Implementing Blockchain in ERP [6 Benefits]

In recent years, the world of cryptocurrency has grown to monolithic proportions. In April 2021, the market hit an all-time record high. 

When you think of digital currencies, like Bitcoin, you might think of blockchain. While these two concepts are related, blockchain for business has applications that reach far beyond cryptocurrency.

Today, we’re talking about implementing blockchain in ERP. How would it work, and how could it change the manufacturing industry, in particular? As the answers continue to unfold, let’s take a look at what we know so far. 

What is Blockchain?

By nature, blockchain technology can be complex and a little confusing. Put simply, it is a technology that records information in a secure way that makes it difficult or even impossible for anyone to edit or hack into. 

At its core, blockchain centers on an unalterable, decentralized digital ledger. This ledger contains a chain-like record of transactions that is duplicated and distributed across every computer system connected to the peer-to-peer blockchain network. Every “block” in this chain contains a set number of transactions. 

Each time a new transaction happens on the blockchain, every participant’s ledger is updated with the details of that transaction. Thus, as the number of transactions continues to grow, the blockchain is likewise lengthened.

6 Benefits of Implementing Blockchain in ERP

As more businesses look to implement blockchain functionality, it’s important to understand the key features of this technology. What makes it so transformative, and what elements are the most important?

1. Distributed Ledger Technology

The distributed ledger aspect of blockchain is especially appealing to future-focused business leaders. This shared ledger captures every transaction that occurs across a business network, acting as an unchangeable recording system. 

All network participants have access to the ledger, which provides total visibility into business operations. This improves process integrity and has the potential to make supply chains more transparent and secure.

The ledger acts as a trackable record for anything related to a company’s supply chain. This can span from shipping manifests to dispute resolutions. 

2. Customizable User Permissions

While blockchain is built on the concept of transparency, it is possible for businesses to set user-specific permissions. This is called a permissioned blockchain.

When a blockchain is permissioned, it means that participants aren’t all grouped into the same category. Rather, each participant has their own unique identity, made possible by a digital certificate.

This way, businesses can define policies that dictate who can participate in the network and to what extent. They can also control access to transaction details because digital certificates are forgery-resistant and verifiable. 

3. Smart Contracts

For decades, companies have created and distributed paper and electronic documents that clearly define the legal or business terms of a transaction.

Smart contracts make this step infinitely easier, not to mention more secure. These contracts are programmed and embedded right on the blockchain, where they become synonymous with the transaction itself.

With this level of automation, contracts can be created and managed without the assistance of any central authority or arbitrator. 

Across many industries, this could change supply chains for the better. This is especially true for the manufacturing and distribution sectors, where contracts contain valuable information that directly affects operations. 

Consider, for instance, a manufacturing company that runs ERP in blockchain. Not only does the company have access to automatic contracts integrated into its ERP systems, but it can also use that information to fill future needs.

4. Less Third-Party Reliance

Historically, third parties are usually called upon to validate business transactions. Other times, business leaders might ask central authorities to perform this task. While the effort is necessary, it isn’t always quick, easy, or economical. 

With blockchain, all participants must be known and trusted before being added to a network. As such, when a transaction occurs, it’s verified and added to the ledger not by any type of external party, but by a general group consensus or agreement. Specific consensus mechanisms will vary and can be tailored to meet an organization’s business needs. 

Overall, this reduces costs for both sellers and purchasers. When an intermediary isn’t required for a transaction, business can move ahead at a faster pace. 

5. Partner Reliability

Trading partners are key resources for manufacturers and distributors. However, it’s important to verify the identity and integrity of any partner before adding them to your network, and even then, there should be touchpoints in place to ensure reliability. 

With blockchain, this level of validation is built-in. You can trust that partner relations are secure without the extra costs and complexities of adding third-party authorization. 

How is this possible? Blockchain’s ledger lives on multiple computers, simultaneously. Old records are always maintained, even when new ones are added. This transactional history is the same for all participants, and nothing can be removed or altered.

This adds a high level of accountability and protects against fraud. Additionally, there isn’t a need to reconcile internal data, as misrepresentation is nearly impossible. Data on goods, shipments, and other updates must be accurately portrayed, or it won’t align with past records. 

6. Real-Time Communication

In traditional business models, transactions are linear and one-way. Products travel from the supplier to the end consumer, and communication only occurs at specific touchpoints.

The problem with this approach is it can silo key stakeholders, as they can only see their specific piece of the puzzle. 

In contrast, with blockchain and ERP, all network participants can log in and see the same, relevant information. Moreover, this data is available in real-time. This allows a new level of visibility and collaboration. All users can communicate with one another via secured connections. 

For instance, manufacturers can see key details about end-user requirements. Without blockchain, that information wouldn’t be readily available, but with these new insights, manufacturers can better plan for inventory shortages and spikes in demand. 

Do You Have the Infrastructure in Place for Blockchain?

For all its perceivable benefits, blockchain technology might still feel like an out-of-reach concept, especially because you might be unsure if you have the right infrastructure to support such a transformation. 

The good news? While it might be a relatively new concept in the ERP realm, big corporations have used blockchain for years. As such, they’ve already created much of the infrastructure required to run it. 

What does this mean for small-to-midsized companies that want to follow suit? It means business leaders are already calling for a shift to blockchain, and clients and partner companies are increasingly expecting it.

As more companies embrace the movement, the infrastructure will continue to be built. In fact, big ERP vendors are starting to integrate distributed ledger technology into their systems. 

All this means that the time is now for organizations to look more seriously at blockchain as a valuable resource for supply chain and manufacturing operations.

The Future Role of Blockchain in Business

Blockchain has long been an exciting and promising technology. As more companies make the move onto public or private networks, the future of manufacturing hangs in the balance. 

While implementing blockchain in ERP is a transformative change with many benefits, keep in mind that it will require you to focus on the people and process components of IT implementation. To learn more about these components, contact our ERP consultants below.