Blockchain and ERP: What’s the Impact on Manufacturing and Distribution?

Blockchain can be described as a decentralized, distributed ledger that drives cryptocurrencies, smart contracts, and offers manufacturing and distribution organizations the potential to support traceability, records management, supply chain automation, payment applications and other operational transactions.

Researchers note that the business value-add of Blockchain will grow to slightly more than $176B by 2025, then exceed $3.1T by 2030.

With this astounding volume of transactions comes a transformation of enterprise data.

There are significant business process improvement considerations. Blockchain delivers a near-real-time record that’s replicated among a network of business partners that is immutable in nature. The process takes information that would have previously been stored in the ERP silos of just one company and makes it available in a distributed network of records across disparate companies.

Smart Contracts

When considering how manufacturers and distributors benefit from this technology, the concept of “smart contracts” comes into play.

• Smart contracts are defined as the terms and conditions that must be followed for any transaction and can easily be automated on the Blockchain platform.
• Smart contracts are growing in industry supply chains, especially in manufacturing and distribution.
• Smart contracts create an electronic agreement with business logic and contractual terms, providing organizations not only with automated contracts integrated within their ERP applications but also on the plant floor to initiate a purchase order once raw materials fall below the reorder point without human interaction.

Key Aspects of Blockchain and ERP

There are key aspects of this new model, especially as it pertains to the manufacturing and distribution sector.

Blockchain dramatically improves supply chain transparency, security, quality, and process integrity, via a secure ledger which offers seamless integration with ERP applications.

For manufacturers and distributors, a key element to consider is that Blockchain encourages reliability between trading partners – it’s been called a “trust-based layer without middlemen.”

Business Benefits of the New Model

Traditionally, businesses conducted transactions through one-way integration where product flows downstream from supplier to end consumer.

With the new model of Blockchain and ERP, all participants have access to all relevant information in real time and can communicate via a secured communication.

What does this mean in practical application? A manufacturer can see the requirements of the end customer, allowing them to be proactive in demand spikes, inventory shortages etc.

Other benefits include:

• Reduced costs for sellers and purchasers stemming from no longer involving intermediaries in transactions
• Immutability of transactions – transactions can no longer be deleted, modified or reversed
• Shorter settlement times as transactions among business partners are in real time, ultimately removing payment terms
• Increased transparency up and down the supply chain
• Automation and full integration with ERP, especially with smart contracts
• Global traceability
• Business Process Automation – the potential to trigger business processes based on Blockchain events

As independent ERP consultants, we’ll be keeping our pulse on these technological advancements, especially as related to the integration of Blockchain and ERP.

ERP vendors are now working to integrate their systems into Blockchain’s distributed ledger technology as a trackable, immutable record for everything from shipping manifests to equipment maintenance and dispute-resolution systems. It will be important to keep educated about these features during ERP software selection.

Blockchain and ERP: Learn More

I’m extremely interested in this new paradigm since value achieved through integrating Blockchain and ERP systems comes not by adding new information into the distributed ledger, but by linking existing data from enterprise systems and being able to tightly control with whom it is shared.

Look for additional insight on Ultra’s ERP Blog about integrating Blockchain and ERP throughout an organization’s supply chain. As an ERP consulting firm, we feel quite strongly that it pays to stay informed. Other resources are noted here:

• Learn more by viewing the entire on demand webinar session Ultra conducted on Blockchain and ERP.
• Contact the Ultra team for additional information.