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Challenges slow the union between blockchain and ERP

Rather than technical challenges, building the business networks and hammering out governance and rules of engagement are the toughest hurdles to blockchain-enabled ERP.

While blockchain and ERP are probably destined to be long-time partners, the relationship is still in the early stages and there are potential hurdles to clear before enterprises can reap the benefits of the paired technologies.

One of the earliest challenges is figuring out the right intersection between blockchain and ERP, although there is clarity about how the two technologies should come together. For a while, there was confusion about whether blockchain would serve as a replacement for ERP, but now most experts believe the pairing is complementary.

"One rides on the other to create a more open environment," said Prasad Satyavolu, chief digital officer and consulting leader for manufacturing, logistics, energy and utilities at Cognizant, an IT services company. "Together, they enable better collaboration and access across a supply chain network and ensure secure transparency of the transaction process."

The first step in plotting a course to blockchain-enabled ERP is no different than any large-scale enterprise initiative: Assess possible use cases and how they align to the transparency and immutability that blockchain delivers. "Does manufacturing and operations have a goal to expand the supplier network with smaller suppliers to achieve greater flexibility or agility, or to allow industrial internet of things (IIoT) use cases to flourish?" Satyavolu said. "All technical decisions need to be based off of whether the business is moving in these directions."

Identify narrow-scope use cases

To adequately jumpstart the process and seed the organization with relevant expertise, experts recommend creating a center of excellence that will promote blockchain education and help establish narrowly scoped use cases that will serve as a starting point. Blockchain and ERP are most applicable for processes that have a high amount of friction, where multiple parties are involved and where a lot of effort is expended to create trust.

The most viable use cases are those where multiple players in a complex supply chain need to share all kinds of data, from product information to financials -- and the ability to share easily and automate labor-intensive, related tasks creates instant value. "Begin using and adopting blockchain and ERP on a small scale," explained Gil Perez, senior vice president of products and innovations and head of digital customer initiatives at SAP. "Small-scale pilots become quite valuable in understanding all the implications and getting more confidence in the platform. There is no doubt that four to five years from now, blockchain will be part of a basic toolkit used across ERP."

Even greater than the technical challenges are the process and governance issues critical to mapping out a blockchain network. Questions such as who is contributing data, how they are using data and who will pay for data all need to be answered in the early stages. There is also heavy lifting required for fleshing out issues like rules of engagement and responsibility for key milestones -- for example, facilitating how the blockchain network will evolve to respond to changing industry regulations.

"The real challenge is building the business networks, including the governance and rules of smart contracts," said David Haimes, senior director of Oracle ERP cloud development. "These questions are much more difficult than building application infrastructure."

Given the complexities, experts suggest aligning with consortia that form around blockchain in industries from healthcare to oil and gas. While building a blockchain network on the back of a consortium-led effort is instrumental in solving many of these issues, there is a downside to the involvement of too many external parties.

"That's the Catch-22 to where blockchain sits today," noted Bas de Vos, director of IFS Labs, the R&D arm piloting the ERP provider's blockchain and ERP proof of concept. "Its real value sits in a large complex consortium where people are working together. The challenge is the larger the consortium, the more difficult it is to get people to cooperate and agree on how to do things."

In addition to aligning with the appropriate blockchain consortium, it's important to know your ERP vendor's plans for the technology. However, what's even more important, experts say, is to understand how blockchain-enabled ERP provides value over a traditional environment, and to be prepared to take that case to senior leadership.

"You have to make a clear and compelling business case for how and why blockchain will benefit the business beyond using vanilla ERP to begin with," said Eric Kimberling, CEO of Third Stage Consulting Group, an ERP consultancy.

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