The blockchain is one of those technical terms that invites a lot of attention, hype, and funding. The decentralized open-source ledger that drives the bitcoin cryptocurrency, blockchain can record transactions between two parties in a verifiable and permanent way – providing a near-real-time and indelible record that’s replicated among participants.
A good way to visualize blockchain is to compare it to software such as Google Docs. With Google Docs, multiple users can simultaneously access and edit a single document. With blockchain, you have a distributed ledger – one set of data replicated in multiple locations. Unlike a Google Doc, you can only add to the ledger rather than change previous entries.
Instead of having one Google document accessible by many, blockchain is where you would have multiple Google docs replicated on many servers, where additions to one document automatically authenticate and update others.
Why is blockchain important to businesses?
Blockchain has the potential to help any industry that deals with transactional data. Transactions, especially in industries such as finance, can be complex and time-consuming. Blockchain can replace this paradigm with an alternative that is transparent, verifiable and tamper-proof.
A blockchain is a database stored in multiple locations that can maintain increasing records (or blocks) which are timestamped and linked to previous blocks in a way which cannot be undone. It’s a method of recording data – anything that needs recording and verified as happened. Once data has been recorded, it cannot be changed, only added to, and updated on the entire network.
Dr. David Galindo, a senior lecturer at the University of Birmingham and cryptography expert, spells it out like this to the Guardian: “Blockchain has the potential to replace mediators who are present today in multiple industries to provide transparency and accountability, such as banks for financial transactions, universities for verifying academic certificates or music companies to reward music creators.”
Businesses such as Airbus and Daimler AG have joined collaborative groups like the Hyperledger project, an open source collaborative group set up to advance cross-industry blockchain technology, by working with companies including IBM.
Blockchain technology in manufacturing
For manufacturers, much attention on blockchain centers around how it can work for supply chains. In modern manufacturing, the supply chain can work across multiple organizations and countries, which can make it difficult to chase individual events or find solutions to increase efficiency.
Most company information flows through a supply chain characterized by communication with little or no agreement on data taxonomy, or even a uniform way of recording, storing and exchanging data.
The blockchain has the potential to create smarter and more secure supply chains, tracking the journey of a product through a clear and solid audit trail, with real-time visibility.
For example, you could track materials and determine where they arrived, who received and handled them, as well as how and when they were transported to the next stage. All recorded as blockchain “blocks”.
Greg Cline, head of research for Aberdeen Group’s Manufacturing, Product Innovation and Engineering practices, says: “Many manufacturers are very excited about blockchain’s potential ability to verify goods moving through the manufacturing supply chain.
“The highly transactional and often multi-step and nature of business process services means that the potential applications of blockchain in manufacturing are significant.”
Here are some opportunities for supply chain visibility.
- Blockchain technology could be coupled with apps or even artificial intelligence (AI) or the Internet of Things. Instead of being lost through paper, information on a product’s location and origin can be available extremely quickly. You can even identify parts or materials that are defective and source the best materials.
- Blockchain has the potential to automate payment processes through smart contracts, where payments are triggered as products ships. This eliminates the possibility of transparency and lost invoices.
- Blockchain could provide more information to buyers purchasing in volume with multiple manufacturers and stages of processing, providing visibility and verifiable data about what they are buying, where they are buying, and what they are paying.
Greg says organizations are being spurred into action, with an understanding that blockchain can ease compliance, traceability and safety pressures. In the graph below are business pressures that manufacturers believe blockchain could address.
Manufacturers believe blockchain has potential in supporting traceability, records management, supply chain automation and payment applications in manufacturing.
The way blockchain could aid traceability is key – traceability reduces business risk as it’s a key component in tracking manufactured goods and ensuring compliance with current and future regulations.
Greg says: “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.”
Manufacturers believe a blockchain-enhanced supply chain can support better traceability and transparency, both with partners and suppliers. They also agree blockchain could enhance product shipment traceability to end users.
Blockchain for distributors, food, and drink, and pharmaceuticals
Large organizations have already seen the potential of blockchain in supply chain and logistics. Global transformation giant Maersk, for example, is working with IBM to develop blockchain technology that can track millions of shipping containers across the world in a digital end-to-end supply chain.
The blockchain can provide the likes of shippers, freight forwarders, and custom authorities end-to-end visibility based on their level of permission. They can see the progress of goods, understanding where a container is in transit. This kind of system would reduce the time spent in transit and shipping, improve inventory management and reduce cost.
Traceability offered by the blockchain could be extremely useful in food and beverage manufacturing, as it could be a good way to track compliance – businesses in the US for example, need to follow the Food Safety Modernization Act.
Food will able to be traced through the whole supply chain – from initial shipment, factory, distributor, and store, with a digital status logged via blockchain at each checkpoint.
This kind of system would allow businesses to pull out traceable information in seconds – in the event of a foodborne illness, for example, the retailer can recall affected products and take them off the shelf.
Blockchain could also be used in the pharmaceutical industry, particularly with compliance and supply chain security, supporting efforts against the counterfeiting of drugs.
In the US, the Drug Supply Chain Security Act (DSCSA) requires the pharmaceutical industry to have a system that tracks prescription across the supply chain, and blockchain could be ideal for this.
Blockchain for day-to-day manufacturing operations
Greg says: “Blockchain may also prove incredibly useful in day-to-day manufacturing operations, including asset management and minimizing manufacturing downtime.
“We 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, failsafe way to keep the factory humming.”
The blockchain could support distributed manufacturing, which makes possible methods such as 3D printing. This is where manufacturers design and create new products and get them made by sending design files to a manufacturing facility which they can “rent out” as and when they need it.
The blockchain could aid the deployment of this kind of 3D manufacturing, as it offers low-cost, distributed and assured integrity when it comes to contracts, product histories, and production processes.
Another area blockchain can support manufacturing is through records management and the protection of intellectual property. It could be used as a digital vault that could provide a registry of intellectual property.
How can manufacturers get ready for blockchain?
Manufacturers believe blockchain could add business value through operational efficiency, leading to revenue growth and return on investment. For example, improved supply chain visibility results in better customer service, financial transactions could be faster, and blockchain security could improve data and record management.
Is blockchain ready for use by manufacturers working with multiple suppliers across globally distributed supply chains? There are still a few issues that need to be overcome.
For example, tracking physical goods is quite different to the tracking of financial transactions – there is the complexity of turning raw materials into goods that need to be distributed into markets, not to mention testing and quality control.
However, the potential return on investment on blockchain is large enough to make solving problems around implementation an incentive – especially with the rise of investment in fintech.
The top priority of blockchain-savvy businesses is to get competent IT staff to handle blockchain while having the right governance and procedures for blockchain is also an important issue.
Also important is having an international regulatory framework for blockchain and the establishment of international technical standards.
Other top concerns are to have a clear business case for use of the blockchain in manufacturing, and a business model that can be repeated.
Instead of developing their own blockchains and running apps on top of these, organizations need to concentrate on using the blockchain to bring business value on common manufacturing problems. This is where cloud-based “blockchain-as-a-service” could work well.
Aberdeen Group advises businesses looking to deploy blockchain technology to look at three areas when improving manufacturing and supply chain processes:
- Pre-defined blockchain use-case blueprints and ready-to-use solutions
- Embedded blockchain technology in existing apps
- Manufacturing blockchain apps that feature easy onboarding for manufacturing supply partners
The blockchain is a particularly interesting example of enterprise innovation that has challenges to overcome as it is a very different way of doing things. But as more manufacturers undergo a digital business transformation, it’s certainly a technology that they should be closely looking at.