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Perspectives

How Blockchain Can Revitalize Manufacturing Value Chains (Part 1)

2017-01-24


Using blockchain technology to establish trust in global supply chains, manufacturers can dramatically reduce production costs, improve efficiency and unleash new business opportunities.

This is part 1 of a two-part series.

Whom do you trust? When it comes to global supply chains, the response to this question can be especially difficult, time-consuming and costly.

After all, trusted suppliers must be thoughtfully selected, managed, monitored and certified for quality, reliability and consistency. While third-party inspectors such as Intertek can alleviate some of these obstacles, manufacturers are on the hook for satisfying regulatory audits and legal compliance — and ultimately fulfilling the trust that end-customers place in their brand. 

Providing these assurances in today’s manufacturing world imposes a hidden (and growing) “trust tax” on worldwide supply chain participants. All told, these cumbersome activities reduce productivity and efficiency at the expense of rising operating costs. 

Blockchain technology offers a potential remedy. As a software-based distributed ledger system maintained on multiple computing nodes, blockchains can significantly reduce the rising “trust tax” of the manufacturing value chain. 

View our video to see how blockchain works: 

What Is Blockchain And How Does It Work?

Blockchain and 3-D Printing

Blockchain technologies could prove particularly useful for newly formed distributed manufacturing models, such as 3-D printing. 3-D printing allows designers and inventors to “borrow” part of a factory on-demand, when and for how long they need it. Blockchain could greatly ease the deployment of distributed 3-D manufacturing value chains, as it enables low-cost, distributed and assured integrity for contracts, product histories, production processes and more.

To demonstrate this, we recently partnered with innogy (a subsidiary of RWE, a leading European energy company) and EOS GmbH Electro Optical Systems (a leader in industrial 3-D printing) to develop a prototype of a blockchain-powered shared 3-D printing factory. Our pilot will use blockchain technology to protect high-value design files from theft or tampering through end-to-end encryption. Blockchain-enabled smart contracts will allow these files to automatically negotiate terms and conditions (such as price, quality level and delivery date) without the need for a middleman. 

Smart contracts can also automatically locate the most appropriate printer (based on attributes such as availability, price, quality and location). (For more on smart contracts, read our white paper “Blockchain’s Smart Contracts: Driving the Next Wave of Innovation across Manufacturing Value Chains.”)

The pilot will also ensure the execution of secure crypto-payments to the owners of the file, as well as royalty payments to designers and other intellectual property owners. Furthermore, blockchain will enable the creation of secure “digital product memories,” which are immutable records of everything from the source of the raw materials used in the product, to where and how the product was manufactured, to its maintenance and recall history.

Through the blockchain, an immutable record of information – or “digital product memory” — can be created for each product. Such data will include the materials used in production and all the quality, design and printing process data. This record will also hold information on the product’s ownership, provenance, authenticity, purchase price and the currency used. All of this information can be protected with crypto-conditions that allow multiple supply chain partners to verify the authenticity and security of a message. 

Our pilot factory is a first of its kind for “software-defined” factories. Not only does it significantly improve manufacturing productivity, quality and operating costs, but it also secures the intellectual property used to manufacture goods in an increasingly commoditized and global world.

Easing the Burden of Trust

Using blockchain, players in the manufacturing ecosystem can satisfy multiple areas of trust, including the following:

  • Protection of design files during and after the journey to the remote printing location.

  • Assurance that the 3-D printer can precisely meet desired specifications and quality requirements.

  • Verification that the correct original design has been referenced, the right raw materials were used, the  3-D printer operated corrected, and shipping/delivery was timely. 

  • Assurance of payment and the ability for partners to hold each other accountable. 

  • Validation of product information through immutable records that verify the ownership of the product’s intellectual property as it moves along the value chain — such as proprietary manufacturing methods and digital rights (to provide ownership and enforce royalty payments, if required). 

  • Reduced reliance on third-party participants, such as banks, escrow agents, lawyers and even internal accounting functions to measure, minimize or manage risk. 

  • Reduced need for middle management employees who currently handle much of the above information. In their place, smart contracts can automatically negotiate payment terms and conditions (such as letters of credit).

Digital product memories maintained and encrypted on the blockchain and connected to validated IoT devices along the supply chain can provide secure proof of everything from manufacturing processes to quality controls. These technologies will allow the creation of “trust factories” — decentralized institutions and organizations that provide trust at a far lower cost than traditional providers. 

Looking Ahead

We believe blockchain manufacturing will boost innovation, slash inventory costs and turnaround times, automate terms and pricing, and better distribute overcapacities and bottlenecks to meet global demand.

In part two, we’ll explore new business models that are bound to emerge through the use of blockchain, as well as the key obstacles first-movers must overcome to become successful blockchain manufacturers.

This article was written by Burkhard Blechschmidt, a leader in Digital Strategy & Transformation and CIO Advisory at Cognizant Business Consulting, and Dr. Carsten Stöcker, the Machine Economy Innovation Lighthouse Lead at innogy SE. Both are co-founders of the “Genesis of Things” project, a blockchain-based platform initiative for 3-D printing, including a digital product memory.

To learn more, please read “How Blockchain Can Slash the Manufacturing ‘Trust Tax’" or visit our Manufacturing Practice website.

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How Blockchain Can Revitalize Manufacturing Value Chains (Part 1)