Blockchain: Will IoT-Driven Tech Revolutionize Manufacturing?

Blockchain technology can usher in 'a halcyon age of prosperity for all,' says media theorist and author, Don Tapscott

Ramy Caspi
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Blockchain has several use cases besides digital currencies, from foreign exchange transfer to identity management. Blockchain can also be applied in other industries, e.g. for travel management or intellectual property rights in the media industry. However, it is still unclear if and to what extent the manufacturing industry is impacted by blockchain technology.

Manufacturers recognize the disruptive potential of blockchain to streamline complex supply chain operations, simplify trade finance and spur the transition to customized manufacturing. Yet, most manufacturers are not moving aggressively to prepare for the transformative changes that blockchain will bring.

Blockchain has the potential to “radically simplify many business processes, by reducing risk and boosting transparency,” according to Alex Tapscott, co-founder of the Blockchain Research Institute.

Research by Deloitte found that 42 percent of executives in the consumer products and manufacturing industry plan to invest $5m or more in blockchain technology this year. So there’s clearly something in blockchain for manufacturing. In this article, we highlight three potential opportunities.

In an interview with ZDNet, Gary Brooks, Chief Marketing Officer of global manufacturing and supply chain technology company Syncron said blockchain is of particular interest to the manufacturing industry due to its benefits regarding verification and transparency. "Manufacturers' supply chains are sophisticated, complex organizations with a number of nuances that can make transparency and accountability challenging -- especially when it comes to the logistics of building and shipping new equipment and service parts," Brooks said. "This is particularly true as manufacturers shift from a transactional, break-fix model of after sale service -- where a service part is replaced after it has already failed -- to a subscription-based model that focuses on maximizing product uptime."

Traceability is key in tracking the flow of manufactured goods, helping to ensure compliance with both current and future regulations. It goes without saying that all firms are very interested in avoiding the high costs associated with product non-compliance. The capability to rapidly recall products is necessary, both to avoid these costs and to avoid interruptions in the supply chain. In the coming decade, blockchain will be instrumental in all these areas.

The security implications are huge. Complete transparency means any disturbances can be spotted in real time, therefore reducing the risk of theft, fraud, counterfeit, and cyberattacks - all of which are a very real threat to the current supply chain infrastructure.

For anti-counterfeit in particular, blockchain could offer a very welcome new solution. Current solutions are becoming easier to outsmart. By using blockchain, supply chain partners can scan a product for authenticity at each stage of the product journey. For instance by checking it against key attributes, and against a unique ID given to each product.

In day-to-day manufacturing operations, blockchain may prove incredibly useful in asset management and minimizing manufacturing downtime. Consultants envision manufacturers deploying blockchain technology between their ERP system and parts suppliers, enabling IoT-connected machines to safely order replacement parts that arrive just in time for an engineer to install. Combined with predictive and prescriptive analytics, IoT-driven blockchain technology may eventually be the most automated, fail-safe way to keep the factory humming.

So what is Blockchain?

Blockchain is a distributed ledger system that maintains a continuously growing record of transactions, or blocks, where each block is linked to a previous block and cannot be altered or reversed once it is added to the chain, and which does not require a central administrator to guarantee the veracity of any transaction. It is essentially a technological solution to the issue of trust in a record or transaction. Blockchain is the underlying technology behind bitcoin, which is a digital token that allows one party to pay another anywhere in the world for goods and services, in some ways like cash. Just like a dollar bill, a bitcoin, once used, permanently passes to another person and cannot be reused or unilaterally withdrawn. With a dollar bill, this is because the bill physically passes to another party; with a bitcoin, this is because the transaction is etched in the public ledger and cannot be undone. Blockchain technology eliminates situations akin to receiving a blank check where there is no value in the underlying account or paying a seller for land that he does not own. Furthermore, because the transaction itself is secure, the cost of the transaction can be significantly lower when compared to traditional payment methods such as credit card payments, international remittances, or any situation where there is a third party guarantor.

What are Smart Contracts

A smart contract is a computer protocol intended to digitally facilitate, verify, or enforce the negotiation or performance of a contract. Smart contracts allow the performance of credible transactions without third parties. These transactions are trackable and irreversible. Smart contracts were first proposed by Nick Szabo, who coined the term, in 1994. Proponents of smart contracts claim that many kinds of contractual clauses may be made partially or fully self-executing, self-enforcing, or both. The aim of smart contracts is to provide security that is superior to traditional contract law and to reduce other transaction costs associated with contracting. Various cryptocurrencies have implemented types of smart contracts.

Business benefits of Blockchain

Using this new platform can bring many business benefits, but most are centred on delivering one or more of six competencies:

1.      Efficiency – As transactions are completed directly between the relevant parties with no intermediary and with digitised information, settling the transaction can be quick. Added to this is the ability to operate smart contracts that automatically trigger commercial actions based on satisfying specified criteria. This can dramatically streamline processes and remove time and cost from transacting. 

2.      Auditability – As each transaction is recorded sequentially and indefinitely, it provides an indelible audit trail for the life of an asset as it passes between different parties. This is especially important if source data are essential in verifying an asset’s authenticity.

3.      Traceability – Tracking goods in a supply chain can be advantageous when seeking to trace where components are currently residing. Information relating to the component can then be relayed to or from the new owner for possible action.

4.      Transparency – Lack of commercial transparency can sometimes lead to delays and a breakdown in relations. By providing details of transactions against the commercial construct, further trust can be enlisted within the process and so provide a more stable relationship based on transparency rather than negotiation. 

5.      Security – As each transaction is verified within the network using independently verified cryptography, the authenticity of the information can be assured. Assured information is one of the fundamental keys to unlocking the benefits of the Internet of Things, which is a closed-loop cyber autonomous process linking assets to actions.

6.      Feedback – With full traceability throughout the lifecycle of an asset, the asset designers and manufacturers can accommodate through-life asset management into their products to make them more effective. This can allow for information returning from shipping, installation, maintenance and decommissioning.

Applications of Blockchain in Manufacturing

Creating a smarter supply chain: Currently, supply chains span multiple stages and multiple geographical locations, making it difficult to trace events or investigate solutions. But according to industry experts and media sources, blockchain presents an exciting opportunity to create smarter, more secure supply chains. Blockchain opens up a completely new way of tracking product journeys, providing a solid audit trail and real-time visibility for verified supply chain partners. What materials have arrived where, who handled them, how they were transported, and where they came from could all be recorded as ‘blocks’ on the blockchain.

Rules-based intelligence

Blockchains enable the creation of an intelligent and trusted program code that allows participants in building terms, conditions, and other logic into contracts and other transactions. It also facilitates business partners in automatically monitoring prices, delivery times, and other conditions. Moreover, manufacturing companies can also automatically negotiate and complete transactions in real-time. This helps in minimizing transaction costs, maximizing efficiency and thereby, allowing manufacturers to use data in different ways.

Smart equipment and products

Blockchain also facilitates the development of smart devices and equipment, for example; consider the smart vending machine that can register itself on a blockchain platform and thereby, can track its own inventory and cash position. This smart machine will not only issue a replenishment order when it needs restocking but, it can also search for the required products at the best prices. Thus, these machines eliminate the scope for manual effort or the involvement of its owner.

Manufacturing Blockchain Applicational Usage:

Global Logistics and Shipping – The second largest port in Europe, Belgium-based Port of Antwerp, announced a blockchain pilot to automate and streamline the port’s container logistics operations. “According to the terminal authority, moving containers from point to point often involves more than 30 different parties, including carriers, terminals, forwarders, haulers, drivers, shippers and more. This process results in hundreds of interactions between those parties, conducted through a mix of e-mail, phone and fax.” Maersk is investigating blockchain to track global trade and shipments.

Automotive – German automaker Daimler AG has issued a corporate bond worth €100m as part of a Blockchain pilot project. “According to Daimler, the entire transaction cycle – from origination, distribution, allocation and execution of the loan agreement, to the confirmation of repayment and of interest payments – was automated digitally through the blockchain network. Lending technical support were the IT subsidiaries of Daimler and LBBW, which also adopted the Blockchain’s cryptographic signature to prevent manipulation of transactions.Jan Brecht, Daimler’s CIO said, “We see blockchain as a promising technology, not fully mature yet, but continuously growing. Now is the right time to get into it, build up knowledge and form a network of like-minded people to share experiences.”

Aviation – Accenture’s head of Aerospace and Defense said about Blockchain, “I really see this coming in a couple of years”, speaking at the Paris Air Show in June 2017. “Through the lifecycle of the engine, the original parts, the replacement parts and configuration are all being tracked, and it is being done by a number of different companies. Blockchain is in effect a single federated ledger that everybody who uses and touches that engine could use it as a single point of truth of what has happened to the engine. It is something we can see clearly in terms of the benefits and we effectively have a patent pending on how to leverage blockchain in the aftermarket.”

Manufacturing – The manufacturing industry uses QR codes and bar codes to identify products. These methods are notoriously insecure given the ease at which someone can copy or duplicates these codes. According to the Organisation for Economic Co-Operation and Development (OECD), the “imports of counterfeit and pirated goods are worth nearly half a trillion dollars a year, or around 2.5% of global imports.” Imagine if luxury goods were tracked in an immutable blockchain.

Electronics — A case study on electronics manufacturer Foxconn, which has been experimenting with blockchain technology using advanced cryptographic techniques and decentralized networks to build a trusted relationship among its suppliers, partners, factories and customers. The study also explores what Foxconn calls “Chained Finance,” to manage payments and solve a number of integration issues. According to the report, it appears that Foxconn is successfully leveraging blockchain technology as a tool for the movement of money, goods and agreements.

CONCLUSION

Blockchain technologies have the potential to radically change manufacturing supply chains, and with them, cut out the middleman, streamline processes, and improve security on the whole -- as well as simplify data management.

According to the Blockchain Research Institute, an organization whose founding members include IBM, SAP, Nasdaq, Deloitte, PepsiCo, FedEx, and blockchain pioneers, like Nuco, just to name a few, blockchain is an Industry 4.0 technology. In the simplest terms, the Institute defines blockchain as the second generation of the digital revolution that creates the “Internet of Value,” a way of building digital relationships that will reshape the way in which we do business.

Revolution” is the right word for blockchain technology because it is not necessarily about certain companies gaining the advantage but, at least potentially, about broad benefits being felt across multiple sectors. “As with all major paradigm shifts, there will be winners and losers. But if we do this right, blockchain technology can usher in a halcyon age of prosperity for all,” says media theorist and author, Don Tapscott.

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