After several years of trials and a few early failures, blockchain solutions are starting to bring companies tangible benefits through greater accuracy, transparency, and speed.
While enterprise resource planning (ERP) enabled a shared understanding of business operations and common processes for the single enterprise, blockchain will soon do the same for entire business ecosystems. For any multi-company process with complex business logic, blockchain is a good solution.
Blockchain use is growing in many areas. In procurement, it can eliminate the considerable resource spent reconciling pricing against corporately negotiated volume purchase agreements. And in supply chain management, imagine a future in which companies move physical assets and their digital asset tokens across a network so that all entities across the value chain have end-to-end visibility to inventory and are able to accurately trace product from the point of origin to its end use.
Integrating blockchain into ERP systems
There is no question that blockchain could significantly change many multi-company processes in the near future. However, to do so, blockchain solutions must benefit a broad network of organizations, they have to be industrialized and scalable.
For blockchain to operate efficiently at scale, it is essential that it be integrated into companies’ ERP systems to create fast, reliable, and repeatable processes.
That integration is not always happening today. It’s a logical but often overlooked concept. Many companies think of blockchain as an overlay to existing systems and a new way to exchange information with multiple other parties, but their innovation stops there. As a result, the value that blockchain platforms deliver falls short.
Consider the procurement process. Everything about that process is housed within an enterprise ERP system such as authorized vendors, what can be bought, who is allowed to make purchases, and of what size. If blockchain is used to manage procurement across enterprises, all of that procurement logic and information has to be rebuilt in the blockchain, which slows the development considerably.
A much easier approach with faster time to value is to plug the blockchain into the ERP system and make use of the company’s existing business logic, data, and process controls. In addition, if the ERP and blockchain platform are not integrated, there is a continued resource investment to keep the two aligned. The likelihood of introducing error increases, creating synchronization challenges and heightening business risk.
In many companies today, the view of processes is limited to within the organization’s boundaries. For example, the procure-to-pay process is seen as “end-to-end” with the elements of the process outside of the enterprise’s control being taken for granted. But with blockchain integrating enterprises, the new scope of a procure-to-pay process spans multiple entity boundaries, and it begins and ends in ERP systems. A truly seamless, end-to-end multi-company process begins within one company’s ERP system, moves through the blockchain, and ends in other companies’ ERP systems.
Integrated business planning solutions
Advanced planning and scheduling, for which many companies use SAP Integrated Business Planning (and SAP APO), is dependent on its underlying data to build an accurate forecast. The accuracy of the forecast is a function of the accuracy of the information about the inventory in its supply chain.
Despite the digital infrastructure within the company, most companies have only limited visibility and insight into where all their products are at any given moment. Analog gaps exist between systems within enterprises and across enterprise boundaries. However, the opportunity that blockchain presents for planning and scheduling is tremendous if the end-to-end process is expanded. Blockchain solutions are extremely disciplined in how they handle assets and are able to greatly reduce inventory inaccuracies. When an asset management blockchain is integrated into SAP Integrated Business Planning, the company gains a more accurate picture of inventory throughout the extended supply chain and, therefore, receives a more accurate forecast to drive its own production.
As companies view the potential applications for blockchain across their operations, it’s time to widen the viewpoint. Rather than think about end-to-end business processes being contained within an organization, companies now need to think about a new end-to-end where a business process originates in one enterprise and ends in another.
With deep integration into their enterprise ERP systems and the redefinition of processes across boundaries, companies can take full advantage of blockchain platforms and achieve the full benefits of having one set of facts and shared processes across historically limited enterprise boundaries.
Blockchain enables a shared process and a single set of facts in areas that cross enterprise boundaries. However, effective integration into ERP systems is key. Companies need to think about a new point-to-point model, where a business process originates in one enterprise and ends in another. That’s when transformational benefits materialize.
For more on this topic, please read the “Blockchain and Supply Chain” series.
The views expressed are the opinions of author Paul Brody. This article was originally published by EY and is republished by permission.
EY is an SAP global partner.