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Blockchain Applications in Manufacturing

 

Blockchain Applications in Manufacturing

Blockchain is receiving more and more attention from not only the business media, but also from forward-looking companies attempting to continue their push towards process efficiency, timeliness, and cost reduction. Blockchain is the latest technology touted as “the next great disruptor” to the business and commerce landscape. Besides the financial services sector, the manufacturing industry has begun to test proof-of-concept cases utilizing blockchain technology.

     
The most common use of blockchain today is for the variety of crypto-currencies in circulation around the world, including Bitcoin. However, several industries have begun to look at how blockchain technology can be used to transform their business processes and transaction processing. The Wall Street Journal/CIO Journal reported in a January 30, 2017 article that 30% of manufacturers/consumer goods companies have blockchain projects underway and another 28% had them planned for this year (companies over $500 million in revenue).  


Patent filings, which are often viewed as a measure of innovation, also differ sharply by industry. Twenty-one percent of organizations have filed for blockchain patents. Consumer products and manufacturing companies lead the way, with 38% having filed patents -- this suggests that industry could be on the threshold of a period of significant blockchain innovation.

 

What is Blockchain?

Blockchain is a distributed ledger that operates on a peer to peer network. Everyone on the chain has a copy of the ledger. The information within those ledgers are referred to as blocks (business transactions), hence, blockchain. The information is not maintained or controlled by a central authority and the information is immutable (unable to be changed).   


There is some confusion between Bitcoin (or other crypto-currencies) and blockchain. The easiest distinction is to think of Bitcoin as an application and blockchain as the technology (or network) that Bitcoin operates upon. Said another way, Bitcoin is to email (an application on the internet) what blockchain is to the Internet. 


Many people refer to blockchain technology as the “network of trust” because blockchain users can only update the “block” (transaction record) to which they have access. Once a community member on the chain (network) submits an update request, certain participating parties with high powered computers on the chain validate the transaction by running algorithms to evaluate the proposed record update. Once approved, those updates get replicated across all the nodes on the chain (network) so that all other parties are aware of the transaction update that was just made. All entries are time/date stamped, providing a detailed audit trail of all interactions. All data is encrypted and available on everyone’s system (ledger) on the chain.

 

What’s blockchain’s relevance to the manufacturing industry?

The application of blockchain technology for the manufacturing industry has multiple potentials for improvement of existing processes, and security/protection of intellectual property including a sample, as follows:

Supply Chain Improvements

One of the most common examples of how blockchain is being used in the supply chain can be found in the ocean line and transportation company, Maersk.  Maersk deployed a blockchain solution to track containers during the shipping process. Maersk’s goal was to reduce the labor and bureaucracy that is necessary for shipments. Through the blockchain, all organizations in the supply chain have access to the information that is relevant for them, and they can act on it. Future applications will include other players like shippers, freight forwarders, ocean carriers, ports, and customs authorities. By reducing the paperwork, providing important information more rapidly, and preventing shipping fraud, Maersk hopes to reduce the shipping costs to their customers.

Internet of Things (IoT) and Industry 4.0 Applications

One of the barriers to wider deployment of IoT technology is the authentication of devices. One company, Factom Iris, is attempting to use blockchain technologies to address this issue. They realized that the current form of authentication based on certificates from authorities is too expensive and that the scalability is questionable. Therefore, they want to register the devices on a blockchain to create a digital identity of the device which cannot be manipulated. It also offers the advantage that the information about the device can be dynamically updated and added in comparison to traditional certificates.


In another example, IBM has brought to market, via their Watson IoT platform, a way in which small and medium-sized businesses can benefit from IoT investments utilizing blockchain. This platform helps companies save selected IoT data to a private blockchain, which is used to share the protected data among all business partners involved. While the platform is open to all industries and use cases, it is specially designed for supply chain, trade lane, asset management, regulatory, and compliance use cases.


Finally, North Carolina State University has proposed the creation of a public, open-source network that uses blockchain to share verifiable manufacturing data. The system would be used as a peer-to-peer network that allows companies to find small and medium-sized manufacturers that are capable of producing specific components on a reliable basis. This is especially useful because small and medium-sized manufacturers often lack the reach necessary to make all of their potential clients aware of their capabilities. This solution would allow companies to automatically report about their manufacturing activities: which machines are being used, what materials they are working with, raw material inventory levels, whether the work is being completed on time, etc.  Because these updates are automated, users can be certain the information is accurate; and because it’s being done through the blockchain, which allows event logs to be traced to their source, there is accountability. Clients can find the right manufacturers, and manufacturers can find new clients, without relying solely on claims made in marketing materials.

 

What are the challenges?

Although blockchain presents enormous opportunities for manufacturing providers, most applications are still in proof of concept phases or are simply ideas on a whiteboard. 


Garter, an information technology research firm, has adopted a commonly referenced maturity model for new technologies or technology-related strategies known as the Hype Cycle. Their assessment of blockchain is in the first two levels of maturity known as “Technology Triggers” and “Peak of Inflated Expectations.” The next phase in this cycle is the “Trough of Disillusionment” before moving into the “Slope of Enlightenment” and finally the “Plateau of Productivity.” Said more succinctly, this technology is in the earliest stages, and while conceptually it has promising applications, there will certainly be far more ideas that end up being like “mypetrock.com” instead of Facebook or Google.


Some current barriers to broader adoption include:


Standards - - Specific technology standards have not been developed for the deployment of the technology, yet. As such, some older, established organizations will be reluctant to venture into the wild, wild west without either broader adoption or a set of standards being developed, deployed, and implemented by blockchain technology providers.

 

Auditability - - While one of the benefits and potential drivers of blockchain technology should be an ease in auditing as the transactions on the blockchain are immutable. However, some companies have indicated they intend to take a “wait-and-see” attitude to determine how auditing standards bodies or regulators will treat blockchain transactions.

 

Smart Contracts - - Another feature of blockchain technology is the use of Smart Contracts. These are contracts that are ‘programmed” into the blockchain that cause certain transaction to react to certain situations. The use of smart contracts is still very much in the conceptual stage and many are worried whether courts of law will treat smart contracts with the same discipline they treat traditional contracts. 

 

Conclusion

The potential of blockchain is beyond argument for the manufacturing and machine tool industry. A variety of use cases of blockchain technology in the industry have been identified. However, according to the Gartner Hype Cycle, the hype around blockchain is either already at the peak or approaching said peak. Therefore, we should expect a slope in excitement for the technology in the next couple of years. The major reason for this development might be the technical and cultural challenges, but for the future, all experts agree that those problems are solvable and that blockchain will become a key technology to transform many industries, including manufacturing.


Want to talk more about blockchain’s possible applications to your organization? Contact Blue & Co.’s IT Advisory Services leader, Tom Skoog, at tskoog@blueandco.com.

 


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