blockchain and erp

Initially used for cryptocurrency, Blockchain technology has seen its promising future in the techno industry quickly. Today as the Blockchain continues to mature, it finds several adoption areas, and ERP is one of them. ERP vendors intend to use Blockchain and ERP together to integrate the system in a safer and trackable manner utilizing immutable records for everything in the business areas like supply chain, manufacturing, etc.

Blockchain in the supply chain dramatically improves transparency, quality, security, and process integrity through the secure ledger. Similarly, in the manufacturing sector, Blockchain encourages reliability and works as a trust-based layer without middleman intervention.

While companies eventually target using public blockchains for business operations, implementing private blockchains is easier to control and manage security and privacy. The Blockchain and ERP integration creates and ports new information into the distributed ledger and draws existing data from enterprise systems. Blockchain ERP combination enables businesses to control data sharing tightly.

What’s blockchain

Blockchain works as an electronic ledger like a relational database. It can be openly shared among private and public users. Blockchain creates an immutable record of transactions. Each one with time-stamped and linked to the previous one. Each transaction in the thread is stored as a digital record and called a block linked to a specific user. Interestingly, no record can be erased from a Blockchain. However, the Blockchain can be updated depending on the consensus between the participants.

You can find the related post here – What is Blockchain technology: An Overview

What Is ERP?

ERP, known as Enterprise resource planning, is a solution that enterprises use to manage different operations like procurement, risk management, accounting, project management, compliance, supply chain operations, etc. Sometimes ERP comes as a suite, and in that case, it helps in performance analysis, planning of daily events, budgeting, and predictions. Overall, an ERP system helps to enhance the company’s performance.

However, an ERP system is fully centralized. As a result, it comes with many issues, and this is where Blockchain and ERP systems work better.

Limitations of ERP systems

As the ERP systems come as solutions and not software; hence, companies can’t take it off the shelf to use it immediately. It would be best if you did a lot of customization to fit the solution with your organizational requirements. This customization can raise some issues, like it is difficult to change the system later on. Similarly, adding new features to the system is expensive.

Besides, there is an interoperability issue. For example, if you consider the supply chain, different parts like manufacturer, retailer, and wholesaler have their own custom ERP system. This creates a visibility problem and limits the “trust boundary” only within their own system. Individual parts don’t have exposure to the entire supply chain.

How blockchain ERP integration enhances existing features of ERP

A blockchain extends trust boundary among ERP systems

As mentioned, ERP systems create visibility problems between different parts of an entire system, known as trust gaps between companies. One of the main reasons behind it is every company has processes and associated people they trust. This includes its own ERP system. However, that sphere of trust doesn’t always work with the next company.

Blockchain and ERP’s combination eliminates this trust gap between siloed ERPs while providing visibility throughout the system. For example, a supply chain system acts as an ERP system for an entire supply chain by keeping a shared system of records for inter companies’ transactions.

In the supply chain

The decentralization property of Blockchain gives companies the potential to unite a large supply chain network. Blockchain in ERP combinedly helps to improve the automation supply chains. So, every company can use its own internal ERP system while including one rule-enforced blockchain network.

This brings up some distinct advantages. For example, it reduces the visibility problem within the supply chain. Each participant in the entire system can trace the product journey from manufacturing to final delivery on the shelf. Unlike ERP systems, Blockchain ERP solution is also cheaper as all the participants like manufacturers, retailers, and distributors can use the same solution. No need to pay for complex installations like to do in ERP solution.

So, the business rules and the data currently residing with different companies would be available in one network. And each transaction would automatically be recorded on the blockchain. Companies would have visibility into the entire supply chain; however, they can still record and keep the private data relevant.  They don’t have to share business intelligence.

Related post – How Blockchain Will Transform The Supply Chain Industry

Potential to automate business processes.

A smart contract is a protocol encoded in a blockchain and helps automate a business transaction. It is equivalent to automatic payment for a credit card. This does not need any website log in or confirmation. Smart contracts have several benefits, like achieving faster as well as hassle-free business processes. Simultaneously, companies can automate huge amounts of manual tasks that are time-consuming using multiple smart contracts.

For example, when a business receives a product order, a smart contract can automatically trigger the shipment. Similarly, when that shipment leaves the office or building, it can trigger an invoice. Afterward, when the payment goes through, the invoice gets automatically recorded and closed. In this scenario, invoices are one part of current ERP systems that companies can standardize on a blockchain system.

With the expansion of the blockchain network, companies can automate more and more ERP processes by the blockchain system.

Authenticate and verify identities

One of the most important implementations of blockchain in ERP is its ability to verify and authenticate identities. It’s been a long time for the ERP systems to be used for financial transactions like process claiming of insurance and financial companies. As part of this process, companies need to verify the customers’ identities or authenticate financial transactions. Now, what happens when you integrate Blockchain into ERP? We can do the followings: 

•    It can verify the identities of the employees.

•    It can also verify customers’ identities as a part of post-sales support or during the servicing of the older products under warranty.

•    Blockchain and ERP integration can authenticate the identity of individuals who have access to sensitive data on ERP systems.

Risk-free payment processing

Blockchain is famous for its security features, especially in financial transactions. It ensures risk-free financial transactions. This is why banks and insurance companies use blockchain-based authentication systems. Blockchain and ERP integration ensures that any B2B purchases and payments are automatic and risk-free.

Additionally, B2B payments need various compliance as per the regulations, and a blockchain ERP makes sure that it meets regulatory compliance. Furthermore, Blockchain and ERP combined can make payments automatic and fast, avoiding any delay in stock replenishment. It makes the whole process transparent and authentic, which ultimately makes auditing risk-free and easy.

Enhanced security settings

Blockchain can ensure data privacy and system security. Various companies use Blockchain to maintain cloud security, detect suspicious or unauthorized access to data, and fix BYOD vulnerabilities. In this case, Blockchain and ERP integration can ensure that any suspicious transactions or data vulnerabilities are detected in time, and threats are averted. This also ensures that employees who use ERP on mobile phones don’t get any chance to create vulnerabilities.

Helps to maintain GDPR Compliance

Enterprises need to be GDPR compliant while dealing with consumers and related sensitive information. Furthermore, the company must ensure that all the customers’ information remains private so that no third-party company can use those data for market analysis. Non-compliance with GDPR rules can have serious legal issues along with fines. In addition to that, it will hit the brand value of the company as well.

This is where the Blockchain and ERP use cases come into play. With the help of Blockchain, companies can securely store all the consumers’ information. Moreover, the company can also be fully compliant with GDPR while offering full transparency in handling customers.

Enhanced Data quality that Offers Immutable Integrated Information

As mentioned earlier, the ERP systems are centralized, so often they become faulty and vulnerable. In addition to that, users can change or alter data in an ERP system after putting it in the system. So, data manipulation is not a rare case here. On the contrary, once the data gets into the ledger in a Blockchain ERP system, it becomes immutable. Hence, manipulation is impossible. Blockchain and ERP integration offer an immutable system.

Creates a Robust System Model with flexibility

Blockchain ERP integration creates a flexible, configurable, and robust model. Furthermore, many blockchain technologies offer extensive customizations like enterprise blockchain platforms -Hyperledger, R3 Corda, Enterprise Ethereum Alliance, Quorum, Ripple, etc. They offer an architecture that enterprises can shape based on their requirements. Besides, these systems can quickly adapt to the changing business scenarios and ensure that there is no need to end up with an obsolete system.

However, Blockchain and the ERP system must be fully compatible with each other to make it work.

Conclusion

There is a rising question of whether Blockchain is going to replace ERP. No, Blockchain will not replace internal ERPs; instead, it works as an additive technology. However, we still don’t know whether Blockchain can process the same transactions as current ERP systems do. Also, Blockchain hasn’t proven its performance at scale.

Besides, we can’t ignore that companies are spending millions to implement ERP systems with the target to use them for years, which is an expensive affair too. So, they are developing connectors and modules that can work with existing blockchain networks. Additionally, there are plenty of efforts underway to establish Blockchain’s capabilities. Hence, it is expected, once the technology matures, its adoption will increase at a commendable rate.

2 thoughts on “Why integrating Blockchain and ERP is a Great Idea?

  1. Informative post! This blog explores the benefits of integrating blockchain and ERP systems, showcasing how it enhances security and data integrity. A must-read for businesses seeking streamlined processes and enhanced efficiency. Thanks for sharing this valuable insight!

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