An Enterprise resource planning (ERP) system is a software used by organizations to manage their operations. From accounting, procurement, project management, risk management, to supply chain operations, ERP systems are indeed the fiber holding all business operations.
Usually, the software comes as a suite that includes performance analysis, budgeting, planning, and reporting tools to help boost a company’s performance. For industry-specific companies, ERP providers can design customized software to fit the specific needs of that particular company.
But as business model dynamics keep evolving, the current ERP systems are struggling to maintain their functionality. An immediate solution would be to build new and improved systems to scale up existing ones. Although doable, building new systems will drain an organization’s resources in addition to compromising other key operational areas. Alternatively, amalgamating the current infrastructure with new-generation technologies is not only affordable but also an ideal way of keeping businesses up to date with technological trends.
In this case, blockchain technology is the most compelling option, given its core record-keeping capabilities. To see the blockchain’s entry point into ERP systems, it helps to understand the inherent problems ailing the latter.
ERP Systems Limitations
First, it’s important to note that ERP systems function more like solutions and less like a product. So, it’s not a generic software that can be shopped right off the shelf and used immediately. That said, the systems come with a predefined functionality – meaning you can’t just add any feature when you need at will. This denies companies the flexibility of continually updating their systems to meet the dynamic needs of their business operations. If a business can’t upgrade its systems, it means that it can’t be competitive enough to offer a superior customer experience.
Now, upgrading ERP systems isn’t entirely impossible. But as is always the case with updating in-house infrastructure, scaling ERP systems translates to extended downtimes in addition to the expensive costs of this undertaking. So, only large and well-endowed companies can afford to upgrade their ERP systems, which give them a competitive advantage over small and medium businesses. It becomes even more expensive when you factor in the regular maintenance costs required to keep the systems functional.
On top of it all, ERP systems lack interoperability, meaning they can’t work in collaboration with other systems. This can be detrimental to an organization as it disintegrates its operations. For instance, an organization may have isolated systems for its supply chain operations, accounting process, and inventory management. Yet, these two operations need to work in harmony to minimize operational costs that go into maintaining these systems. Also, as they work in isolation, there is less transparency among the involved parties. In a supply chain, this would mean that the manufacturer, the wholesaler, and retailer operate on different software. Each stakeholder will have to trust the other party will maintain integrity.
Why integrate blockchain into ERP systems?
The benefits of integrating blockchain into ERP systems are derived from the fundamental properties of the technology;
1. Strengthening data security and preventing authorized access
ERP systems hold confidential data – which, if altered, may result in operational inefficiencies. For instance, ERP systems for accounting need to be secured from manipulation for auditing purposes. To safeguard all data entries, there is a need to integrate enterprise blockchain in ERP systems.
Each record fed into the blockchain network will be validated and secured from third-party intrusion. The network generates digital signatures based on public-key cryptography. Only those who own these keys will access the data on the chain.
2. Automation of processes
Blockchain for ERP systems offers an opportunity for the implementation of smart contracts. The supply chain segment of an organization would benefit immensely from the use of smart contracts as it would mean less paperwork and more secure payments. The smart contracts can be programmed to initiate payments once goods are delivered and even track them throughout the shipping trail. Besides managing invoices, smart contracts can be used to verify inter-company, especially those involving a parent company and its subsidiaries. The transactions will be executed by smart contracts within the pre-set terms and conditions, which eliminate the need for third parties to oversee the transactions.
3. Promote trust and transparency
Traditional ERP systems have failed to create a collaborative space within an organization or even between two related businesses. As such, when working together on a project, integrity is staked on the participants who, in most cases, fail to honor their end of the bargain. With blockchain ERP, integrity is shifted from the participants and placed on a tamper-proof system that makes it impossible for participants to be bad actors.
In this case, blockchain works by removing the barriers between various ERP systems, bringing them together to form a single functional unit. For an organization, this would mean that different departments can work collaboratively, increasing the overall productivity of the company. Thanks to the newfound transparency, business owners can trust the credibility of the auditing reports. This is because all accounting data is recorded on an immutable network where any changes to the data are made public for all to verify.
4. Freedom of customization
As mentioned earlier, the current ERP systems are designed to function in a predetermined manner. For an ERP system to meet the emerging needs of a business, it has to be customized or designed entirely from scratch. Blockchain, on the other hand, is pretty customizable, especially now that there are a good number of platforms that support building decentralized applications. So, it’s easy to design new and improved blockchain solutions that meet the modern needs of a business.
Integrating blockchain into ERP systems would, therefore, render them customizable as they are powered by dynamic technology. More so, blockchain is still in its maturation stages – meaning that there’s room for newer solutions as the business models change. As such, ERP systems that are powered by blockchain will not only give businesses a competitive edge but also improve their operations to meet customers’ needs.
ERP systems act as the backbone of any business and must process immense amounts of data transparently to guarantee streamlined operations. As businesses aim at increasing productivity, it becomes necessary to upgrade their ERP systems by pairing them with blockchain technology, which provides data security while enabling frictionless execution of business operations.