Manufacturing Global examines the influence of blockchain technology on the industry
As factories around the world become more and more interconnected, the influence of the blockchain is becoming more prevalent. The Factory of the Future encompasses a whole network of machines, parts, products and value chain participants, including machinery suppliers and logistics companies. Now, more than ever, manufacturers are challenged to securely share data inside and outside the factory walls.
To determine the best place for blockchain, a manufacturer must conduct a structured assessment that begins with identifying current business issues and future business needs. Later, you can explore how you are leveraging technology to alleviate pain points in the factory and address your needs. Armed with a solid understanding of the opportunities and challenges it faces, the manufacturer can choose the most suitable option from the available technological solutions.
Blockchain can scale transparency and trust at all stages of the industrial value chain, from the sourcing of raw materials to the delivery of the finished product. Pain points it could help address include:
- Supply chain monitoring for greater transparency
- Origin of materials and counterfeit detection
- Engineering design for long-lasting and highly complex products
- Identity management
- Asset tracking
- Quality assurance
- Normative compliance
What is the Blockchain?
Blockchain is essentially, as the name suggests, a chain of blocks. However, instead of a physical chain, there is digital information (the block) stored in a public database (the chain). When a block stores new data, it is added to the blockchain.
Blockchain-powered solutions can seamlessly aggregate all information to deliver significant value to industrial companies and help unlock the full potential of other advanced technologies such as augmented reality, IoT, and 3D printing.
In PwC’s 2018 Global Blockchain Survey, researchers found that 84% of executives across all industries said their companies have had some involvement with blockchain, and 15% have live projects. The potential for blockchain-powered solutions to create value by empowering businesses to overcome challenging problems is clear. Blockchains can increase transparency in supply chains, track the identity and credentials of key personnel, and enable smoother audit and compliance functionality. Industrial manufacturing companies are already recognized for being at the forefront of technology development, and respondents to their survey ranked as the second sector among industries leading the way in blockchain.
Blockchain solutions can create value for industrial organizations in a number of different ways. However, that does not mean that it is an equally sustainable solution for all companies or industrial manufacturing sectors. By focusing on four key areas in initial blockchain efforts, companies can be on the path to successful execution. In the PwC report “How can blockchain power industrial manufacturing?”, four best practices for blockchain solutions were examined.
1. Make the business case
Blockchain can be a powerful tool; however, it is not indestructible. It’s vital to make sure it’s a strategic fit. While there is a need to ensure data is shared and updated by different parties, blockchain solutions are particularly effective when time is short and trust is needed between parties.
2. Build an ecosystem
Bringing together a group of stakeholders to collectively agree on a set of standards that will define the business model is one of the biggest challenges in blockchain. Participants must decide the rules for participating, how to ensure that costs and benefits are distributed evenly, and what risk and control framework can be used.
3. Design deliberately
Close attention should be paid to the design of a blockchain. Will it be permissionless, allowing anyone to start and view transactions, or permissionless, restricting access to certain parties? PwC’s Global Blockchain survey shows that companies are adopting both approaches and developing hybrid implementations. Permissioned blockchains are expected to be more appropriate for most enterprise solutions, as their owners or governing bodies can structure rules with privacy and data security in mind.
4. Navigate regulatory uncertainty
Regulators around the world are still examining possible responses to the increasing influence of blockchain-based solutions. According to 27% of PwC respondents, 26% of whom are in the US, believe that regulatory concerns are the number one barrier to blockchain adoption. Rather than wait for regulators to set the blockchain agenda, organizations that see value in the technology should be proactive. It is important to engage with regulators, elected officials, and industry groups to demonstrate that blockchain technology can be trusted, sooner rather than later.
Blockchain in the manufacturing
There is great potential for blockchain in manufacturing. By increasing visibility into all areas of the process, from suppliers, strategic sourcing, procurement and supplier quality to plant operations including machine-level monitoring and service, blockchain can enable a business model completely new manufacturing. Supply chains are the foundation of all manufacturing businesses, most of which are capable of making use of blockchain’s distributed ledger structure and block-based approach to add value exchange transactions to improve efficiency. . By scaling supplier order accuracy, product quality, and track and trace, manufacturers will be able to better meet delivery dates, improve product quality, and ultimately sell more.
Richard Waterhouse, chief strategy officer at NBS, recognizes the true value of blockchain and believes that its influence will only increase. “Blockchain technology is being used more and more in manufacturing, particularly in the supply chain. Many industries, including aviation and pharmaceuticals, have well-documented problems with counterfeiting, and the use of blockchain can help ensure that components are genuine,” he says. “While mass adoption in construction product manufacturing has yet to be seen, it is likely only a matter of time, particularly in the UK, as legislation will lead to a greater focus on safety.” However, Waterhouse understands that it will take time for the introduction of blockchain to feel mainstream. “In construction, there is a movement towards the ‘golden thread of information’, and this includes the requirement of unique identifiers for each construction product and its associated literature. The goal is for construction standards to improve and errors of incorrect product specification or shoddy workmanship to be eliminated. Blockchain could well be instrumental in improving information auditability and accountability.”
“To be clear, this is not going to happen right away. There are real barriers, such as systems maturity, along with understanding and willingness to adopt.”
1. Improved track and trace
Businesses can take advantage of blockchain to more easily, accurately, and securely exchange data within complex supply chains. You can offer a permanent digital record of materials, parts and products, allowing you to promote end-to-end visibility and provide a single source of information for all participants. These benefits are significant if the supply chain includes multiple participants with independent IT systems, or if there is a lack of trust between participants or a need to bring in new participants.
2. Protection and monetization of critical intellectual property
Organizations in manufacturing industries face a dependency to protect intellectual property. Along with cost, intellectual property protection is an important consideration in decisions about whether to manufacture parts in-house or purchase from a supplier. One possibility is for a company to use blockchain technology to help prove ownership of the intellectual property in the event of a patent dispute. For example, Bernstein Technologies has developed a web service that allows its users to register IPs on a blockchain. The service creates a certificate that proves the existence, integrity and ownership of the IP.
3. Simplify and safeguard quality controls
By leveraging blockchain to support quality control, an organization can scale value for customers, another primary goal of the factory of the future. Today, instead of blockchain, we provide full transparency and complete documentation to customers regarding the quality of processes and products that require expensive support from central parties operating IT platforms.
In addition to helping customers track and trace incoming parts throughout a supply chain, blockchain creates immutable documentation of quality checks and production process data. The database uniquely labels each product and automatically enrolls each transaction, modification, or quality check on the blockchain. To enable this application, the production setup must include automated quality checks that generate and write measurements directly to the blockchain. This use case supports multi-party access to data and can eliminate the need for inbound QA to verify checks being performed by the provider. It can also reduce the need for audits by original equipment manufacturers or central authorities to verify quality controls.
4. Advanced machines as a service
Blockchain accelerates the possibilities of using an innovative pay-as-you-go model for machinery, often known as Machines as a Service (MaaS). In this model, instead of selling production equipment, a machinery supplier charges for the use of the equipment based on the output it generates. For example, instead of selling a compressor, the machinery supplier sells compressed air by volume. By relying on MaaS instead of proprietary machines, manufacturers can avoid large upfront investments and can easily upgrade equipment to gain access to the latest technology. If applied correctly, the MaaS model will allow manufacturers to scale their production flexibility effectively.
5. Allow machine-controlled maintenance
Blockchain can support new maintenance approaches such as automated service agreements and shorter maintenance times. These innovations are necessary to manage the increased complexity and technological sophistication of advanced production machinery. To facilitate outsourced maintenance, users add service agreements and installation documentation related to each device to the blockchain record, creating a digital twin of the device. Blockchain technology can then enable automated execution and payment of scheduled maintenance. A machine that requires maintenance can trigger a service request and generate a smart contract for work or a spare part. Upon fulfillment of the order, payment processing is done automatically. Additionally, immutable documentation of maintenance history is attached to the blockchain record. Still in early development, such applications increase equipment reliability, make it easier to monitor equipment health and wear, and create auditable machinery health assessments.
Rafi Billurcu, a manufacturing partner at Infosys Consulting, believes that in manufacturing, one successful use of blockchain is the creation of smart contracts in global supply chains. “Documents and contracts are the beating heart of any supply chain. Instead of storing them in silos in the legal, procurement, and accounting departments of various companies, as in a traditional supply chain, in a blockchain, each of these items can be stored in highly encrypted, decentralized nodes in a “smart contract”.
“Instead of existing on paper, smart contracts exist as a computer program on a blockchain. The terms and conditions of a contract cannot be changed, ensuring a level of trust that humans cannot achieve on their own. What makes smart contracts truly “smart” is their ability to not only streamline and automate entire processes, but also perform human tasks like monitoring inventory or negotiating prices with other parties. Altogether, smart contracts can automatically track supply chain tiers, inventory levels, and prices, replacing costly manual processes. Ultimately, this reduces costs and allows manufacturers to maximize profits, without compromising credibility and trust.”
What does the future hold?
Manufacturing has always been considered an industry that sets in its ways. However, with technologies like blockchain, AI, and machine learning playing a more influential role, the Factory of the Future will look very different. As blockchain technology matures, it will enable, through trust, manufacturers to remove some obstacles that have prevented the large-scale deployment of other next-generation technologies and innovative business models. As a result, more efficient factory operations that require data sharing and collaboration between complex networks of companies and machines will be created and set as a new industry-wide norm.
Billurcu adds that with blockchain-based smart contracts having greater influence in supply chains, any buyer can find a contract and act instantly. “This means they get the product they need and can afford it without the costly overhead associated with traditional supply chains,” says Billurcu. “This could mean a radical overhaul in the way international trade is conducted, speeding up transactions, reducing reliance on paperwork and enhancing profitability.”
With the future in mind, Waterhouse has a clear vision of what the next few years could look like in a blockchain world. “A blockchain approach would improve standards, increase trust, and also improve project delivery speed as the need for human validation at each step would be reduced. This would lead to improvements in product availability and delivery times.”