5 reasons Why Blockchain will disrupt the manufacturing industry

Blockchain In Manufacturing

As manufacturing companies across the world become more interconnected, the need for blockchain technology is greater than ever. As of 2010, the world found itself amid the fourth industrial revolution (smart manufacturing or industry 4.0) with of blockchain in manufacturing categorized within this class of industry 4.0.

This revolution is characterized by intelligent automation, data exchange, interconnected networks of machines, sensors, products, value chain, logistics companies, and factories that work together for enhanced production.  Now more than ever, industry 4.0 is forcing the manufacturing industry to evolve.

In this day and age, the manufacturing industry demands structure, automation, security, transparency, and a streamlined process. Blockchain’s most significant potential in manufacturing is to provide an entirely new business model that satisfies these demands. In the world of manufacturing, the implementation of blockchain technology is on the rise.

To work out how blockchain technology can be implemented in manufacturing, companies must first understand exactly what this means.

Blockchain Explained

blockchain diagram

Since the inception of blockchain in 2009, most people have associated it with cryptocurrencies, such as Bitcoin and Ethereum. However, as the world moves deeper into the fourth industrial revolution, blockchain has become a viable technology for sparking significant changes in manufacturing.

According to IBM, blockchain is a shared, immutable ledger that facilitates the process of permanently recording transactions and tracking transaction status in the business world. Transactions on the blockchain do not have to be financial. They can represent a range of assets such as real estate property, cars, land, intellectual property, patents, or even copyrights.

When a user initiates a transaction, members of the network validate it through a consensus mechanism that does not need a third party. Upon validation, the transaction is cryptographically signed and time-stamped. Then, selected members of the network append it to the distributed ledger to ensure it is up to date and available to all participating members.

In this video, Simply Explained provides a detailed explanation of what blockchain is, how it operates and how it fulfils various transactions. The video also illustrates how security mechanisms are implemented on the blockchain network to ensure that any information stored on the blockchain is highly secure and tamper-proof.

According to Simply Explained, blockchain achieves security through a peer-to-peer network, distributed consensus mechanism, and cryptographic hashing. Finally, the video introduces smart contracts, which can be described as simple programs stored on the blockchain and can be used to automate transactions based on certain pre-set conditions.

What are the main benefits of blockchain?

  • Trust: Because all participants validate the transactions, the blockchain holds distributed records that all parties can trust.
  • Security: Cryptographic signatures & encryptions, automated verifications, and decentralized databases make it almost impossible for attackers to alter the data or successfully pass malicious transactions into the ledger.
  • Automation: Since most of the operations are hand-coded into systems, blockchain allows participants to set self-executing agreements, contracts, and escrow services, thereby securely automating repetitive processes.
  • Resilience: Since the ledger is distributed, the network continues to operate even when a section of the network fails, or a member exists in the network. No data is lost as a copy of it is stored in nodes across the network.

Blockchain comes to Smart Manufacturing

worker showing opportunities derived from Blockchain in Manufacturing

According to Canadian Metal Working, the recent global economic slowdown and manufacturing contraction have been caused by the slow performance and data inefficiencies throughout the manufacturing process. As the industry approaches a more interconnected model, traditional systems struggle to integrate into the new design.

With the diversification and distribution of producers worldwide, it has become almost impossible to manufacture a product or equipment within a single factory. Collaboration between manufacturing companies has become an inevitable need. In the fourth industrial revolution, blockchain plays a crucial role in ensuring the convergence of emerging technologies and manufacturing processes to streamline the manufacturing processes in several important ways.

5 ways how blockchain in manufacturing is changing the face of the manufacturing industry

1. Blockchain provides a protected network for data mobility

With the growing ubiquity of interconnected factories in manufacturing, sensors and smart devices generate large volumes of data. The data needs to be sorted, stored, and processed to acquire valuable information about the production process. Because blockchain’s underlying technology is robust, it is ideal for a secure network of collaborative devices and factories.

Information such as invoices, contracts, product details, product designs, and merchant details exchanged in a manufacturing process is highly confidential. Sharing this data using traditional methods is quite risky, as it can easily leak from the system.

Through a private blockchain (and consortium), blockchain technology ensures that the data is only distributed among specific members participating in a network. The private blockchain is an invite-only network. Therefore, outside parties cannot have any access to information inside the network.

For example, suppose a manufacturer receives parts of a product from the designer, who is upstream in the manufacturing process. In that case, blockchain ensures the manufacturer can trust the data originating from the designer. Because the ledger is consistent across all members and the blocks are time-stamped, blockchain is a robust solution for secure data sharing at any point in the manufacturing process.

2. Blockchain automates payments and contracts

The first blockchain application involves a faster and more secure payment method through cryptocurrencies. Cryptocurrencies facilitate the transfer of money across the world. Users do not require traditional third parties like banks to validate the transaction. The blockchain does this automatically through the use of a consensus mechanism and its distributed nature.

One of the other original blockchain applications involves a secure, legally binding way for a user to draw agreements. This is achieved through a smart contract – a bundle of “coded logic” that accompanies entries in the shared blockchain ledger. According to Jake F, a smart contract can be defined as a self-executing contract with the terms of the agreement directly written into line as code and stored on the blockchain.

In manufacturing, smart contracts brilliantly combine legal contracts, manufacturing processes, and financial transactions. When the contract conditions have been satisfied by both parties, this coded logic notes the change in the transaction state and initiates the contract automatically. The contract records the exchange of products or data and the transfer of funds, eliminating the need for third-parties or any time-consuming paperwork.

3. Blockchain enhances transparency and traceability in the manufacturing process

industry icons

The blockchain that works in the manufacturing industry can provide users with all the data relating to a particular product or the state of a transaction. For instance, how the product was manufactured, what raw materials were used, shipping details, and much more. All this information is stored in a blockchain-based system. Additionally, as the ledger permanently records and distributes the data, users can access the manufacturing details, which gives them comprehensive tracing and tracking abilities.

For instance, the owner of a pharmaceutical company can use the information to prove its legitimacy. Not only that, the owner can track the products along the supply chain to ensure they are transported under the right conditions and to confirm who handled what operations at each stage. Consumers also benefit from this as they can access information about the product they wish to buy and the details of where they were sourced.

4. Blockchain Lessens the pain of product recalls.

Recalls are costly for all industries. They destroy profit margins and tarnish a brand’s value. While no manufacturer wants to produce a sub-standard product or endanger customers, product recalls are unfortunately common in manufacturing.  According to Forbes, the cost of recalling just a single product averages at 8 million US dollars.

Blockchain provides tangible solutions that ensure end-users always get what they want. Since blockchain is transparent, any mismatch between the produced product and the customers’ exception can be detected long before it is sent to the end-user. If a recall is necessary, blockchain eliminates the uncertainty of knowing the exact products affected so that proactive steps can be taken to prevent any further impact.

Blockchain’s improvement in visibility reduces costs and bolsters the return on investment in blockchain-based solutions.

5. Blockchain prevents counterfeit products and protects manufacturing intellectual properties.

In addition to detecting faulty products and eliminating recalls, blockchain also helps manufacturers keep counterfeit products out of their supply chain. So far, this has been primarily focused on the electronics space.

In the interest of sustainability, authenticity, and customer satisfaction, manufacturers use the blockchain to ensure clean and ethical chains of custody for their products. For instance, through the partnership with IBM through Hyperledger Fabric, Danish Freight giant Maersk can track hundreds of thousands of containers and goods through multiple nations and state lines.

What are manufacturers saying about Blockchain Technology?

female factory worker

The Capgemini Research Institute conducted a survey on over 730 organizations worldwide regarding the application of blockchain in manufacturing. From the survey, most organizations value the solutions blockchain provides and are willing to test-run the technology. Here are the key takeaways of the survey:

  • Many manufacturers believe that product recalls could be significantly avoided with efficient track and tracing mechanisms provided by a blockchain.
  • The top three reasons manufacturing industries are investing in blockchain are enhanced transparency, enhanced traceability, and greater cost saving. Additionally, a significant number of the manufacturers also mentioned reduced risks, the creation of new business models, the ability to produce more consumer-centric products and increased revenues as some of the other reasons they are investing in blockchain technology.
  • Blockchain technology can be used as a digital vault to protect the manufacturer’s intellectual property by providing a registry for all the intellectual property while also tracking how it is implemented.
  • Combined with other technologies like IoT, blockchain has the potential to become even more efficient by enhancing real-time product tracking and tracing.

Real-world examples of Blockchain technology in manufacturing

Retail and Wholesale

Samsung Electronics developed a distributed ledger system to track their international shipments to reduce shipping costs by 20%. As per the Bloomberg report, the blockchain-based solution aims to reduce the overhead cost brought in by costly shipping documentation and loss of revenue due to counterfeit products.

Walmart: In 2018, following a two-year test program, Walmart released its blockchain-based solution to help track farm products, more so spinach and heads of lettuce, across the supply chain.

Walmart required all its supply chain participants to make entries on the blockchain database on products’ status. The main goal was that if some of the products went bad, Walmart could track down the specific source of that product and get rid of it rather than get rid of all those products.

grocery store shelves


plan in the sky

One other sector taking advantage of blockchain technology is aircraft manufacturing and maintenance. The commercial aircraft industry has hundreds or even millions of parts, many of which come from various suppliers. Therefore, understanding the supply chain flow is crucial. Even with the advances in sensors, connected devices, and cloud computing, the industry still lacks adequate transparency to promote product tracking and tracing.

Blockchain provides the power to foster trust by balancing transparency and privacy with a distributed ledger technology. Not only can blockchain provide provenance on the individual product parts, but it also gives a snapshot and history of all the components used to assemble a plane.

Moreover, it can seamlessly record the different configurations for every flight within its operational lifespan. In short, blockchain maintains the ability to generate a digital record for every part installed in a plane and update it after each service inspection.

Future outlook of Blockchain in manufacturing

whats next written on black board

Blockchain in manufacturing is no longer a new concept, as industries worldwide use the technology to make their day-to-day operations across the supply chain more efficient. Manufacturers are developing blockchain solutions and implementations that can streamline processes, gain greater transparency in the supply chain, and increase tracking precision.

Moreover, blockchain can revolutionize how manufacturers design, manufacture, engineer, assemble and scale their products within the manufacturing execution system.

Understanding the importance of blockchain technology and its long-term susceptibility is crucial for all manufacturers and large-scale industries looking for a way to adopt blockchain into their operations.

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