Block Change

Blockchain is now a viable and complimentary technology for ERP systems and has the potential to disrupt many businesses. After many years of hype in the arena of digital currency it is now being used by corporations like SAP as a secure and distributed database technology.

The ability of blockchain technology to be applied in a variety of ways that make businesses more secure, transparent and efficient has led Gartner to predict that by 2030 blockchain technology will be generating $3.1 trillion for businesses across the world. David Furlonger of Gartner has said:

“Blockchain technologies offer a set of capabilities that provide new economic, business and societal paradigms. Exploiting blockchain will demand that enterprises be willing to embrace decentralisation and strategic tokenisation in their business models and processes: even if these strategies are not straightforward.”

SAP is in the process of evolving into a cloud software services provider and so the use of the distributed ledger model is a natural progression. Along with providing Software-as-a-Service, SAP solutions already include Blockchain-as-a-Service.

This week IgniteSAP will explore some of the ways that SAP has incorporated blockchain technology in their products and also how this will affect the SAP ecosystem in the next few years.

Blockchain technology

As the majority of enterprises become digitised and move their business processes and infrastructure to the cloud, security and data protection in particular becomes crucial.

Blockchain stores data in blocks which are copied, distributed, and synchronised across a network (either public or private). The synchronised distribution means that when data is added or removed or changed in one location, this is replicated across the network. This, along with a verification process, means that the database is secure and almost unhackable.

The distributed ledger can consist of any form of information and so it is entirely complimentary to cloud-based software provision. Blockchain-as-a-Service providers can maintain and secure these networks in the cloud so that users avoid allocating business resources but still have access to real-time secure information sharing.

As a record of transactions blockchain is ideal for use in a secure network because each block has its own identifying code and any changes to the chain alter the accompanying signatures, meaning that all changes are tracked clearly.

The Advantages of Blockchain

One of the key advantages to this concept for businesses is that it creates a common standard of trust. Up until today the issue of trust has been central to societies and economies, so institutions and professional roles have evolved to ensure trust in transactions. These could be governments, currencies, banks, or legal practitioners or administrative bodies: all of whom can provide the required confirmation of value in transactions.

In many cases this network of intermediaries has slowed down business and legal processes in the course of verifying values in transaction. So for example: an international money transfer requires a bank or clearing house to verify the exchange from one account and one currency to another. Even automated transactions take time and this delay can hold up business transactions, so orders of goods as part of a supply chain can be delayed: ultimately leading to a delay in providing goods for sale and receiving payment. With a blockchain financial transaction this process can take as little as 20 seconds as the verification process has already been carried out as the data was entered into the system.

As we have seen blockchain technology is essentially a distributed, synchronised and secure networked database and so it can be applied to other areas as well as finance.

The ability to use this method of collaboration on a networked database means it has potential applications in almost all areas of business and public administration. From tracking and tracing crucial supply chains like medical distribution networks, to smart contracts in business and legal processes, there are a huge number of ways in which blockchain can benefit businesses and society in general.

Types of Blockchain

Blockchains can be public, private or partially private networks, according to whether users need to meet certain criteria (like being an employee or partner in a business) to access them.

Another form of blockchain is a consortium, in which a pre-selected group (such as businesses collaborating in a supply chain) control access. Users of this network may need different forms of permission that allow them to read only, or alter information in the blockchain according to their role in the companies.

Use Cases

Tracking and tracing is the aspect of blockchain which is most useful to supply chain networks in a business environment.

The BMW Group is using blockchain’s tamper-proof data sharing in a project called PartChain to ensure the traceability of components and raw materials in multi-stage international supply chains.

Andreas Wendt, member of the Board of Management of BMW AG responsible for Purchasing and Supplier Network said:

“PartChain enables tamper-proof and consistently verifiable collection and transaction of data in our supply chain. This move is designed to take the digitalisation of purchasing at the BMW Group to the next level. Our vision is to create an open platform that will allow data within supply chains to be exchanged and shared safely and anonymised across the industry.”

The PartChain project adds to an initiative started in 2018 which was co-founded by BMW Group called Mobility Open Blockchain Initiative (MOBI).

The Mobility Open Blockchain Initiative is a cross-industry initiative by 120 leading automotive, mobility and technology companies. Within MOBI, BMW heads a working group on supply chain issues. The MOBI members’ shared objective is to help Blockchain technology break through in the mobility sector.

Blockchain could also be used in the public sector where data needs to be collected and updated without compromising that data. This can reduce the time taken over interactions between governments and citizens like filling out forms: reducing the administrative workload and cost to the taxpayer.

A great example of the application of blockchain technology is the collaboration between the Australian government and a green energy company called GreenSync. Their decentralised energy exchange allows Australians with solar energy generation and battery systems to track and sell energy to the grid in such a way that the whole energy network becomes more reliable through innumerable energy sources. Because this requires tracking of money and energy values, as well as a public/private network, the blockchain technology is fundamental in providing transparency and automated accounting.

Smart contracts are another blockchain innovation. A smart contract is a code which functions as a set of rules which are predetermined and signed by both parties. The resulting agreement is a tamper-proof “document” which lasts as long as the interaction between those parties without the need for intermediary solicitors and legal fees.

SAP and Blockchain

There are several ways in which SAP provides access to blockchain technology:

SAP Blockchain-as-a-Service is a means to access blockchain services provided by companies such as Hyperledger Fabric, MultiChain, and Quorum.

Through SAP blockchain components: SAP Cloud Platform Blockchain, and the SAP HANA Blockchain Service which enables enterprise blockchain platforms to connect to SAP HANA.

SAP Cloud Platform Blockchain integrates with the rest of an SAP ERP system using SAP Leonardo. This can be used for many functions such as mobile device management, shipment tracking, and wireless security networks.

More recently, in order to simplify integration SAP created the Business Blockchain Bridge (B3). This can connect many business applications with a blockchain network using APIs so that a business can perform transactions, messages and transfer virtual assets.

SAP has also been working on integrating blockchain in many ways in the SAP Business Network so that a network of trusted first, second, and third tier suppliers can collaborate more easily.

GreenToken by SAP is a system enabled by blockchain technology which ensures transparency of raw material usage which occurs before some products enter a supply chain. Companies are now subject to Environmental, Social and Governance legislation, like having to ensure some materials are sustainably sourced. On top of this companies may be motivated to ensure sustainable sources of materials as many consumers are keen to only buy products which are compliant with these values: whether they are written into law or not.

GreenToken uses the principle of mass balance with digital twin tokens on a blockchain to provide a chain of custody record for raw materials. This makes the transparent supply chain extend all the way back to the point of extraction of raw materials like metals from mines.

Unilever is using GreenToken to help them achieve a deforestation-free supply chain by 2023. Dave Ingram, Unilever’s chief procurement officer said:

“Blockchain technology has the potential to help companies, like ours, track their supply chains to ensure the commodities we source respect people and the planet. We are encouraged by the promising results of our pilot with GreenToken by SAP: the latest building block to our tech-enabled approach to ensure a more traceable and transparent supply chain”.

The Importance of Blockchain to SAP

Over the next five years we can confidently expect blockchain technology to become an integral part of the SAP cloud service provider business model as they drive their existing and future customers to the cloud.

One of the key reasons for wariness of migrating to the cloud among SAP users is the issue of security and this is clearly addressed with blockchain technology.

Equally we have seen external economic pressures on businesses to adapt their supply chains to collaborate more closely between suppliers, to be far more resilient, and to account for environmental factors like carbon footprints and material usage. Blockchain has also been seen to be useful in addressing these issues as well.

Finally and by no means least, we can see that the blockchain market itself is expanding at a staggering rate and SAP has always demonstrated a keen enthusiasm for emerging technology and aimed to capture emerging markets. According to the State of Blockchain report by CB Insights, funding in blockchain companies grew by 713% year-over-year in 2021 to reach more than US$25bn.

The Emerging Market

Commentators have suggested that the blockchain market has exploded, then fragmented after the initial boom as more and more applications have been found for the technology: making it difficult for vendors to control the messaging. But the expectation is that it will settle into the background and become an indispensable part of the digital infrastructure of cloud services.

There will naturally be some market leaders emerging who will acquire their less competitive peers as they expand, and SAP will no doubt want a share of this as it aligns so closely will their long-term strategic goals.

We can therefore confidently expect that, although there are no blockchain training courses provided by SAP currently outside of other platforms like the Business Technology Platform and within the S/4HANA framework, a cohort of SAP blockchain specialists is likely to emerge in the next few years. Current SAP professionals would do well to investigate blockchain technology in detail. Then they will be familiar with it when the need for SAP blockchain consultants becomes widespread.

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