Production & Operations

Facing current manufacturing problems

Industry 4.0 requires solutions in some strategic areas

The manufacturing industry often still operates as it did in the 20th century. This form of production leads to many problems and difficulties. Some of them could be diminished by the use of blockchain technology.

First, production processes are often burdened by inefficiencies. Some of them are systemic, others not. As the manufacturing environment is comprised by a number of organisations and entities, numerous processes, and a vital necessity of thorough data management and documentation, inefficiencies result.

For example, before installing a part into a product its certification has to be checked to ensure not only that the right part is being assembled, but furthermore that this part fulfils the quality and production standards. Often this check is done manually by verifying the part’s serial number with the assembly requirements and verifying that it also has the necessary certifications. This is not only costly time wise, but also in a financial sense.

Second, current manufacturing is susceptible to quality-control problems. Quality assurance of single components, the overall end-product, and throughout the complete value chain from raw materials to end-consumer product is highly complex and requires a vast mountain of data and information.

Counterfeit goods are an example of not fulfilled quality-assurance

If an end-consumer gets a hold on a counterfeit good, especially not knowingly, the quality assured by the company’s production processes and quality monitoring of the value chain is no longer in place. Depending on the type of good, this can have only a disappointing consumer experience as a result or even be live-threatening for the end-consumer. In case of pharmaceutical goods, past scandals of counterfeited drugs have made the dangers of missing or faulty quality assurance measures clear.

The International Trademark Association estimates that in 2007 counterfeiting could be valued at $250 billion (1.8% of world trade). By the year 2022, the estimated value of counterfeit and pirated goods will approximately rise to a $1.9 to $2.81 trillion, compared to $1.13 trillion in 2013 [1]. This skyrocket high numbers show that counterfeiting and piracy has a negative impact not only on the end-consumer, who – often unaware – is buying an inferior product, but also the private companies involved in production, logistics, marketing, and retail of the “original” product.

Third, data reliability and availability can be quite tricky. Even though every organisation in the manufacturing industry works with IT systems to store and share data with business partners and as a mean to base efficiency and process analysis on it, remaining problems in regard to data management are:

  • data redundancy due to not shared IT systems for data management,
  • data inconsistency due to individual data gathering and storing by different entities and/or organisations,
  • data unavailability due to non-interoperable systems or missing gathering, and
  • data mutability, i.e. changeability, due to a dominating database structure that does not ensure immutability.

It is critical for manufacturers to have a single source of truth, also because of attributability and responsibility reasons. A single source of truth, i.e. consistent data among all involved parties is of essence as it virtually eliminates major risks for manufacturers. The more reliable and updated data a manufacturer has, the more production processes, warehouse management, supply chain management, and retail can be curtailed to efficiency by data-based adjustments. In addition, manufacturers require reliable data to plan processes, cash flows, and calculate prices.

Trust Tax

Forth, the manufacturing environment relies on strong trust bonds and a centralised asset control. Both are based on the individual solutions of each enterprise. As data is mostly safeguarded in centralised data silos and IT operates on traditional network designs, digital security can be reduced to the quality of the firewall. With rising cybersecurity threats and the insecurity coupled to a single point of failure in general, relying on centralised systems can prove problematic.

Moreover, managing and securing relationships through central authorities leads to high “trust taxes”. Value chains depend and rely on trust. Especially worldwide manufacturing depends highly on bonds of trust.

The “trust tax” is a term referring to the amount stakeholders have to pay to secure quality, authenticity, and integrity of their protections. This also includes the expenses to safeguard intellectual property rights.

Blockchain’s value added in manufacturing

Blockchains have several benefits, in regard to manufacturing one that has to be highlighted is traceability and visibility. Near real-time traceability can be achieved in a blockchain solution combining IoT systems, sensors and tracking devices, and a shared blockchain. This could allow for transparent and reliable traceability. With it data availability and consistency could be given and allow manufacturers to monitor value chains. This could in the end increase the probability of meeting deadlines. Traceability also helps reduce business risks in regard to shipping, raw material quality, inventory management, etc.

Furthermore, a blockchain implementation in this area could allow for greater automation and with it cost reduction, as well as possibilities to streamline production processes for just-in-time production models and other models requiring accuracy. Automation can further reduce the susceptibility of production processes to human error and with it increase product quality in the long run.

In addition, blockchain solutions could lead to the development of new manufacturing business models, like decentralised manufacturing. The distributed nature of blockchain architectures allows to explore new business models and optimise existing ones.

Current processes could be improved, standard monitoring and compliance enhanced, and automation promoted. At the same time, the overhead in the manufacturing industry could be eliminated (i.e. “trust taxes” would no longer be necessary cost). The central authority hierarchies could be replaced. Thus, security flaws and high cost of trust would no longer arise.

Overall, blockchain could:

  • reduce inventory and warehouse cost,
  • streamline processes to be time-efficient,
  • automate manufacturing processes further to eliminate inefficiencies,
  • create new business models in manufacturing,
  • increase visibility and transparency,
  • allow for available, reliable, consistent, and immutable data,
  • promote compliance, and
  • eliminate “trust taxes”.

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