Integration of Blockchain and Enterprise Resource Planning Systems

Blockchain Technology

As a way to increase data security for transaction, a new system that allows these transactions to occur automatically more securely and without an intermediary has been conceived. Blockchain or (Distributed Ledger Technology) was developed in the aftermath of the 2008 recession to deliver transparency, security, and efficiency in managing transactions between multiple parties. This concept is now being implemented or considered in many business models worldwide.

What really is Blockchain? In its simplest form, Blockchain can be described as a private, secure network that uses cryptography to keep exchanges secure, provides a decentralized database, or digital ledger, of transactions that everyone on the network can see. This network is essentially a chain of computers that must all approve an exchange before it can be verified and recorded. Following figure illustrates the Basic Blockchain Process.

Basic Blockchain Process

One of the benefits of this system is that once a record is in a Block, it is not possible to alter that record. This provides clear chain of transactional events that cannot be broken which the business world is starting to see as an opportunity to capitalize on as it relates to contracts and other legally binding documents.

Enterprise Resource Planning (ERP)

With the coming of age of larger, less expensive and more flexible computer systems, it has become possible to implement infrastructure that could manage and plan many mundane or complex tasks for the facility. The system is name Enterprise Resource Planning (ERP). A high-level definition of ERP is a business software system that that supports business or enterprise throughout the project in organizing, planning or maintaining, tracking and utilization of resources (Man, Machine, Material, Money), effectively. An ERP system is a modular software application that eliminates stand-alone programs and aligns all systems under one. This system of modules has been implemented across many different business environments for many years and have become the backbone for how business manage all operations. There are many system providers in the marketplace such as SAP, Microsoft and Oracle, etc.

Enterprise Resource Planning (ERP)

As above figure illustrates, ERP integrates many functions of a business into one system. Prior to ERP, if the Finance department wanted to know how much and what inventory was on hand, they would need to go to that department and get the data, if it was available. It was also common for bureaucracy to stand in the way of gaining of visibility due to overly managed approval processes to acquire the information. If the data were available, there may be a measure latency as it relates to the timeliness and even the accuracy of the data. With today’s ERP, visibility to activities outside of once department are instantly available and accurate to within a day or less. Having such visibility is crucial when making decisions in an environment that could be changing by the minute.

Integrating Blockchain Technology with Enterprise Resource Planning Systems

While the Blockchain technology is relatively new and ERP systems have been established for almost 3 decades, many industries and corporations are looking at how this new technology can be married together. Businesses are vie wing this integration as an opportunity to make their business transactions more robust, transparent and binding. For instance, in Supply Chain many transactions are recorded through the cycle of a product. Conceptually, in a Supply Chain scenario, these systems build, track, purchase, and ship products, integrating with Blockchain will provide a copy of this information into the network which is immutable and indelible and can be tracked and used for any purpose, at any time. Following figure illustrates how this concept integrates with ERP in Supply Chain transactions and how Blockchain records each event.

Integration of Blockchain and Enterprise Resource Planning Systems

While integrating these systems provides many benefits, there are still many challenges to overcome, while not insurmountable, they still need to be developed, funded and institutionalized.  Again, the challenges that will be explored are Infrastructure and network, Security and Privacy Concerns, the Cost of Data Storage and Legal and Regulatory issues of integrating these systems.

To begin with, combining ERP and Blockchain, while there are many hurdles to overcome, all of the challenges are interwoven. One of largest impact to corporations will be that of infrastructure and network capability. These are the backbone of many organizations and without a clear understanding and plan to manage this change could cripple many organizations as well as cause repercussions from environmentalists. The largest network impact will be that of increased users and power consumption. These networks currently require the computation of ultra-complex mathematical problems to verify and process transactions and to secure the network. Therefore, combined with ERP, Blockchain systems will consume extra power to run the computers and a considerable amount of infrastructure will be required for cooling and maintaining the systems. For example, at its peak the bitcoin Blockchain consumed enough energy that it as a country “would come in 53rd in yearly energy consumption; more than Iraq and less than Singapore.” With environmental concerns as prevalent as they are for all corporations and many seeking alternative energy sources, there needs to be improvement or significant reduction in energy consumption. The reason for the high-energy consumption and thus taxing networks and infrastructure is how the system, in its current form is with bitcoin.  The bitcoin model uses the proof-of-work (PoW) algorithm to validate transactions made on the Blockchain and requires the computation of ultra-complex mathematical problems to verify and process transactions and to secure the network.

As systems change, one of the primary goals is to ensure that data is secure and that all information that is deemed sensitive and private remains that way, especially with our ERP systems. The Blockchain that bitcoin utilizes is an open network that will allows anyone that has made a transaction on the system, access. This open access raises many concerns for data security and privacy. However, industry must take a very different approach than bitcoin when it comes to these standards. Fortunately, one can customize Blockchain to meet the needs and specifications of the specific ERP system. A Blockchain can be made restricted to others.  Such that user permissions can be restricted, for those tasks that are required to do their job. As an added measure to the system, records in the node are cryptographically secured, with no possibility for anyone to change the data, so there is no threat to security. The data in a block cannot be changed or misrepresented without raising a security concern or creating a new chain in the block.

With Blockchain, once a record is created, it is permanent and needs to be retained, literally forever. This issue is not germane only to ERP systems, bit to all networks that implement Blockchain. As with everything today that increasingly require the storage of data, this system is no different other than the fact that there is more data to be stored. Blockchain data storage systems are inadequate from a standpoint of flexibility. Because Blockchain has a distributed architecture, it requires multiple processing nodes scattered across multiple participants, both increasing overall costs per transaction while also leading to issues of scalability and performance. Currently, there are many companies working to understand what it will take to improve the systems scalability and performance issues. The issue remains cost. Most companies that handle data storage, charge a monthly fee to store data and as a company’s data need continues to expand, so does the cost.   Where companies that want to maintain their own data the need is to have larger, less expensive storage solutions that will allow companies to expand their storage infinitum without causing bankruptcy. In the case of storage, the obvious solution to this challenge is not always the one that is the most obvious or trendy. Today it seems that the data storage industry is moving increasingly towards Cloud technology. This would not be a good fit for Blockchain data storage, at least in today’s environment. The cloud has done the job fairly well up to now, but it has some major flaws. It can be unreliable, unsafe, and costly. Compared to current data storage, the primary concerns would relate to the cloud being unreliable and unsafe.

With the creation of Blockchain, there are many regulatory and legal questions that arise when it comes to protecting individuals and companies, privacy concerns for all, international ramifications, policing of the system and how to investigate and adjudicate possible crimes. Within the United States, the government has not acted to regulate Blockchain in any way, with the exception of some states regulating Bitcoin technology to protect consumers. On the international landscape, many countries are also starting look at regulations for Blockchain, but mostly, the regulations are mostly limited to cryptocurrencies and ICOs [Initial Coin Offerings]. The cryptocurrency market is the prime concern and how it affects international transactions, as there could be significant disruption in global financial markets if this activity is unchecked.  This is not stopping countries or unions from implementing laws to protect their citizens. As an example, in 2018, the European Union enacted a law titled, General Data Protection Regulation (GDPR). This seeks to protect the data ownership for its citizens with the requirements for compliance placed on Blockchain companies to ensure that the EU threshold for data ownership is met sufficiently. There are many more examples of where governments understand that, while Blockchain is still in its infancy, governments around the world recognize the value of distributed ledger technology.

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