Blockchain: The Next Big Disruptor in the Manufacturing Industry

Blockchain

The last couple of years have been pivotal for decentralized technologies like cryptocurrencies and, more broadly, blockchain. Adoption among the general public has cemented bitcoin’s viability as an alternative currency for today and tomorrow, while blockchain is poised to bring greater oversight and far higher efficiency to finance and industry. 

The manufacturing sector, in particular, is likely to embrace blockchain technology in a major way — and in fact already is, if you know where to look.

Greater Transaction Security, Better Vendor Trust, Improved Tracking

Blockchain has brought about cryptocurrencies like bitcoin and ethereum, but the technology can drive far more than private transactions. It also provides a decentralized “living public register,” in which two manufacturing or distributing partners can engage in business together without third parties and without having to exchange critical information with one another.

Blockchain will likely facilitate more “smart contracts” as well, which can be handled over the internet and are just as legally binding as any other document, except without a legal arbiter or third-party present. These advantages allow for a more secure, frictionless marketplace and supply chain.

But legal agreement and financial transaction facilitation is not the only major change brought about by blockchain. It’s also helping to blend the digital and physical challenges presented by logistics processes by allowing companies far more oversight over the origins of their material and product supplies.

To give you an idea of the maturity of some of this technology, consider that Walmart is already using blockchain to reliably track the movement of physical assets throughout the company’s supply chains. From farm to shelf, or factory floor to local distributor, blockchain represents a sort of “democratization” of the way critical products and assets are manufactured, verified, and transported to the end user.

Exciting Applications in the Automotive, Food, and Health Care Industries

Whether dealing with food and beverage production or the timely arrival of medical devices and vaccines, the primary mission across the supply chain is to reduce the costs associated with the management of all the moving pieces. IBM and Maersk — a couple of the biggest names involved in this overarching initiative — are together developing smarter, blockchain-driven solutions for managing a complicated, highly regulated industry that requires vigilant oversight.

As these concepts begin to prove highly effective for more and more major industry players, we start to see how a scalable blockchain solution could easily apply to separate industries and to businesses both large and small within those industries.

The automotive industry, for instance, with its networks of major manufacturers and locally owned and licensed service providers, is ripe for a blockchain-led revolution. Consider the number of automotive component recalls in a given year and the possible human cost attached to not tracing problems quickly enough.

Blockchain can help automakers track faulty vehicle parts straight to the factory and even the assembly line where the problem originated. That degree of transparency and communication — from supplier all the way to driver — may just be able to save some of the lives and money lost to unaddressed recall notices in any given year.

In the food industry, in which Maersk deals with shipments of fresh produce and flowers from various worldwide locations such as California, Colombia, and Kenya, blockchain provides a new layer of authenticity for shipment records. For a global enterprise, in which perishables or otherwise sensitive products change hands many times, blockchain represents a surprisingly elegant solution for the web of trade agencies, local governments, and logistics partners who have a stake in any given shipment at any given time.

In the manufacture and distribution of physical goods, there is what some authorities call a “trust tax.” It's not a real tax — but it has a real cost. “Trust tax” refers to the lengthy and, in many cases, expensive process of vetting new business partners and material suppliers. It involves the cost of starting anew if you lose a supplier, and having to build trust and a solid working relationship with another supplier while trying not to waste time, money, or resources.

In the world of manufacturing, blockchain is serving as a critical component in a major revolution that also includes rapid prototyping, lean manufacturing, 3D printing, and now blockchain-facilitated manufacturing and supply contracts. After all, the authenticity of original equipment manufacturers and parts is hugely important in a world where headlines about compromised software and shady equipment suppliers are commonplace.

Blockchain in the Age of Manufacturing

Blockchain is effectively bringing about a new industry standard, creating a permanent, public record of financial and material transactions. These advances could cut through huge amounts of red tape in practically every organization in the manufacturing world. Beyond the smart contracts already mentioned, entire supply chains can now build cryptographically immutable ledgers, allowing for:

  • Verification of the ethical origins of raw materials (e.g., conflict minerals)
  • A tamper-proof chain of custody
  • Accessible and complete records for audits or regulatory compliance

The list of manufacturing applications for blockchain is of course much longer than this small sampling, and we’ll continue to uncover new ones as buy-in and adoption rates increase. The mechanics that power blockchain do not change depending on the participants. Rather, it is trust made digital. And this is invaluable in a complicated industry like manufacturing.

 

Image Credit: LuckyStep/Shutterstock.com

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