What manufacturers should know—and why they should care—about this powerful new technology
Of all the new technologies that are part of Industry 4.0, blockchain arguably is the most misunderstood. Too many manufacturers have the mistaken belief that blockchain is either not applicable to their business or is so immature that they need not worry about it yet. Nothing could be further from the truth.
Though blockchain is in the early phases of adoption by manufacturers, research suggests that early adopters across business sectors are demonstrating use cases that have the potential to disrupt several manufacturing business processes. Companies are exploring how blockchain enables automated product and process tracking/tracing, smart contracts and more effective supply chain, logistics and transportation processes.
A quick review of what blockchain is and does, along with how manufacturers are using it will help you determine how to exploit blockchain to create a new competitive advantage.
Where blockchain works
Though the hype around blockchain can be confusing, focusing on some specific, promising manufacturing specific use cases that are emerging reveals the technology’s potential.
Tracking/Tracing products: Maintaining detailed information about the provenance of mined materials, manufactured parts and food is proving to be the most valuable use of blockchain at this early stage. Blockchain allows an asset’s provenance to be retained throughout its lifecycle, no matter how many times the asset has traded hands. Tracking and tracing every aspect of a product is particularly valuable to manufacturers that must, for regulatory or other reasons, maintain detailed records of each step on the production process. Giving oversight agencies the ability to audit supply chains directly in the blockchain promises to reduce paperwork and staffing requirements.
Rolls-Royce, for example, is exploring a blockchain system to track jet-engine fan blades from raw materials to the point of manufacture, and through to the installation on a jet engine. For production, the block for a particular fan blade might contain the origins and chemical composition of the metal used to fabricate the fan blade, the name of the technician who used a set of serial-numbered machines to convert the raw materials to a serial-numbered fan blade, and the date and time of each step.
Once sold, information could be added to subsequent blocks, to track the change of ownership and the route the blade took through the supply chain, including purchase order and tracking numbers, to the final destination. Once delivered, a block would be added with information about the technician who installed the fan blade into the engine. All along the supply chain, as ownership of the asset changes hands, a block representing the transaction is created, linked to the asset’s blockchain and replicated across all nodes of the blockchain.
When using blockchain for tracking and tracing through a product’s lifecycle, all information about the product is instantly accessible to someone with the right security credentials to the blockchain. If that fan blade failed, the company could access the blockchain and trace the fan blade back to the point of origin, determine which other fan blades in adjacent batches need to be inspected and then find those blades in other engines—all in a matter of minutes. As of now, this process takes days if not weeks, as someone has to traverse numerous electronic and paper systems that do not persist the information from point to point.
Walmart is using the same process to track its food supply from farm to table. From a marketing perspective, Walmart can guarantee that organic food originated from a certified organic farm since it can track the item through the supply chain. From a safety perspective, if a food item is found to be contaminated, a look on the blockchain will instantly narrow down the farm or producer, along with any other batches that have been in contact with the tainted batch. With such specific information, producers can with confidence recall only the affected product.
Smart contracts: In some instances, smart contracts, which define the payment terms of the transaction within the blockchain, can trigger automatic payments as ownership of the asset represented by the block is transferred. There are many facets of smart contracts that can be triggered automatically. Any information you can think of that would affect an agreement can be automated into a smart contract. Chick-fil-A has explored using blockchain smart contracts to monitor the transportation of frozen chickens and only pay for shipments that have been kept within a specific temperature range as measured by Internet-of-Things (IoT) sensors embedded within the merchandise. Smart contracts can get complicated and deserve a separate deep dive to appreciate fully.
A similar blockchain concept is the ability to control payment for, and who has access to intellectual property. The ability to retain rights and proof of- copyright over 3-D printed designs is an example. If your company has an innovative design for a 3-D printed part, or if your company needs to acquire and pay a royalty for a 3-D printed part design, you could use a blockchain to automate and streamline the process.
International trade: IBM and Maersk have partnered on a blockchain-based system to handle international payments for goods and services crossing international boundaries in a more time-effective manner. The assets on the blockchain maintain the necessary provenance, and the payments can be triggered based on international laws and contracts programmed into the blockchain (smart contracts). Currently, over 94 companies have joined this consortium. Samsung DSD and Dutch Bank ABM AMRO are also similarly exploring blockchain for international trade.
IoT-enabled products: Porsche is exploring the use of blockchain to communicate with customers’ cars. In this case, the message is considered a virtual asset and can be traded over a blockchain like any other asset. When a message is passed via the blockchain, it cannot be tampered with, which ensures that a bad actor doesn’t intercept it and remotely take over a system in a vehicle.
Secure messaging: Similar to the Porsche example, blockchains can be used to secure messaging over networks. For example, you can treat a message from a device, such as an IoT sensor, as a virtual-asset. Any time a message is sent across the network, the message is validated as having originated with the sender and delivered to the intended receiver(s). Nobody can hack the message since they cannot take control of all of the ledgers at the same time to spoof the system.
The airlines (and several other industries) are considering using a blockchain to control messaging from sensors in airplanes. In this use case, every airplane, every airline and multiple countries would have a copy of the ledger, and the message they send would be treated as a virtual asset.
Blockchain details
Companies and research organizations are exploring several models of blockchain, each of which has strengths and weaknesses. As you research blockchain, you’ll likely see comparisons between public, private, permissioned or consortium-based models. You’ll also find information about the two leading consortia: Ethereum and Hyperledger. For most manufacturers—especially small and midsize— there’s no need to get caught up in the details.
While it helps to be aware of the various blockchain models and platforms, as a practical matter most manufacturers likely will join a blockchain ecosystem created by a larger player in their supply chain, such as Walmart’s established blockchain. Other manufacturers will probably work with a vendor to purchase blockchain capabilities, similar to the way they buy a cloud-based ERP system. Amazon, IBM, Google, Microsoft and Oracle, among others, offer commercial blockchain solutions.
Blockchain is a team sport
It’s important to note that blockchain is a team sport; it helps multiple companies securely and confidently trade and keep track of virtual assets as they are transferred between them. Therefore, when thinking about implementing blockchain, you must first work with the other companies in your trading ecosystem to ensure that all parties will benefit from a blockchain-based system. Because every company’s business model is different, it’s best to agree to an approach that helps every company before you search for a blockchain vendor to support your efforts. If a member is not reaping the rewards by joining the blockchain, the trading ecosystem may not survive.
Why consider blockchain now?
Blockchain is slowly but steadily becoming an enabler of new, streamlined approaches to several business processes. Inevitably, in the future, it will enable new business models. Early blockchain use-case projects are demonstrating how blockchain can help manufacturers reduce transaction complexity and cost, while securely maintaining the visibility and access to information about the products as they are bought and sold. Also, the World Trade Organization projects that blockchain will grow to become a $3 trillion market by 2030, which pretty much means it will be adopted by every industry and throughout the world.
As with the adoption of any new idea or technology, the process of learning about it, figuring out how to apply it to improve your business and how to implement it will require setting aside dedicated time. Given blockchain’s potential, manufacturers would do well to get started.
WHAT IS BLOCKCHAIN?
Blockchain is a type of database that is shared, replicated and synchronized among members of a decentralized network. Often referred to as a distributed ledger, blockchain allows multiple companies to securely trade virtual and physical assets in a new, efficient, smart and, most importantly, trusted way.
A block in the blockchain represents a ledger entry. Each block contains a unique electronic identifier that represents the underlying asset (virtual or physical), along with the owner’s public and private keys. (The keys don’t reveal the owner; each is a string of letters and numbers that serve as a proxy for the owner of the block.)
The block is secure because the owner’s key has a mathematically derived component that can only be matched if it and the owner’s private key are combined in a prescribed way.
Each time an asset is traded, a new block is created and locked with the new owner’s keys to record the exchange. The existing block and the new block are electronically linked, establishing and maintaining the chain of ownership. With each subsequent transaction, the process is repeated, and other blocks containing new data are added to the blockchain. In this way, the blockchain maintains a record of the asset’s lifecycle from creation to ultimate consumption.
These transactions are duplicated via a peer-to-peer network. Each transaction is replicated to all copies of the ledger, and changes to them can only be made by consensus, which is recorded as a subsequent block in the chain. Every business within the network is working out of the same shared ledger that is locally—not centrally—controlled. Every entity’s local copy is automatically updated in real time and parallel with all of the others.
The peer-to-peer network makes blockchains secure and immutable. With copies of this mutual ledger located at each node in the network, no hacker could ever take control of all of the copies of the ledger at one time.
Also, with transactions verified within the blockchain, there is no need for third parties to verify and guarantee the transaction, saving time and money.
DON’T CONFUSE BLOCKCHAIN WITH BITCOIN
Many people think blockchain is the same thing as Bitcoin, but it’s not. Blockchain and bitcoin are two separate concepts: Bitcoin is a virtual asset, while blockchain is a distributed ledger.
People likely confuse the two because both were invented at about the same time when someone using the pseudonym Satoshi Nakamoto published “Bitcoin: A Peer-to-Peer Electronic Cash System” on October 31, 2008. Nakamoto had created Bitcoin, which is electronic cash or “crypto-currency,” and blockchain, which is the way of trading Bitcoin. Bitcoin (and other crypto-currencies) require a blockchain to enable transactions to occur, while a blockchain can trade any virtual asset.
Mark Travis is CEO of Mark Travis & Company, Inc., based in Roswell, Georgia. He holds a Bachelor of Science in Decision and Information Sciences from the University of Maryland and an MBA from Emory University. This article originally appeared in the Summer 2019 issue of Target magazine.
