What’s the latest on blockchain? Blockchain experts from SAP offer additional answers.

The so-called “blockchain winter” of 2018, which brought the hype surrounding the technology to an end, turned out to be very much to SAP’s advantage.

Read part one of this story here.

“We were able to spend 2019 consolidating our collective expertise and focusing much more closely on specific use cases in the enterprise environment,” Torsten Zube, former head of the SAP Innovation Center Network and current head of SAP Cloud Platform Business Services, says. “We saw that more and more businesses were looking seriously at blockchain and gaining a better understanding of the technology.”

“The challenge for us is to ask the right questions at an early stage,” says Thomas Uhde, head of the blockchain team at the SAP Innovation Center Network in Potsdam. “It often happens that customers come to us with a business problem and assume that the solution must lie in blockchain. We then have to look together at whether the problem we want to solve is in fact a case for blockchain or not.”

One such case emerged from the need to verify the authenticity of returned drug products.

“Counterfeit, stolen, and contaminated pharmaceuticals products are a massive issue all over the world,” says Oliver Nuernberg, chief product owner for SAP Life Sciences. “Which is why the United States introduced an act in 2013 requiring pharmaceuticals companies that trade on the U.S. market to perform strict checks on returned products prior to resale. A pharmaceuticals customer of ours, Merck Sharp and Dohme, wanted to invest in blockchain, and the blockchain use case was a perfect fit for them in this context.”

The result was SAP Information Collaboration Hub for Life Science.

“Every pharmaceutical product package delivered to the United States is registered on our solution’s blockchain,” explains Nuernberg. “Customers no longer have to authenticate a returned product themselves; instead, they simply use an app that accesses the blockchain.”

Alongside verification, traceability is one of the major benefits that when properly used, blockchain technology can deliver. The materials traceability option for SAP Logistics Business Network, a blockchain extension of the SAP Logistics Business Network, provides an end-to-end picture of the supply chain in industries such as foods and pharmaceuticals.

“Increasingly, people want to know where their food comes from,” says Product Owner Christoph Huber. “We proposed a cloud solution to customers, but they were uncomfortable with the idea that a company — in this case, SAP — would be managing the database on which all the companies involved in production stored their information. They wanted the decentralized approach that blockchain allows.”

This kind of scenario obviously requires all the partners to agree on the policies governing a blockchain network. “You don’t have to be a large customer with your own IT department to use blockchain,” Uhde says.

That is demonstrated by the GS1 blockchain project for exchanging EUR-pallets. In a six-month pilot project, 30 parties, ranging from a market gardener with 20 employees to DHL and Beiersdorf,  were able to form and participate in a network.

However, as Uhde points out, “while the vision of all companies worldwide coming together in a single blockchain network is a nice one, it’s totally unrealistic. There will always be at least one business partner who doesn’t participate, which is what makes interoperability so important. It would be wrong for enterprise blockchain networks to end up simply creating bigger silos.”

Blockchain was originally intended to function as a kind of database to which all the participants in a network have equal access. But certain business scenarios, such as third-party business transactions, expressly require that all partners do not have access to every detail of the supply chain.

“What we have developed with customers instead is a kind of digital notary service on the blockchain, in which the focus is on validating data rather than exchanging it,” Uhde explains.

Flexible digital collaboration tailored to specific use cases will be an important area of application for blockchain in the future.

Uhde describes the goal as a flexible collaboration network: “Once it’s set up, the connection to business partners can be used for a wide range of scenarios, some containing blockchain, others not. Some partners will exchange non-critical data via blockchain, for automation scenarios, for example. For others, notarization will be sufficient.”

Tokenization is another trend that the blockchain experts at SAP are exploring.

“Essentially, tokenization refers to the exchange of assets other than money,” Zube explains. “Carbon trading is a good example. In the future, products could be priced in euros or dollars, and in carbon values too. We’d pay in the normal way, but we’d have to have the corresponding carbon credits available, earned, for example, by planting trees.”

The carbon value of a product can be calculated using product master data, transaction data, and so on — including the CO2 emissions connected with the raw materials, transportation routes, machinery, and factory facilities involved in production.

“That requires data on the CO2 impact to be exchanged across all organizations in retail and supply chains,” Uhde says. “Blockchain technology can do precisely that.”

And according to Zube, “To use the terminology of Gartner hype cycles, we haven’t yet reached the ‘Plateau of Productivity,’ but we’re well on the way.”