Blockchain has already upset business processes in the financial sector, and is ready to influence companies in all sectors. Because technology can provide an immutable digital recording of interactions and contractual transactions in an ecosystem, we believe that production is likely to be close to the line.
Blockchain is a shared ledger of all transactions in a given transactional relationship. In combination with its consensus mechanisms and the use of the public key infrastructure (PKI) to verify and authenticate all changes made to the ledger, blockchain can allow the network itself to ensure trust among the participants . The result: a completely new way to support distributed production along the value chain.
The Importance of Trust
Consider, for example, the way in which blockchain can simplify the way of developing trust within a production ecosystem. In the world of traditional production, the parties that deal with each other spend a lot of time and money to establish external mechanisms to ensure trust, in the form of contracts, service level agreements, quality controls, inspections, audits, scans and compliance audits. legislation, to name a few. As the number of parts increases, the complexity also increases. Reconciliation of separate registers, execution of contracts, guarantee of supply chain transparency and protection of intellectual property when multiple entities are involved are all laborious and burdensome processes, prone to errors and vulnerable to fraud.
Related: Blockchain in the manufacturing sector: improve trust, reduce costs and lubricate processes through the value chain
Research shows that companies that build a culture of trust can drive more performance by enabling departments to better interact and improve their size across multiple dimensions. Establishing trust between the contracting parties has similar positive effects. All these measures, however, amount to an expensive "tax of trust".
For participants in a blockchain network – product designers, production shops, 3-D printers, logistics partners, sales and customer support – this tax is significantly reduced. A secure, distributed registers infrastructure that is accessible to multiple parties enables a new level of real-time transparency and efficiency for transactions that involve the transfer of anything of value, regardless of whether they are ideas, money or property .
In our recent global study which included 281 professionals in the manufacturing sector, in fact, "trust" was a determining factor in the adoption of blockchain.
Ensure transparency, security, auditability
Blockchain registries are:
– Shared: Separate entities share a common source of truth.
– Distributed: Blockchain relies on peer-to-peer collaboration, without central ownership.
– Safe: Cryptographic algorithms verify, authenticate and protect transactions.
– Time sequence: The data are written in progressive order and marked by time.
– Immutable: Once written on the blockchain, the data can not be modified, tampered with or deleted.
Through intelligent contracts with supply chain partners on the blockchain network – programmed agreements that can be verified independently and automatically performed when predefined conditions are met – companies can minimize human intervention and ensure transparency of performance, transaction security and auditability.[Download]: Blockchain in the manufacturing sector: improving trust, cutting costs and lubricating processes through the value chain
Within industries and even across tiered multi-level manufacturing sectors, generalized accounting systems enable companies to develop new platform-based process flows. A user can execute an intelligent contract for a custom-configured order, for example by combining drawings from multiple sources. The encrypted design data would be recorded on the shared platform; materials and services could be found independently; and a shared factory could produce the customized product. Payments, including royalties for designers, would be issued upon delivery of the product. A record of all transactions, from design selection to payment, remains on the blockchain.
An increase in the tide raises all boats
Blockchain technology therefore allows distributed production, giving participants unprecedented opportunities to develop new product lines and services, create new customer segments, enter new markets and find new ways to use and share resources:
– Through supply chain transparency. All parties perform transactions on a common platform, gaining real-time visibility into processes in the value chain and simplifying the procurement of materials and design interaction, manufacturers and other service providers. Supply chain processes, including payments and commercial financing, can be simplified and automated using smart contracts.
– Through memories of digital products. Immutable records of ownership, materials, production data, properties and other data ensure authenticity and minimize transaction risk.
– Through protected digital intellectual property. The parties to a transaction can be assured that their intellectual property is protected. For example, using the blockchain to handle a production run contracted by a ceramic component 3D printer would allow a manufacturer to encrypt the proprietary 3-D print files from one end to the other, creating at the same time an immutable chronology of the transaction. Likewise, the assets and accounting of the royalties would protect the designers and other IP owners.
There are many other circumstances in which the adoption of blockchain technology can provide value. Participants can reduce inventory costs and service times. They can eliminate reconciliation and automate and accelerate financial and process flows. They can reduce manual intervention and reduce fraud. And they can create new ways to extend the product life cycle and optimize the use of resources.
What are the next? Assessment of availability
As manufacturers move towards a shared and distributed model, business leaders can consider four questions during the readiness assessment:
1) Where in the value chain, internally and externally, are we paying the highest "tax of trust" in terms of excessive costs, effort or lack of agility?
2) How can the availability of a digital product memory give value to our company, our customers and our business partners?
3) Which types of partners in which geographies and with which competences, could we work if the costs and the efforts of the transactions were lower?
4) What information resources (eg production, maintenance, operating and usage data) on our products could we monetize if there was a safe way to do it?
A blockchain-enabled collaborative database is optimal to ensure agreement between all participants in a value chain. It is time for manufacturers to examine the implications for their business model. Organizations that gain hands-on experience with blockchain technology through pilot projects will have an advantage as consortia begin to form and will be better equipped to drive the effort and make key decisions around the structure and governance, prepare for the corresponding cultural change, build skills and abilities, and understand how it will affect business strategy in the future.
Enter the blocks. The race starts now.[Download]: Blockchain in the manufacturing sector: improving trust, cutting costs and lubricating processes through the value chain
Olesya Gorbunova, senior consultant in Blockchain and accounting of Cognizant, contributed to this blog.
This article originally appeared on the blog with digital cognition