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How Blockchain May Affect Manufacturing
Although it’s a relatively new technology, blockchain has many promising use cases for manufacturers, and new applications of the technology are being introduced at an accelerated pace.
A recent analyst report forecasts considerable growth of blockchain for manufacturing in the coming years, with a value of $30 million by 2020 and then $566.2 million by 2025, driven largely by a convergence of operational technology (OT) and information technology (IT), as well as demand for real-time data analyses, predictive maintenance and visibility into business processes. By 2030, the business value-add of blockchain technology across industries could top $3.1 trillion, according to Gartner.
To understand what is driving this momentum toward building practical business applications for blockchain, and how it can change many aspects of manufacturing, it helps first to understand what blockchain technology is.
Blockchain is the technology that enables the existence of cryptocurrency like Bitcoin, among other things. The blockchain uses a network of computers that log transactions, secure and maintain ledgers, and validate the ledgers’ accuracy through consensus. Once information is entered into the blockchain, the distributed ledger becomes locked and tamper-proof.
Simply put, blockchain is a digital, decentralized, distributed and immutable ledger. As such, it has the potential to be very disruptive. Smart contracts, traceability and authentication, and other highly decentralized supply chain management functions are considered key candidates for blockchain. In some sectors, disruption of the status quo is already underway.
In a 2018 survey of 600 executives across 15 territories, PricewaterhouseCoopers found that 84 percent of respondents have at least some involvement with blockchain. The study also showed that the industrial products and manufacturing sector is seen as being out ahead of many others when it comes to blockchain.
Blockchain’s Role in Manufacturing
“In the context of manufacturing, blockchain can establish an organized digital thread tracking the history of a part from its digital design to production all the way to end of life,” the American Society of Mechanical Engineers’ (ASME) Mechanical Engineering magazine explains. “A blockchain can be shared with multiple parties that get access to the same information.”
Using a well-designed blockchain, participants can confirm transactions without the need for a centralized third party, as well as reduce costs, increase speed and reach, and improve transparency and traceability across their supply chain and production operations management processes. The technology can be used to aggregate information from supply chain monitoring, asset tracking and materials provenance, to counterfeit detection, quality assurance and regulatory compliance – ultimately addressing many common pain points for manufacturers.
For manufacturers’ supply chains, the key drivers for investing in blockchain technology today range from improving cost savings (89 percent) to increasing revenues (57 percent) to reducing risk (50 percent), according to Capgemini Research Institute. The same research indicates that four out of five organizations implementing blockchain say that blockchain’s ability to trace products (81 percent) and provide better transparency (79 percent) is driving their investment.
Capgemini’s research determined the top five blockchain opportunities that manufacturers are currently pursuing:
- Supplier contract management – Smart contracts can be used to boost supplier transaction efficiency, accelerate speed of execution and support faster dispute resolution. Responsive contracts eliminate inefficiencies associated with regular contracts.
- Digital thread – A blockchain-enabled digital thread enables data sharing across original equipment manufacturers (OEMs) and suppliers with a high degree of trust, as the data can’t be altered without the knowledge of all stakeholders.
- Production tracking – Manufacturers need instant information on the products completed by their electronic manufacturing services (EMS) providers, and a blockchain helps OEMs track and authenticate this information in real time.
- Tracking asset maintenance – Blockchain, along with technologies such as the Internet of Things (IoT), helps in determining whether an asset has been maintained according to schedule, especially when multiple parties are involved.
- Tracking recalled products – Blockchain enables product or component tracking by recording a product’s entire manufacturing journey, from the origin of its components until the product reaches the consumer.
Early Stages of Blockchain in Manufacturing
Today, most supply chain blockchain projects are still in the experimental stage today. Capgemini analyzed organizations’ blockchain deployment maturity and found companies are currently in three groupings: an early experimental or proof-of-concept stage (87 percent); an advanced stage of experimentation, with pilots in at least one site (10 percent); and deploying blockchain at scale (3 percent).
While many organizations are investing in blockchain and see promise in the technology's manufacturing applications, concerns about blockchain adoption remain due to lack of a clear return on investment, regulatory challenges, interoperability with legacy systems and interoperability between supply chain partners, among other challenges.
Nevertheless, there are clear signs that there’s a significant opportunity for further growth. Just as digital and cloud technology have caused a major disruption for paper-based enterprises, blockchain has emerged as the next-gen technology disruptor, meaning manufacturers must acknowledge and prepare for the transformation ahead.
Resources:
Blockchain in Manufacturing Market, Markets and Markets, 2018.
Forecast: Blockchain Business Value, Worldwide, 2017-2030, Gartner, 2017.
Blockchain Is Here. What’s Your Next Move? PwC, 2018.
The Chain Gang, Mechanical Engineering, ASME, 2018.
Does Blockchain Hold the Key to a New Age in Supply Chain Transparency and Trust? Capgemini, 2018.
What Is the Digital Thread? iBASEt, 2016.
Transforming the Manufacturing Industry Through Built Trust, Blockchain Pulse, IBM, 2018.
Manufacturers: Can Blockchain Fix Your Pain Points? Industrial Insights, PwC, 2019.
David Butcher has covered business and technology trends in life sciences and industrial manufacturing for more than 15 years. Currently a content marketing specialist at MasterControl, he previously served as editor of Thomas Publishing’s Industry Market Trends and as assistant editor for Technology Marketing Corp.’s Customer Interaction Solutions. He holds a bachelor’s degree in journalism from the State University of New York, Purchase.
