and cost, as well as simplify procedures between parties.

Development and application of the Blockchain technology for management information systems are still in the very beginning stages, but they are expected to bring about great changes in the very near future. According to Gartner Analytics, by 2022, there will be at least one innovation business will be built on the basis of Blockchain, with its value being up to 10 billion dollars. By 2030, 30% of global customers will use Blockchain as the base technology for commercial activities. Finally, by 2025, the business value generated by Blockchain will surpass 176 billion dollars, reaching 3.1 trillion dollars in 2030 (source: “Forecast: Blockchain Business Value, Worldwide, 2017-2030” by Gartner).

Will Blockchain replace ERP?

The first and foremost role of ERP is to record and manage transaction data (in finance, goods, human resources) for business operation and planning. It helps businesses standardize and automatize their procedures, as well as elevate management abilities for both managers and employees. Current ERP systems still have their limits, however, especially in the need of closer interaction between businesses worldwide. Security and safety are normally only maintained within the scope of an organization, and ERP faces great difficulties in expanding them to a full-on ecosystem.

Blockchain will not replace ERP in planning and operation. Its advantages lie in security, with transaction verification schemes and disperse-structured smart contracts. Rather, Blockchain will support ERP in its expansion of security and scope, where involved parties can supervise goods from production to retail, all the while free of error and maintaining consistency. Blockchain will also help automatize multi-system operations, and thus elevate interaction between ERP systems (and between businesses), instead of old separate and conflicting ERP systems.

Of course, ERP solution providers are also tackling on the developing Blockchain: Blockchain-integrated systems will complete ERP solutions. SAP is a prime example to this: launched in 1972, the software has always been one of the leading ERP solutions in the world, both technically and commercially. The introduction of SAP HANA technology in 2011 had marked a revolutionary change in SAP products, especially during the 4th industrial revolution. Support for Blockchain applications is also a part of SAP’s development plan.

Along with Blockchain, SAP also offers the cloud computing service: SAP Cloud Platform Blockchain (SCP Blockchain) and other services such as ABAP, AI & Machine Learning, Analytics, Collaboration, Data Management, Internet of Things… Currently, SCP Blockchain allows creating network blocks and block connection on Hyperledger Fabric, MultiChain and Quorum platforms. SAP utilizes the SAP HANA Blockchain service to integrate and ensure two-way synchronization between blockchains and SAP HANA. It also offers simultaneous interactions, data-sharing and complex transactions between partners via the Blockchain network.

With Blockchain, ERP is no longer limited to large businesses. ERP will as such become more popular even with small businesses, and create a world where all businesses, regardless of scale, can together interaction and generate value.

Huu Van

Related posts: