Blockchain and EDI
Blockchain has risen out of relative obscurity and become a tech industry buzzword. It seems that there is no industry that blockchain hasn’t been tipped to revolutionize. Even in tech circles, many still only have a vague understanding of what it is. What exactly does it mean for their organization, specifically?
So, what is blockchain?
It turns out, the real question is: what is blockchain not? Going by headlines, it’s not always clear that blockchain is not a software solution or something you can buy. It is a method of operation. It uses a network of digital ledgers that document and cross-check transactions against one another. By comparing figures, they make sure that the whole network has the same number, and then move on to the next transaction. By gathering consensus from each ledger, data is immutable and cannot be changed.
Lately, there have been murmurs that blockchain could even usurp one of the most widely-used forms of transactional information transfer in organizations – Electronic Data Interchange, or EDI.
What is EDI, and is it a dying technology?
EDI has been around for a long time. The technology first came to use in the 1960s, and its use has been widespread since then. The main draws of EDI are that it reduces the amount of error-prone human intervention needed (i.e. – calling, printing, mailing, etc), and allows the secure, auditable transfer of information. Heavily used in supply chains, it’s a protocol for transferring structured data from ‘Point A’ to ‘Point B’. It is also governed by international standards (ANSI or EDIFACT) to ensure that all of the needed information is included. In an ERP setting, it helps to automate certain processes and eases the pressure of inter-business trade.
As for claims that blockchain will make EDI redundant, they don’t hold a lot of water. Simon Ellis, Program Vice President of Supply Chain Strategies at IDC, commented on the likelihood of EDI’s death due to blockchain:
“There have been many contenders to overthrow EDI over the years, and none of them have succeeded because EDI does what it does pretty well.”
EDI and blockchain coexistence
That is not to say that there are no areas of EDI that could be improved. EDI is a strong player in supply chain management. However, it’s fairly limited to structured data transferred between only two points. For EDI to take place, parties need to have some relationship to each other for the passage of information. As we all know, though, supply chains are not always that simple. Third parties are often involved and there are many forms of unstructured data that need to be considered, such as equipment maintenance notes or logistics planning data. Blockchain technology lets those unstructured pieces of data join the stream of information that’s passed between every stakeholder.
Larger organizations and enterprises often require suppliers to have the same EDI standard in place as them, to facilitate smooth transacting. Smaller businesses often find it harder to shoulder the high up-front costs of EDI, so standards tend to effectively cut them off from trading with larger partners. On the other hand, blockchain is predominantly developed and maintained as an open-source process, and avoids strict adherence to those standards, at least for the time being. Small to medium businesses also do not have to have a relationship or connection with all of the involved parties to participate in the supply chain when using blockchain, opening potential trade doors.
EDI currently requires robust security for the computer networks involved: against viruses, hacking, malware and other cyber-security threats. On the other hand, one of the main draws of blockchain is that it is a process that belies “hacking” or interference. Even if a user could take control of a block of data, within minutes, the control is lost.
Beyond that, EDI has developed over time as a secure way to reduce human error and automate processes – but there are still errors. This can be due to differing standards in place between communicating users. There is an added layer of complication and human intervention in place. Blockchain tech leverages Smart Contracts, a method of automatically clearing transactions for errors before they are ever sent. There is a caveat: it is likely that in the future, Smart Contracts will see some form of standardization.
Blockchain, in many ways, is a product of the growing societal call for more transparency, especially in the aftermath of the 2007/2008 global economic crisis. The open ledgers are just that: open. Users are usually given a pseudonym (randomly generated and difficult to unencrypt) so no personal data is present. However, each and every transaction is visible on the ledger. Obviously, there are certain things best kept private. IBM, as a result, are making moves into the development of “private ledgers”. In such a set-up, each block could only be accessed by authorized users. The information would not be available to the public at large.
How will this affect ERP users?
EDI within your ERP helps reduce the amount of human intervention needed to communicate with the businesses you work with. When EDI software is set up, relevant fields are mapped and documents can be auto-generated once the ERP software notes the transaction. Blockchain wouldn’t replace the ERP/EDI relationship, it would simply add another layer of automation. The consensus-based model would mean highly detailed audit trails. It could also mean participation by outside users that do not have inside access to your ERP, like field workers or maintenance workers.
Blockchain’s capabilities when paired with ERP systems have shown some excellent results. A recent IBM/Walmart case study showed Blockchain tech pulling data from Walmart’s ERP and using it to catalogue the journey of fresh produce from original supplier to end-customer. You can read the full case study here.
What is unlikely is that ERP users would scrap current builds and start anew. Blockchain, like other solutions that draw from current data, will most likely be integrated into ERP software after the fact. So, then, it will be integrated into each solution, like EDI. There may be a shift away from current EDI standards, towards a Smart Contracts model. This may pre-approve transaction details before it they are sent, but we have yet to see that happen. Moves are definitely more likely to happen for those in the supply chain or logistics industries though. From there, we may see it rolled out to other industries.
Blockchain technology is unlikely to outright replace the processes in place. Instead, think of blockchain as a way to supercharge those processes.