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Jeff Rowe
Jeff Rowe
Jeffrey Rowe has more than 40 years of experience in all aspects of industrial design, mechanical engineering, and manufacturing. On the publishing side, he has written well over 1,000 articles for CAD, CAM, CAE, and other technical publications, as well as consulting in many capacities in the … More »

Blockchain For The Manufacturing Supply Chain

 
January 11th, 2018 by Jeff Rowe

In 2017, bitcoin value surged from just under $1,000 at the beginning of the year to nearly $20,000 by mid-December.

While some industry leaders are skeptical of bitcoin, others are eagerly investing, confident in projections that bitcoin value will reach $1 million by the end of 2020. I don’t know if I’d go that far, but then again, I’m no financial expert.

However, many financial pundits and industry observers see bitcoin’s supporting technology, blockchain, as the true star with the greatest potential in coming years, and manufacturing could prove to be one of its biggest successes.

What Exactly Is A Blockchain?

According to Investopedia, “A blockchain is a digitized, decentralized, public ledger of all cryptocurrency transactions. Constantly growing as ‘completed’ blocks (the most recent transactions) are recorded and added to it in chronological order, it allows market participants to keep track of digital currency transactions without central recordkeeping. Each node (a computer connected to the network) gets a copy of the blockchain, which is downloaded automatically.

Originally developed as the accounting method for the virtual currency Bitcoin blockchains – which use what’s known as distributed ledger technology (DLT) – are beginning to appear in a variety of commercial applications, including manufacturing. Currently, the technology is primarily used to verify transactions, within digital currencies, though it is possible to digitize, code, and insert practically any document into a blockchain, including those found in the manufacturing process. Doing so creates an indelible record that cannot be changed and the record’s authenticity can be verified by an entire community (supply chain) using the blockchain instead of a single centralized authority.

A block is the ‘current’ part of a blockchain, which records some or all of the recent transactions. Once completed, a block goes into the blockchain as a permanent database. Each time a block gets completed, a new one is generated. There are countless numbers of such blocks in a blockchain, connected to each other (like links in a chain) in proper linear, chronological order. Every block contains a hash of the previous block. The blockchain has complete information about different user addresses and their balances right from the original block to the most recently completed block.

Blockchains are designed so these transactions cannot be deleted. The blocks are added through cryptography, ensuring that they remain meddle-proof. The data can be distributed, but not copied. However, the ever-growing size of blockchains is considered by some to be a problem, creating issues of storage and synchronization”.

What About Blockchain For Manufacturing?

Blockchain holds much promise for the manufacturing industry says Nitesh Bansal, Senior VP and Head of Manufacturing Practice – Americas and Europe, Infosys. In the video below, he elaborates on how the technology can help industries, such as aviation, defense, and others. These industries manufacture large machinery which travel across geographies and their installation manuals need to be accessible in a number of languages. Blockchain can better manage documentation related to this complex variety of machinery and enables stakeholders to quickly access documentation and install, maintain and repair as needed. Being a trust-based platform, blockchain ensures security and traceability of sensitive documentation in the manufacturing industry as well.

Blockchain: What’s In It For The Manufacturing Industry?

Advantages and Drawbacks For Blockchains

Efficiencies resulting from DLT can add up to some big cost savings. For example, DLT systems make it possible for businesses to streamline internal operations, dramatically reducing the expense, mistakes, and delays caused by traditional methods for reconciliation of records.

The widespread adoption of DLT will bring enormous cost savings in the following areas:

  • Electronic ledgers are much cheaper to maintain than traditional accounting systems; the employee headcount in back offices can be greatly reduced.
  • Nearly fully automated DLT systems result in far fewer errors and the elimination of repetitive confirmation steps.
  • Minimizing the processing delay also means less capital being held against the risks of pending transactions.

The roadblocks to DLT today are not just technical. The real challenge is politics, regulatory approval, corporate culture, and the many thousands of hours of custom software design and front and back-end programming still required to link up new blockchain ledgers to current business networks.

Problems that still need to be addressed include:

  • DLT must interface with other parts of the operational processes seamlessly. Blockchain should enable more rapid setup, training, and reduce problem resolution time. Achieving the efficiency gains must be easy enough/cheap enough for all parties involved to grasp and leverage.
  • Security also remains a concern. Several central banks, including the Federal Reserve, the Bank of Canada and the Bank of England, have launched investigations into digital currencies.
  • Banks and other organizations are not interested in an open-source model for identity. Both banks and regulators want to maintain close control. The development of a single digital identity passport authorizer is a critical next step.
  • Regulation is also critical in creating an open digital environment for commerce and financial transactions. Current physical certificates must be digitized to gain the full benefits of a fully electronic system.

Other questions to be answered include: Who is responsible for maintaining and managing the blockchain? Who admits new participants to the blockchain? Who validates transactions? and who determines who sees which transactions?

Foxconn: A Study Of Blockchain In The Supply Chain

One of the world’s largest tech manufacturers, Foxconn, is now in the blockchain business. The company best known for manufacturing Apple’s iPhone – last year demonstrated a blockchain prototype that resulted in $6.5m in loans being originated to members of its massive supply chain. The company has since laid out plans for a global network of nodes that could help non-bank lenders make direct loans in supply chains globally.

Called Chained Finance and operated as a separate entity, the spin-off project is designed to connect non-bank lenders with suppliers who don’t typically deal directly with financiers.

Savings could eventually result from cutting out commercial banks and other third-party money-suppliers. If successful, the savings could trickle down to the entire supply chain, resulting in fewer work stoppages due to lack of funding, and, in the most extreme cases, even prevent the closure of entire factories.

With an estimated 30,000 suppliers providing parts for products manufactured for Apple, Samsung and others, Foxconn still has a long way to go before Chain Finance’s early loans represent a significant percentage of its parent company’s revenue.

The plan is that, prior to taking over a blockchain node or being given credentialed access to the platform, a core supplier would hand over its data to Chained Finance, which would then onboard its suppliers.

Instead of charging these suppliers to join, Chained Finance, will charge peer-to-peer (P2P) lenders a fee for gaining access to the new system.

Current expansion efforts are being taken forward slowly, as the Foxconn spin-off tests the volume capacity of various blockchains that can interoperate with the Chained Finance platform.

Yet, as soon as next year, the project could expand to India, with Africa following shortly thereafter.

Rumors reported by Bloomberg say that Foxconn might open a $7bn factory in the US, and the company expects to be able to offer U.S. suppliers blockchain-based trade financing in as little as five years.

Additionally, in many circles, blockchain is considered the primary trend for sustainability. At the very least, it is going to revolutionize procurement and increase transparency in the entire supply chain as illustrated in the video below.

Blockchain For The Supply Chain

Blockchain Bottom Line For The Supply Chain

Given the unique opportunity for decentralization, blockchain technology offers the ability to create businesses and operations that are both flexible and secure, including manufacturing supply chains. Whether companies will succeed in deploying blockchain technology to create products and services consumers will trust and adopt remains to be seen. However, the demand for blockchain-based services is rising, and the technology is maturing and advancing quickly.

With more money being poured into blockchain-based startups, manufacturers should not be surprised to see DLT services and products becoming more mainstream in the near future.

Editor’s Note: We’re just witnessing the beginning of blockchain and its implications for manufacturing. Throughout the year we’ll revisit various aspects of this vital technology as it becomes more accepted and more widely implemented.

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