Since 2010, we have found ourselves in the midst of the Fourth Industrial Revolution (Industry 4.0). It is a revolution characterized by intelligent automation and data exchange in technology. The manufacturing industry is well-aware, as cyber-physical systems, the Internet of Things (IoT), cloud computing and cognitive computing are quickly forcing the industry to evolve.
Now in the world of manufacturing and distribution, the implementation of blockchain technology is on the rise. Airline industries use it to monitor the maintenance process of their fleet. Retailers and wholesalers developed custom blockchain databases as a response to the recent scares with romaine lettuce and spinach. And these sectors are not the only ones. As intelligent automation gains traction across a number of industries, the possibilities in manufacturing and distribution only continue to mount.
What are the basics of blockchain technology?
Since 2009 when Satoshi Nakamoto leveraged the technology as the data structure for Bitcoin, “blockchain” has existed as a popular buzzword. However, as we move deeper into Industry 4.0, it is a viable technology sparking significant change in the manufacturing industry.
A blockchain is a decentralized ledger of all transactions in a network. In general, all of the users, also known as network nodes, have copies of the same ledger. Transactions on a blockchain do not have to be financial – they simply represent a change in state for whichever data point the blockchain’s stakeholders want to track.
When a user initiates a transaction/submits an update, the ledger uses an automated process to ask other participants to approve the update. Network users can confirm transactions without the need for a trusted third party intermediary.
Upon validation of the update, it is time-stamped, cryptographically signed, and added to the block. The new block becomes part of the blockchain, an immutable record of all transactions and agreements of interest to the participants.
- Trust. Because the network validates every transaction, the blockchain holds a single version of the truth that all participants can trust.
- Security. Cryptographic signatures, automated verification, and decentralized storage make it virtually impossible for external parties to tamper with the ledger or delete data, thus securing it indefinitely. Although users can append data to a blockchain, they cannot otherwise alter the ledger.
- Automation. A blockchain ledger lets network participants set up a wide range of self-executing agreements, contracts, and escrows (known as smart contracts), thereby automating repetitive processes such as billing and shipping. A blockchain can execute any contract triggered by measurable conditions—for example, equipment performance or on-time delivery of goods.
- Resilience. With a database distributed across multiple locations in the network, the blockchain can continue to operate even if part of the network fails. In addition, if a party leaves a network, none of the data posted on the blockchain will be lost.
How is blockchain changing the manufacturing industry?
With blockchain’s efficiency in processing transactions, companies are already looking to blockchain to solve other problems, including a number of areas impacting manufacturing.
For example, a blockchain can connect ledgers from across a supply chain to improve the accuracy and efficiency of tracking a product. Having improved tracking capabilities via blockchain can turn a manual, multi-day process into an automated function that takes only seconds.
Today, efforts exist to unleash blockchain’s potential in manufacturing. For example, the Trusted IoT Alliance, a collaboration among leading technology companies like Bosch and Cisco Systems and numerous startups, is developing an open-sourced standard for integrating blockchain and the IoT.
The standard focuses on a smart-contract interface that allows data to move seamlessly within and between blockchain-enabled systems. The earliest proof-of-concept particularly focuses on applications for supply chains.
Furthermore, developers envision creating other applications that will support immutable documentation and trusted hardware identification. Once established, a standard could be integrated into new factory hardware and software to expand blockchain applications.
Blockchain technology is here and it is influencing manufacturing today. From sourcing raw materials to delivering the final product, blockchain can increase transparency and trust at every stage of the industrial value chain. It could help address:
- Supply-chain monitoring for greater transparency
- Materials provenance and counterfeit detection
- Engineering design for long-duration, high-complexity products
- Identity management
- Asset tracking
- Quality assurance
- Regulatory compliance
Blockchain-powered solutions can seamlessly aggregate all of this information, delivering significant value for industrial and manufacturing companies, and can also help unlock the full potential of other advanced technologies like augmented reality and 3D printing.
How can blockchain create value in manufacturing?
Enhancing Track and Trace
Companies can use blockchain technology to exchange data easily, accurately, and securely within complex supply chains. Blockchain can provide an immutable, permanent digital record of materials, parts, and products, thereby promoting end-to-end visibility and providing a single source of truth to all participants. These benefits are valuable if the supply chain includes multiple participants with independent IT systems, or if there is a lack of trust among participants or a frequent need to onboard new participants.
Protecting and Monetizing Critical Intellectual Property
Companies across manufacturing industries face an imperative to protect IP.
One possibility is for a company to use blockchain technology to help prove that it owns IP in the event of a patent dispute. For instance, Bernstein Technologies has developed a web service that allows users to register IP in a blockchain. The service creates a certificate that proves the existence, integrity, and ownership of the IP.
Blockchain is also one of several solutions available to help a company protect and maintain control of IP when monetizing digital assets. For instance, machines connected to a blockchain can produce parts by using digital design files included in the database. The company that owns the IP uses a licensing model to make the proprietary information available through the blockchain to the company that produces the part.
Simplifying and Safeguarding Quality Checks
By using blockchain to support quality control, a company can enhance value for customers – an imperative focus as we transition to a customer-centric marketplace. Today, in the absence of blockchain, offering full transparency and complete documentation to customers with regard to the quality of processes and products requires costly support from central parties that operate IT platforms.
In addition to helping customers track and trace inbound parts along a supply chain, blockchain creates immutable documentation of quality checks and production process data. The database uniquely tags each product and automatically inscribes every transaction, modification, or quality check on the blockchain. To enable this application, the production setup must include automated quality checks that generate and write measurements directly to the blockchain. This use case supports multiparty access to data and can eliminate the need for inbound quality control to verify checks that the supplier performs. It may also reduce the need for audits by original-equipment manufacturers (OEM) or central authorities to verify quality controls. Parties will be able to use the technology’s certificate-management capabilities to gain full transparency into all relevant documents, thereby ensuring authenticity.
One example of how manufacturers can use blockchain to control their products after production involves cost and performance management. Blockchain can provide a flexible, comprehensive system—not owned by a single manufacturer, supplier, or operator—for logging and tracking all relevant information about parts. This includes data about raw materials, usage (if logged by embedded IoT capabilities), maintenance cycles, and performance testing. Participants gain access to a complete, auditable log of a particular part. Users can gather insights into the history of component configurations and product performance throughout a part’s lifetime and feed them into the R&D process to optimize component complexity, cost, and performance.
The main challenge in using blockchain for quality checks involves ensuring trust by linking a physical object to its digital replica (known as a digital twin). This connection must either prevent or reveal any human interference that alters information. To help create such a connection and maintain an accurate digital twin, more and more devices will contain sensors that can communicate with blockchains.
Enabling Machine-Controlled Maintenance
Blockchain can support new maintenance approaches (such as automated service agreements) and shorter maintenance times. These innovations are necessary to manage the greater complexity and technological sophistication of advanced production machinery.
To facilitate outsourced maintenance, users append service agreements and installation documentation related to each device to the blockchain record, creating a digital twin of the device. Blockchain technology can then enable the automated execution of and payment for scheduled maintenance. A machine that requires maintenance can trigger a service request and generate a smart contract for the work or for a replacement part. Upon fulfillment of the order, payment processing occurs automatically.
Similarly, immutable documentation of the maintenance history is appended to the blockchain record. Such applications, which are still in the early development phase, improve the reliability of equipment, facilitate the monitoring of equipment health and attrition, and create auditable health assessments of the machinery. In addition, in the context of maintenance performed by in-house teams, the blockchain record can serve as proof to equipment providers that the team has executed maintenance in accordance with requirements set out in the warranty and guarantee agreements.
What are some real world examples of blockchain technology in practice in M&D?
Retail and Wholesale
From time to time, people get sick from contaminated lettuce or different produce. When this happens, grocery chains and other retailers do what we would expect: clear the shelves of the product just to be safe. However, in the last few years, Walmart has been leading the way on changing this approach. In 2018, following a two-year pilot program, it announced that it would be implementing blockchain technology to keep track of every bag of spinach and head of lettuce. Following the announcement, Walmart required the more than 100 farms from which they received their produce, to input detailed information about their food into a blockchain database. With each stop along the supply chain, the people handling produce for Walmart make an entry on the blockchain, signing off when they receive it and when they move it onto the next person in the chain. Through the technology, the company tracks food from the field, through washing and cutting facilities, to the warehouse and finally the store. It even allows them to pinpoint which part of the field and at what time the vegetables were harvested.
The use of blockchain satisfies two key initiatives for Walmart: 1) emphasis on fresh food, and 2) saving money. In the future, when another foodborne illness strikes, the retailer could pinpoint and discard only the food that was actually at risk.
Furthermore, Walmart is not the only retailer looking at implementing blockchain technology to track and trace their produce and other food-related products. The system that Walmart uses – IBM Food Trust – has been developed for consumer companies, including Dole, Wegmans and Unilever to track products moving through the supply chain.
One sector taking advantage of blockchain technology, or at least could benefit greatly from it, is aircraft manufacturing and maintenance. Today’s commercial aircraft can have hundreds of thousands or even millions of parts, many of coming from a multitude of suppliers. Therefore, understanding the history of each part of the aircraft is critical.
Even with advances in sensor technology, connected devices, data analytics and cloud computing, there is a lack of transparency (or real-time access) to information about parts, configurations, and service timelines. In fact, getting a holistic, real-time picture for a single aircraft, let alone across an entire fleet of aircraft, is all but impossible.
Enter blockchain. It has the power to foster trust by balancing transparency and privacy on a distributed ledger. Not only can blockchain track the provenance of individual components, but – by giving a snapshot of all the parts on a plane – it also has the ability to seamlessly record its configuration for every flight of its extensive operating life.
So how does blockchain help? It maintains the ability to generate a digital record for every part that’s installed in a plane and update it after each service or inspection. The collected data may include: tail numbers, part locations on the planes, manufacturers, part permissibility, the identity of each technician who interacted with the part, as well as the service location. Furthermore, blockchain technology allows users to view the complete digital record of a part, while withholding certain data from others to avoid revealing proprietary information or trade secrets.
How can Squar Milner help?
At Squar Milner, we have a dedicated Manufacturing & Distribution team who understands the trends affecting the industry. We create and implement solutions to solve financial and operational road blocks that keep your business from fully succeeding. With the industry constantly evolving, developing and implementing a growth strategy, and ensuring that your company remains competitive is a must. We help stabilize your finances and once stabilized we work with your team to determine the optimal step forward.
Creating a growth strategy requires an objective view of your organization’s strengths, weaknesses, and potential, and its competitive position in the industry. Squar Milner will identify areas of growth accessible to your organization and will help you attain realistic goals.
Disclaimer: This material has been prepared for informational purposes only, and is not intended to substitute for obtaining accounting, tax, or financial advice from a professional tax planner or financial planner. All information is provided “as is,” with no guarantee of completeness, accuracy, timeliness or of the results obtained from the use of this information.