Five new blockchain use cases for electronics

Quentin Samelson
Jun 5, 2018 · 8 min read
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Some of us can remember what the Internet was like early in the days of the World Wide Web (more or less the first half of the 1990s). The creation of URLs and hyperlinks made the Internet truly useful for the first time. It’s only in hindsight that we realize our vision was limited; most of the initial web sites and pages were simply places to put information. Very few of those initial websites did much else, yet by the middle of the decade companies were beginning to sell their products on line. Amazon’s first book sale, for instance, was made in July 1995. Maturity took its time arriving; mass adoption awaited the introduction of smart phones and their ilk; and then “disruption” — whatever that truly means — arrived with innovative products like Uber and Grubhub, Airbnb, and video doorbells.

It would be reasonable to expect blockchain to proceed along a similar arc, perhaps taking a decade or more to display its true potential. That’s blockchain for business not cryptocurrencies (no, don’t tell me about your upcoming ICO). Maybe the long incubation cycle of bitcoin explains why blockchain seems to be maturing quickly. After all, it has only taken about a year and a half for companies to shift their focus from “what is this?” to “how can I use it?” While initially blockchain felt like a hammer looking for a nail, it’s turning into a utility that can help solve common problems in electronics by building it into processes.

We’re already seeing applications that help to mitigate invoicing disputes between supplier & customer, speed up customs clearance, provide greater visibility and control of the extended supply chain, and even improve supply chain finance mechanisms. The real excitement, however, may lie in blockchain’s potential to finally resolve lingering intransigent problems. Here, then are five emerging applications for blockchain challenge the notion of “we can’t do that”:

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Provenance in the Reverse Supply Chain: Existing processes are relatively good at ensuring the parts and suppliers chosen for an electronic item’s bill of materials (BOM) are actually the parts and suppliers used to manufacture the product. But how does a company know a returned product from a customer still contains 100% authorized parts? If the screen cracks on your mobile phone or the battery goes dead and you take it to one of those kiosks at the mall, you don’t really know where the replacement came from. And you probably don’t care, as long as the phone continues to work. But if you buy a “certified refurbished” phone, you expect that the parts in it are all original OEM, and won’t fail mysteriously a few weeks after you buy it.

Blockchain can provide an elegant solution to this problem — a shared database of “good” parts with rules on what data can be accessed, and how it can be accessed, by each participant in the reverse supply chain. This is an area where blockchain’s selective access features bring significant benefit, permitting each participant to only view the data they should be able to see but greatly simplifying and speeding up that access.

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Supplier Quality Data Exchange: Many electronics companies have gotten so used to the exceptional quality conformance of electronic components (semiconductors and passive electronic parts — even many electromechanical parts like connectors — have defect levels measured in parts per million, or even parts per billion)[1], that they struggle with the small percentage of their suppliers that simply can’t match that performance.

It’s not necessarily the suppliers’ fault: the parts in question are often new or use newer, less proven technology; are manufactured using less precise processes; or were selected by the OEM because they were less expensive. And sometimes with new suppliers, there’s a simpler cause — misunderstandings of each other’s specifications.

When a company is used to near-perfect quality in purchased materials, any serious nonconformance can disrupt its operations, shutting down manufacturing for days or even weeks. There’s an obvious solution, of course: have the suppliers of these more troublesome parts provide quality data electronically to their customers, before the parts are even shipped. Clients would be able to review the data and pre-approve, pre-reject, or determine that the lot will require inspection & review when it is received.

But quality data defies standardization. The key characteristics for an injection-molded plastic part are very different from the data elements for a heat-treated metal part. Diodes can’t be measured the same as inductors. Only a few companies have ever developed any sort of infrastructure to send or receive quality data automatically. Most companies are forced to wait until a quality problem arises, and then identify what data the supplier is required to provide until the problem is fully resolved.

IBM developed a blockchain-based solution that can accommodate these different data structures using templates. Using blockchain means that every data submission is time-stamped. The customer has the ability to require quality data at the beginning of their relationship with a supplier, or whenever a new part (or part revision) is introduced. The customer & supplier can agree to the structure of the data; and the customer’s quality staff can automatically be alerted when new data has been provided by the supplier. The customer has the opportunity to review the data and pre-accept it, pre-reject it, or designate the inbound shipment for further review. Additionally, by consolidating the quality data in a central repository, it becomes possible to use analytics on the data — perhaps even alerting a supplier to a drift in the data that indicates a future quality problem if not corrected immediately.

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Secure Data Merge: It’s still amazing when you discover that partners don’t share data that could benefit both parties. Even in the era of Cloud Computing and Big Data, a lot of critical information still resides in silos. OEMs need to know how well a product is selling, but retailers often don’t tell them quickly enough — or at all. The result is a lose/lose scenario: critical sales are missed, or massive amounts of unneeded inventory may be built.

How can one company securely share data with another, without fear that their proprietary data will be exposed? Blockchain’s exceptional security and degrees of privacy offer valuable tools to permit companies to gain the advantages of shared data without risking the exposure of proprietary information. The key is that once the mechanism has been set up, the shared data — although it may be restricted, consolidated/ summarized, etc. — is timely. The OEM has an opportunity to gauge sell-through of a new product within weeks or days, not quarters and months. The retailer can obtain real-time updates of product availability.

This can extend well beyond simple models of retail sales, to include data sharing to improve end-to-end transportation processes, quality of crops as they move from farmer to processing company to consumer, or selective data sharing between companies with proprietary manufacturing processes and the companies that maintain their equipment.

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IKEA makes it easy to find the screw you accidentally lost/stepped on/dropped down the air vent. However, for hard-to-find electronics components or parts, there’s no such easy option

Intelligent Allocation of Scarce Resources: By now, there have been multiple companies proposing their new application as “Uber for ______.” Some versions of this idea may even become new blockchain applications. But the Uber model assumes that one party has extra of something that another party may want — extra 3D printer capacity, a vehicle and available time, an apartment or bedroom, etc. This business model starts from an assumption of abundance.

Much more problematic are scarce resources that are held by different parties (companies) because they might be needed at some point. These could be replacement parts for machinery, obsolete components, or electronic parts or products that have gone end-of-life but may be needed for service. Companies are reluctant to scrap the parts even if they don’t get used, since they won’t be able to buy more, so they linger in their inventory and on their books for years or even decades. At the same time, other companies may miss deliveries or be unable to service their customer’s products because they don’t have any. Brokers try to fill the gap but are only partly successful.

A secure, “blind” database of these parts using blockchain technology could provide a safe way for companies to share critical inventory without exposing their data to their competitors. It would allow all of the companies to better serve their end-customers, especially if demand and actual consumption data were added to the mix.

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For some manufacturers, money can flow out for critical items like semiconductors well before revenue is received. Blockchain can help.

Supply Chain Finance: Electronics is an industry where some companies seem to have ample cash, and others have constant issues maintaining sufficient cash flow. The problem can be especially noticeable in the electronics manufacturing services (EMS) industry, where a kind of double jeopardy exists: first, they are often paid by their customers on 90-day terms but must pay semiconductor suppliers in 30 days. Secondly, their customers’ forecasts are often relatively inaccurate, forcing the EMS companies to hold inventory for weeks to months. Bottom line: they often are forced to pay for components long before they get paid for the assemblies containing those components.

Contractual arrangements between the OEMs and EMS providers generally guarantee that the EMS will eventually be paid, so a loan to cover the value of component inventory should be relatively low risk. A blockchain application to easily match potential lenders to borrowers, possibly with OEM customers confirming contractual arrangements, could be a terrific way to resolve these issues and make supply chain financing easily available when needed to resolve cash-flow issues.

These aren’t the only innovative applications that we’ll see using blockchain. It’s quite possible that the most productive and profitable blockchain applications will be mundane on the surface but process superheroes underneath. It’s clear that blockchain has the potential to go far and we’re only scratching the surface.

For additional information, please see:

Orchestrating tomorrow’s supply chain: Infusing the electronics supply chain with new potential, IBM Blockchain for Electronics, and twelve new reports to help electronics executives make informed decisions

[1] Many electronics companies discovered years ago that they rarely had quality issues with the electronic parts they purchase — and further, that any defects that did occur with those parts weren’t detectable at Incoming Inspection. They implemented a different kind of strategy to manage the quality of inbound parts: they worked to certify their suppliers’ own quality systems, and increasingly relied on them, substantially reducing or even eliminating their own incoming quality departments.

The Future of Electronics

Electronics Leadership Perspectives and Topics of Interest…

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