Solving the Supply Chain Puzzle with Blockchain
Solving the Blockchain Puzzle
What is a blockchain? Depending on who you ask, you might get a very simple answer or a very complex one. The most common response you will probably receive will equate it to Bitcoin or cryptocurrency. But, in actuality, Bitcoin captures only one application of this exciting enabling technology. The blockchain universe is far vaster.
I liken it to a puzzle. Imagine that you have a puzzle with millions of pieces, and each piece of that puzzle is dispersed amongst individuals. A master ledger, or record, is produced and distributed to every participant within the group. This ledger identifies every puzzle piece, the owner of the piece, when it was received, if ownership was transferred and any other important details related to the puzzle. If a new piece is discovered, every participant must validate its authenticity first before it can be accepted as a piece of the larger puzzle.
In this example, you have created two unique occurrences:
- You have shifted the maintenance responsibility for the puzzle to the participants.
- You have created a level of assurance that the image projected by that puzzle as a whole will always remain intact.
The same is true of a blockchain. Small packets of data are compiled from devices throughout its network in order to produce a block of information with a timestamp. These blocks have a figurative shape, just as a puzzle does, which creates links for the next block. Once a new packet of data is compiled, a new block is created, then authenticated by the rest of the chain and linked to its predecessor. This linkage is what creates the “chain” of blocks. With every new block, the master ledger is updated, which includes all the data related to the current block and to those linked previously.
Making an Impact with Blockchain
New blockchain ideas, applications and developments are coming to life and making their presence known around the globe. According to a Santander FinTech study, blockchain technology will reduce the financial service sector’s infrastructure costs by $15 to $20 billion per year by 2022, opening up the possibility for companies operating in this industry to phase out legacy enterprise systems and thus reduce IT costs significantly.
But the opportunities presented by blockchain technology are by no means limited to the business world. Initiatives like Project i2i are leveraging blockchain to make a positive impact on society. Project i2i is bringing financial inclusion to over 70 million people who remain unbanked and have no access to a checking or savings account in the Philippines today.
Another project worth mentioning, pioneered by the Swiss government, is called uPort. uPort is a self-sovereign identity and user-centric data platform on the Ethereum blockchain. This innovative initiative grants a digital, decentralized, sovereign identity to each Swiss citizen, allowing them to verify identities, cast votes and access government services from the comfort of their homes.
Blockchain for Manufacturing
Today, the development of new blockchain applications is an exciting topic across a number of different fields, but what about manufacturing? How can manufacturers leverage this powerful enabling technology to improve their businesses, processes, operations, products and/or customer service? While only time will truly tell, as we are only in the beginning phases of exploring its real-life capabilities for Industry 4.0, there is one area where it is already creating a buzz: Supply Chain Management (SCM).
1. Blockchain Use Case: Streamlining the Supply Chain
Blockchain technology can significantly reduce costly supply chain intermediaries in manufacturing. Within a blockchain infrastructure, data is synchronized across the network and in a verifiable way. Complex contract negotiations can be executed in a peer-to-peer manner, hence removing he any need for expensive intermediaries to facilitate this execution, and making business processes much more collaborative and efficient overall.
Blockchain technology can also significantly reduce procurement costs. As manufacturing enterprises continue to globalize and expand, their supply chains are becoming more complex and intertwined. According to McKinsey & Company, it is extremely difficult for such businesses to keep track of the sheer volume of purchases being made across all the business partners, suppliers, subsidiaries and other entities within their network. Enterprises seeking procurement discounts miss the opportunity to generate cost-savings because they simply lack the technology to track all of their purchases.
Many companies hand off this work to auditors, which can be costly and is prone to human error. But blockchain eliminates the need for this type of staffing or external investment. The same business logic can easily be programmed into a blockchain at a fraction of the cost. The seemingly complex process is simplified, because the resulting digital ledger is constantly updated in real time, making the total purchase volume visible regardless of the complexity of the network or purchasing activities.
2. Blockchain Use Case: End-to-End Product Tracking and Tracing
Consumers are more informed about the products they buy today than ever before. Where something was made, who made it, what type of materials were used – all of these details are becoming increasingly important to the modern consumer, who has endless options when choosing where to spend his or her hard-earned cash. Transparency is key.
Pioneer products like AURA, developed by ConsenSys together with LVMH and Microsoft, are breaking ground. Any luxury goods supply chain depends on a number of specialized players, starting from design to procurement to production and all the way to distribution. Based on the Ethereum blockchain and using Microsoft Azure, the AURA platform provides full tracking and tracing services for luxury goods. From raw materials to the point of sale to second-hand markets, consumers have full visibility and access to a product’s history. AURA ensures the authenticity of the product, provides details on product origin and components (including ethical and environmental information), instructions for product care and the after-sales and warranty services available.
3. Blockchain Use Case: Reliable Demand Forecasting and Inventory Planning
Taking historical sales data and other changing factors (cough, cough…COVID-19) into account, demand forecasting helps manufacturers understand the probable demand for their products, so they can plan their production accordingly. Demand forecasting is the driver for almost all supply chain-related decisions, so its accuracy and reliability are critical to the success of the manufacturing business.
Inaccurate demand forecasting will always lead to inaccurate inventory. If you plan for too little, you risk lost business opportunities and customer satisfaction. If you plan for too much, the waste and costs incurred from excessive inventory can be detrimental to the business, and this is purely the result of uncertainty in production. According to Inbound Logistics, excess inventory costs can range from 15 to 40% of the total cost of inventory, including capital, taxes, storage, obsolescence, damage and theft. The longer you carry the inventory, the more it costs your business.
Blockchain technology can provide manufacturers with much more accurate and reliable forecasting data for demand and inventory planning. Blockchains are able to securely track and manage resources with precision. They keep a religious record of everything, and in real time too. This precision enables blockchains to track resources at the system level, enabling stronger accuracy, forecasting and a reduction in inventory, while ensuring the same level of service for customers.
Final Thoughts
Let’s consider the large-scale software systems manufacturers rely on today for Supply Chain Management and Enterprise Resource Planning (ERP) in general. While the capital investment has been an expensive one and the digital infrastructure has worked well up to this point, blockchain presents a new paradigm shift for the manufacturing industry. With blockchain, companies can streamline operations and ensure full transparency and accountability for any activity involving multiple players or processes, and at a fraction of the long-term cost.
While I am sure the next 5 years will bring a plethora of new and innovative blockchain applications for Industry 4.0, the cost-savings that it can offer today to this sector lie primarily in: reduction of supply chain costs and intermediaries, better product tracking, improved data and more reliable analytics. While it still may be green to much of the manufacturing world, I believe it is only a matter of time before blockchain, just like the Digital Twin, IoT, AI, RPA, Cloud and many other enabling technologies that came before, becomes the norm in smart manufacturing.
