How Blockchain Will Transform the Manufacturing Industry

“AI, Blockchain and IoT will be meaningless tech unless they can promote the transformation of the manufacturing industry” — Jack Ma, CEO Alibaba

One of China’s richest men, Jack Ma, didn’t go into too much detail about why blockchain should transform manufacturing. He only briefly mentioned blockchain and claimed that it needs to help promote a more inclusive and greener society.

This article will focus more on how blockchain will transform manufacturing. We will explore three areas where blockchain is poised to transform the manufacturing industry. Blockchain will directly facilitate better supply chains, play a key role in automation, and assist in combating a growing global counterfeit trade problem.

The biggest area of benefit will be on the supply chain side.

How Blockchain Will Help Build Better Supply Chains

Gartner predicts that the market for supply chain management will grow to $19 billion by 2021. With such an established and growing industry, why would we consider adding something as young as blockchain?

Consider this global survey on supply chain from McKinsey. The biggest takeaway was the apparent disconnect between data and decision making. According to McKinsey, “companies seem to collect and use much less detailed information than our experience suggests is prudent in making astute supply chain decisions.” McKinsey illustrates this well in the following image:

Only 12% of companies had collected full detailed information across their supply chain for all of their customers. 70% don’t even track all prudent details across their supply chain. Only 35% of companies are properly keeping track of incremental costs for their supply chain, and less than a third of those who do keep track of incremental costs use this data for business planning and to manage trade-offs.

Why are so few companies taking full advantage of supply chain management analytics? Is it possible that it simply doesn’t matter that much?

A survey from Deloitte shares a few interesting statistics here. Supply chain management can make or break your business. 79% of companies with high-performing supply chains reported higher revenue growth than their industry average. Only 8% of businesses with ‘less-capable supply chains’ report above average growth. A big factor is how the supply chain side of things can be quite expensive. In fact, if a company has a global supply chain, up to 90% of their base costs can be attributed to supply chain expenditure.

A high-performing supply chain will do a lot of good for your company. A survey by PwC showed that businesses with optimal supply chains “have 15% lower supply chain costs, less than 50% of the inventory holdings and cash-to-cash cycles at least three times faster than those not focused on supply chain optimisation.”

So how is blockchain going to help?

The first area is in the audit trail. There currently exists no proper universal and uniform standard for companies to aggregate and share data. Supply chains need a system that unbiasedly enforces standards and rules to allow all relevant parties to access the full set of data they require. This is basically the whole purpose of a blockchain. If there are defective products in a supply chain, it could be easily tracked across entities in a way that has never been done before. Instead of shuffling through hundreds of papers, bills, receipts, files, data, emails, etc., businesses could rely on a blockchain-based system to track goods with certainty throughout their entire journey.

When everyone’s data is aggregated and uniform, businesses will be able to perform higher levels of predictive analytics. The hard part about the supply chain is getting all of the data in the right place and in the same framework. Blockchain would force that to happen. They would allow that data to be used in conjunction with artificial intelligence to maximize efficiencies. This data could also be sold, allowing companies an extra stream of revenue. Compliance is another big thing to be tracked. For example, how do you know your product is actually free-trade or approved by a certificate authority?

Let’s imagine a supply chain involving 4 people: Alice, Bob, Charlie, and Dave. Alice mines the raw materials, Bob repurposes the raw materials into a new product, Charlie certifies that they are up to standard, and then Dave sells the new product to consumers. Through a shared cryptographic ledger, any consumer could see that Alice cryptographically signed that this product indeed contains her particular raw materials. Consumers could also see that Charlie cryptographically signed that this product was up to code.

Because of smart contracts, you can also automate several functions in your supply chain. If Alice is late on delivering raw materials past a certain deadline, it can trigger the software to automatically send an email to Dave letting him know that the raw material manufacturer is running behind. Any ensuing next steps could also be triggered. This will allow for greater handling of crisis management.

Tracking inventory in your network could also be linked to your supply chain network. Sensors could fully automate your inventory process. As inventory runs low, the system could automatically ping a supplier to request more materials. The efficiencies could mean parts to arrive just in time to be used. This would allow companies to always carry the most efficient levels of inventory.

In fact, automation in general is a great area where blockchain can help.

Blockchain’s Role in Automation

The World Economic Forum ‘2018 Future of Jobs’ report sheds some great light on the role of automation in our economy. They covered 12 different industries and found that on average in 2018, 71% of total task hours were done by humans, while 29% were done by machines. The WEF expects that by 2022, these numbers will change to 58% of task hours performed by humans and 42% by machines.

Automation is already here and it’s going to continue spreading. Actions like enforcing contracts with middlemen, transaction verification, and background checks will be some of the first to get displaced, and we’re already seeing it happen. So how will blockchain help automation?

Blockchain provides a trustless way to have transparency and strict rule enforcement in a network. If your automation process requires several different players, there needs to be a composer orchestrating all the processes. To put it another way, blockchains can function as a “government” for computers.

Let’s use an example to flesh this out. Tesla is famously known for its use of automation, robotics, and artificial intelligence in manufacturing. They have general purpose machinery that has been programmed to build Tesla vehicles with great efficiency. These general purpose machines can almost be likened to 3D printers. The future of manufacturing will likely be outsourced to automated factories. One factory that can build 100 different products is much more effective than a factory who’s assembly line fulfills only one purpose.

For starters, this automation will need it’s own self-sufficient supply chain. Sure, blockchain will be able to help these factories receive all the materials they need. But how can you trust that a factory run by ‘robots’ will build your product correctly? How can you trust that it won’t simply be a lemon factory? Blockchain will allow you to interact with these factories in a uniform standard. The guidelines for what you submit to the factory could all be clear and public on the blockchain. The specifications that you provided and the resulting actions that the machines took could be clearly and precisely documented. This would allow you to verify that everything was done properly, while also pinpointing exactly if and where things went wrong.

But let’s also consider another example. Maybe sometime in the future all fast food restaurants will be automated. All the different McDonald’s could be connected to each other, sharing data with each other, and working together. If there needs to be changes to the system, blockchain could help do so in a uniform manner. This would also allow for no central point of failure. If one store went down or failed, the others would be fine. Blockchain will allow for automation to work between different networks with greater reliability. The orchestration of automation will be greatly improved by blockchain but on a level that most people won’t directly notice.

Blockchain’s role in counterfeit trade, however, is an area that will likely to be closer the surface.

How Blockchain Will Help Combat Counterfeit Trade

According to a report issued by OECD/EU IPO, from 2008 to 2013 global counterfeit trade increased by 80%. But just how big is that 80% increase?

In 2017, a report by the ICC and the INTA (done in partnership with Frontier Economics), estimated the global economic value of counterfeiting and piracy of consumer goods could reach $2.3 trillion by 2022. That’s larger than the GDP of all but 7 countries.

Counterfeit trade is a huge and pervasive problem. Simple fixes like serial numbers, QR codes, UPC codes, and barcode systems are fine for low value tracking but they are also all easily cloned and copied. So how can blockchain help?

Let’s flesh this out in another example. Let’s say Alice makes purses. They are luxury designer purses that are in high demand, but her business is getting bled out by counterfeit versions of her purse. In fact, she suspects that someone at her company has been assisting in the piracy of these knock-off purses. So Alice decides to use the blockchain. First she decides to track her purses with strong, embedded cryptography. Thanks to recent developments in microcontroller technology, strong unforgeability is fairly easy and cost effective.

When Alice makes a new line of purses, she creates exactly 500. She put a unique microcontroller in each of the 500 purposes, and publishes these onto a blockchain. Anyone could then use their phone to power the microcontroller and check the blockchain to verify that the purse is indeed authentic. Only Alice has the power to publish new products to the blockchain. Unlike forging a seal or barcode, no one at her company could add a product’s authenticity stamp to the blockchain without her permission. No one could feasibly copy the contents of one of the microcontrollers and then apply it to a counterfeit purse because the chip would be using asymmetric cryptography. When a product is sold, ownership is transferred to the consumer. Consumers can then resell the product infinite times, and they would always be able to check and verify on the blockchain that the purse was indeed verified by Alice herself. This creates an instant way for anyone to verify if a product is authentic, while also making a perfect forgery economically infeasible to create.

Conclusion

Whether it’s behind the scenes or on the surface, blockchain will play a large role in manufacturing. Blockchain will bring great efficiency to the supply chain side of things, better coordination in automation, and maximum transparency when dealing with counterfeit trade.

If your business relies heavily on manufacturing, staying up to date with what this technology can do for you is in your best interest. If you decide you want to use blockchain technology, send us an email. We’ll help design and build your secure cryptographic systems. We even offer a free consultation.

You can reach our team at contact@mimirblockchain.solutions or contact me personally at mustafa@mimirblockchain.solutions

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