How Boeing, Toyota, Caterpillar, and other OEMs can double their current net profit by using smart contracts to become unmanned “virtual companies”, with or without cryptocurrency: Part 1

What is the ultimate endgame when it comes to smart contracts? Even within the blockchain community, this is rarely discussed or fully understood.

The disruptive potential is massive and very exciting if you truly understand it. But for a very long time, I struggled to distill my excitement into a succinct 1-sentence statement. I finally found it in an old Fast Company article from 2015 with quite the attention-grabbing headline (worth a read):

Here is the critical sentence:

“Companies that, once started, can run themselves [without humans]”

Throughout the following whitepaper, I will refer to such a company as a “virtual company”.

If a “virtual machine” is one that can completely simulate the functions of an equivalent real-world machine while having no moving parts in the physical world…..

Then a “virtual company” is one that can [possibly requiring the aid of robotics and artificial intelligence] completely simulate the functions of any current real life company while having no (or very few) human employees.

Before we get any further, let me address the obvious. I know you’re asking yourself, “Isn’t that what artificial intelligence and robots are already for?”.

Artificial intelligence may represent a way to automate individual white-collar jobs. Robots represent a way to automate individual blue-collar jobs. But they’re too narrowly defined and niche-oriented to go beyond that. To quote Kai Fu Lee:

“The AI engine today is basically a number cruncher that looks at one single task and out-crunches people”

It’s more accurate to describe 2018-level AI tech as pattern recognition algorithms on steroids, not the early steps of an emerging general sentience a la Skynet.

Smart contracts represent a way to automate companies in the collective sense. They are especially well-suited for handling operations, bidding, finance, accounting, contract enforcement, and program management tasks. In other words, the back-end nuts-and-bolts that hold any company together.

One quote from the Fast Company article really stands out:

“What Ethereum proposes, in effect, is a global computer that could not only handle those transactions but also eventually emulate many of the functions of companies like Uber, Airbnb, Dropbox, Amazon, and Kickstarter — but without the inefficient bureaucracies and the other intermediaries who take a slice of the pie…….Where bitcoin aims to disrupt banks, Buterin’s Switzerland-based company, Ethereum, aims to become what he calls “the foundational platform for everything”…….If the blockchain is a giant ledger, Buterin’s goal is to build the army of robot accountants working on top — what are sometimes known as smart contracts”

Smart contracts allow entire accounting, operations, and administrative departments to be outright eliminated. The robot accountants can provide huge savings. To quote Nick Allen, Product Director at Zap:

“Businesses spend countless hours and immeasurable amounts of money on administrative costs, including: escrow, legal fees, time spent negotiating, etc. Smart contracts automate payments, making the entire process much more streamlined”

In the following whitepaper, I will explain why OEMs should become “virtual companies”, the nitty-gritty details of how to get there, and why it’s ultimately a good thing for humans.

The promise of “virtual companies” is by no means limited to OEMs. Smart contracts can be applied to countless industries. In fact, the majority of both the Fortune 500 and Fortune Global 500 are susceptible to automation. But for the purposes of this whitepaper, the focus will be on OEMs. I wanted to explore a single industry in great detail and do a deep dive, as opposed to providing a general, high level overview of the promise of smart contracts.

Note that my vision can be fully implemented without direct use of cryptocurrency as a token of transaction. By piggybacking off the open banking API trends ushered in by the PSD2 mandate and using Chain Link’s external adapter technology, it is completely feasible to have smart contracts run on a blockchain but transact strictly in fiat. See part 9 for the full discussion.

To what degree can OEMs become “virtualized”? About 70–75%. OEMs already have a high percentage of personnel dedicated to new product development (NPD), usually in the form of engineers and program managers. See part 2 for a full discussion of why NPD cannot be automated. In particular, OEMs with shorter product life cycles (such as automotive, which releases new models each year) have a particularly high number of NPD engineers (as a % of their total company personnel).

Many business models and industries can be automated over 95%, but OEMs are not one of them. Automating away nearly all operations, bidding, materials procurement, risk management, finance, accounting, contract enforcement, and (non-NPD) program management positions only results in 70–75%.

Nonetheless, this is still more than enough. So what’s the big idea?

Thesis: With or without direct use of cryptocurrencies as a token of transaction, smart contracts (along with trends in open banking API ecosystems, robots, and artificial intelligence) allow the creation of unmanned “virtual OEMs” that have automated 75% of their present-day human workforces, supercharged their remaining human employees, and picked up a whole host of other efficiency bonuses along the way.

Which enables OEMs to:

1. Drastically increase, possibly double, net profits.

2. Boost revenue up to 20–30% by capturing market share from now-outmatched competitors.

3. Rival and potentially surpass tech companies in investor ROI and shareholder dividends.

In more specific terms, smart contracts will allow OEMs to:

1. Stop bleeding money and time to a highly inefficient system for transferring money internationally (see part 8), an issue further exacerbated by the current extent of globalization in OEM supplier ecosystems (see part 7).

2. Gain market share from competitors through superior product differentiation. Smart contracts allow OEMs to dedicate more resources towards marketing, customer experience, design engineering, and product development (see part 2).

“By automating transactions, B2B companies will have more time to focus on other facets of their business, such as marketing, innovation and customer experience. Transactions are at the core of what B2B companies do, but by utilizing smart contracts they will be able to use finite resources to better the products or services they offer.”-Larry Myler, Forbes contributor and B2B sales expert

3. Dedicate more time to vital technology R&D efforts that are critical for staying competitive in the 21st century (see part 14).

4. Free up human employees from tedious tasks and operations drudgery so that they can engage in higher value-add activities (see part 2)

5. Outright eliminate entire operations, accounting, contract enforcement, risk management, and materials procurement divisions. After all, the network of transactions between customers/dealers/fleets, tier 1 suppliers, lower tier suppliers, and OEMs can be self-managing and self-optimizing (the whole whitepaper expounds on this, but primarily see parts 3, 6, and 12).

6. Sales forecast much more precisely. Make failures to ramp-up production at the right time and ramp-down production at the right time a thing of the past (see part 4).

7. Eliminate countless inefficiencies and sources of waste. Such as the $6.8 billion lost by the North American auto industry each year to inefficient tracking and coordination of supplier shipments (see part 3).

8. Capture previously missed revenue streams (see the discussion in part 13 about supercharged patent attorneys).

9. Leverage the latest trends in fintech, cryptocurrency, and open banking (see part 8).

10. Become truly data-driven companies

11. Take advantage of the latest Internet-of-Things trends

12. Take supplier reactivity and communication to incredible new heights, even across multiple supplier tiers and continents. I.e. If an ASAP order from a VIP customer comes in, all materials procurement orders will automatically be placed within 20 seconds, all the way down to the tier-5 supplier in Shenzhen, China (see part 12).

13. Supercharge commodity managers (see part 14)

14. Take economies of scale to incredible new heights (see part 19)

15. Take capacity-based supplier management to new heights (see part 19)

16. Supercharge warranty engineers and thereby boost customer happiness (see part 13)

17. Provide 100% aftermarket uptime for commercial customers/fleets by pairing smart contracts with predictive telematics to eliminate a critical bottleneck (see part 13)

18. Manage supply chain risk better than ever before, both domestic and foreign. Avoid incidents like the Meridian Lightweight Technologies fire that stalled F150 production (see part 6). Alleviate foreign currency exposure risk and downsize hedging portfolios (see part 11).

19. Better supplier relationships that amount to billions of dollars each year (see part 14)

20. Find suppliers in best cost countries and low cost countries that you didn’t even know existed (see part 6)

21. Optimize every last buying decision (see part 6)

Very powerful stuff. Let’s use a concrete example that highlights how much of a game-changer just a fraction of the above reasons could be:

Imagine if Ford’s latest $14 billion cost reduction effort didn’t involve $4 billion coming from engineering job cuts? Finding $4 billion in savings could have easily been achieved with just a fraction of the above reasons.

Thereby leaving them with more human capital for electrification and autonomous driving efforts. Their strategic position would have been much stronger.

Continue to part 2….