Can blockchain replace EDI in the supply chain?
Few technologies have ever aroused as much hype as blockchain. But beneath the ginned-up excitement, interest in the distributed ledger technology is genuine and goes far beyond blockchain’s best known realm of cryptocurrencies to a plethora of practical uses across a broad range of industries.
“Everyone is looking into it and doing pilots,” says Matthias Roese, chief technologist for manufacturing, automotive, and IoT at Hewlett Packard Enterprise. That interest is reflected in projected spending on blockchain technologies, which is growing at an 81 percent compound annual growth rate and will reach $10 billion worldwide in 2021, according to Bill Fearnley, research director for blockchain strategies at IDC.
One area in which blockchain has the potential to make an impact is the supply chain, particularly as a potential successor to electronic data interchange (EDI) for transmitting contractual information between parties quickly and seamlessly. “Supply chains are the killer use case,” said Fearnley at the IDC Directions 2018 conference in Boston.
Increased visibility, less risk
The immutability of changing a blockchain transaction once it has been recorded guarantees the integrity of supply chain events, a key benefit for manufacturing companies. An exact record of what happened during the manufacturing process would greatly benefit troubleshooting product quality issues and could provide an effective tool to counteract fraud and theft.
“Blockchain provides buyers and sellers with increased visibility and control from shipment to receipt, which ultimately reduces the risk of fraud,” says Marcell Vollmer, chief digital officer at SAP Ariba. Blockchain’s promise of integrity will play a role in the supply chains of industries in which the knowledge of the source of raw material is critical, according to Vollmer. “You get transparency and visibility into the provenance of goods. People want to know what they are buying,” he says.
Provenance plays a significant role in industries as disparate as diamond mining and palm oil production, Vollmer says. Many companies that use palm oil in their products want to make sure the substance was produced in a sustainable way, through fair trade and without using child labor. By tracking the palm oil from the farm on which it was produced, blockchain technology can add a significant layer of moral assurance to consumers of products containing palm oil, Vollmer explains.
Similarly, in the diamond industry, some gems are produced by mines that violate ecological or employment laws. Diamonds produced by legal mines can be given numbers invisible to the naked eye and recorded in a blockchain distributed ledger that can establish the provenance of the precious stones from the mine to a finished piece of jewelry, according to Vollmer.
The fundamental integrity of blockchain could generate gains in other areas as well. “Improving your data improves your analytics,” says Fearnley. “Then you can put AI, machine learning, and fraud analytics on top of that.” For example, enterprise fraud management, a field that relies heavily on analytics, is likely to see an influx of blockchain technology in the next several years.
The ability to establish connections and move quickly could be another point in favor of blockchain. B2B integration today requires that two parties establish a relationship before implementing EDI, but blockchain does not require a pre-existing relationship. “Blockchain in B2B integration brings more agility. Today, B2B integration requires that both parties know each other, at least on a technical level, to provide ways to solve issues such as nonrepudiation and acknowledgement,” writes Forrester Research principal analyst Henry Peyret in the report, “The Future of B2B Integration" (Sept. 29, 2017). “Forrester expects that, in the next three to five years, blockchain technologies could be used to provide additional agility in building dynamic ecosystems.”
Although EDI has built a 20-year track record of reliability, the venerable technology’s main weak point is its cost. “If there’s going to be a rationale for replacement, it might just be that blockchain is cheaper,” Fearnley says.
But not everyone says the transition from EDI to blockchain is a done deal. “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,” says Simon Ellis, program vice president of supply chain strategies at IDC. He adds, however, “If you can make things more secure and faster, everyone will benefit.”
For its part, SAP Ariba implemented a blockchain strategy in 2016 through a partnership with Everledger, a London-based financial technology company, to extend blockchain capabilities to its Ariba Network. However, Vollmer says that even without blockchain technology, the Ariba Network is capable of superseding EDI because it provides the benefit of having to register just once, after which you can reach out to millions of business partners. This is similar to a B2C platform like eBay, where you register once and can then buy and sell to anyone else on the platform. He adds that this is the next evolutionary step in connecting companies to transact, but more important, you can also collaborate and generate new opportunities on business networks by searching, finding, and teaming up with business partners. “EDI might get disrupted before blockchain. Business networks will play a very powerful role, because you already have secure transactions,” Vollmer says.
Even if blockchain technologies don’t displace EDI, the threat that they might could drive EDI technology to both improve in functionality and become more economical. According to Forrester’s Peyret, “EDI will not disappear, but it will need to evolve to bring more agility while continuing to decrease license and/or operational costs due to a continuous increase of volume.”
Blockchain on the march
Here’s how IDC sees blockchain adoption in 2021:
- Financial services: 35%
- Distribution and services: 25%
- Manufacturing and resources: 20%
- Public sector: 10%
Finding the right blockchain partner: Lessons for leaders
Like any project, a blockchain implementation has specific technology and integration requirements. “The first stage is a pilot to gain familiarity with the technology and see how it works in a controlled environment,” says HPE's Roese. Organizations embarking on blockchain journeys should find a partner that will provide guidance with regard to underlying infrastructure as well as the blockchain technology itself. Roese says the engagement should start with a readiness assessment and involve conversations on the following:
- Infrastructure: This encompasses a mix of traditional IT, private, and public cloud infrastructure.
- Design, build, and run: Consulting guidance with experts and partners is key.
- Ongoing strategic partnerships: Software and platform providers as well as advisory and system integrators play an important role.
Editor's note: IDC's Bill Fearnley passed away after this interview was completed.
This article/content was written by the individual writer identified and does not necessarily reflect the view of Hewlett Packard Enterprise Company.