Insight

Blockchain and the Manufacturing Industry

25 Nov , 2018  

Manufacturers have had a long time to get used to robots. Automated welders, assemblers, packers and labellers are well-established presences on the factory floor. Smart manufacturing, for many, concerns the digital management of such equipment in order to improve operational efficiency.

But what is blockchain? And why are some manufacturers starting to talk about it? What can an online ledger system that first appeared on the scene barely ten years ago to support bitcoin transactions, have to offer those whose business is making things with machines?

The link is data. The more automated a manufacturing operation is, and the more integrated that operation is with different business partners, the greater the mass of data. And blockchain is first and foremost a way of organising information efficiently and productively.

Data and Blockchain in manufacturing

The data in question are business transactions, the ongoing digital record of which is crucially replicated over a network (rather than confined to a central data bank), continuously and permanently verified by interested parties on the network, and otherwise securely encrypted.

As such, blockchain has nothing inherently to do with cryptocurrencies and could as easily have emerged as an aspect of supply chain documentation – which is the most immediate application it has in the world of manufacturing.
blockchain in industry

Every factory necessarily has an interest in where its materials come from and where its products go to. By participating in a blockchain version of the logistics surrounding operations, the manufacturer can obtain an improved overview of events – proportionately more so the more suppliers, shippers, customs authorities, couriers and customers are similarly networked in.

Just as automation removes the need for a human being to operate a machine, so blockchain (among other things) removes the need for a third party to confirm, authenticate or certify information. A manufacturer will know from the blockchain – and not from time spent ‘chasing’ the information over the phone or otherwise – that an ordered spare part has passed through customs on a certain day.

Application of Blockchain technology in the Manufacturing industry

More revolutionary than this is the embedding into the blockchain of material relevant to quality control. Where an industry (say, North American automotive manufacturing) uses a standardised procedure for guaranteeing parts’ specifications (in their case, the Production Parts Approval Process), there is scope for using blockchain to make instantly visible to the manufacturer the documentary material on which the parts’ approval can be based.

And similarly, where a manufacturer requires that raw materials be sustainably or ethically sourced, a viewable supply chain tracked by blockchain can offer the looked-for reassurance (as it can, further down the chain, the retailer and the consumer). Provenance is a small UK company dedicated to making global supply chains transparent in this way.

Provenance describes each verified transaction in the supply chain as a ‘digital handshake’. Data that are not agreed by all interested parties to be true – that are not ‘shaken on’, as it were – do not survive in the blockchain system. Hence the power of this technology to throw up, and throw out, rogue practice and counterfeit claims – as well as to make the time-consuming, expensive business of independent, third-party certifiers redundant.

The technology is deemed to be so secure, the information in it so reliable, that automatic invoice settlements and other payments are seen realistically as a natural development within it. The completion of any courier job within the supply chain, for example, could, using the verified start and finish points, trigger the payment to the driver according to prearranged terms.

Such a payment would be an example of the ‘smart contract’ blockchain systems are capable of bringing to the flow of business around the globe. These are transactions that execute themselves upon the fulfilment of certain conditions agreed upon by interested parties. Again, elements of ‘chasing’, waiting or using brokerage (such as a bank’s) are eliminated through a kind of automation.

Inevitably, the network over which blockchain operates consists not just of people but of devices. And, looking ahead, it is as likely to be devices as it is people who initiate a self-executing transaction. Should the day come, for example, when, thanks to advances in data modelling and predictive analytics, an industrial machine recognises the approaching need for a part replacement, it might trigger the order autonomously and even pay for it.

blockchain in manufacturing

And then, if smart contracts can be used, as some forecast, to get certain parts or products actually made (by, for example, a local 3-D printer that is part of the secure network), blockchain’s particular dynamic might start having a shaping effect on the manufacturing industry itself.

Blockchain technology vulnerabilities

Just as blockchain succeeds by distributing information in such a way as to avoid a centralised, vulnerable point of ‘authority’, so the manufacturer’s operations may be strengthened by distribution – by as often responding to a request from the network to manufacture something, for example, as by unilaterally offering a product to the marketplace.

If the implications of blockchain for business practice are significant, however, so are the challenges concerning its widespread adoption. A high level of expertise must be acquired by administrators. A global legal framework for the technology has yet to be completed. And, despite the success of many pilots, there may yet be issues about its scalability.

Blockchain might be the future; or it might not survive the hype. Individual manufacturers must judge for themselves how far they are willing to invest in the technology at this early stage. But whatever happens to it, blockchain is at least a sure reflection of a number of industry trends that may be unignorable.

These are the trends towards making information both more available and more consensual; and the related trend towards achieving greater industrial process automation based on sound data and coordinated programming. If blockchain does not live up to its promise to see these trends’ continued growth, then the odds are something else will.

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