Beyond Efficiency – Blockchain In Manufacturing

While the benefits are clear, with respondents to a recent study indicating blockchain will be important to their company’s success, a clear strategy must be in place to move beyond early adoption of the technology.

Thanks to today’s digital technology, manufacturing is evolving. The more technology adopted, and the industry disrupted, the greater the rewards for those who embrace the latest cutting edge technologies. Today’s newest technology, blockchain, however, is poised to fundamentally redesign inefficient processes in areas such as supply chain management and trade finance, as well as spawn entirely new business models for manufacturers. While manufacturers recognize the disruptive potential of blockchain to streamline complex supply chain operations, simplify trade finance and spur the transition to customized manufacturing made possible by 3D printing, most manufacturers are not moving aggressively to prepare for the transformative changes that blockchain will bring.

Blockchain, first used in 2009 for the digital cryptocurrency Bitcoin, has moved beyond financial services and is being applied in a variety of applications throughout nearly every major industry, including manufacturing. Replacing the traditional role of a central trusted authority, blockchain networks create proof of ownership by using unique digital signatures that rely on both public and private encryption keys. Complex algorithms drive consensus among users, ensuring that transaction data cannot be tampered with after it is verified which directly addresses two key pain points — risk and fraud — that prevail throughout the industry.

Coordinating among the thousands of organizations involved in a global supply chain and gaining the required assurances is a slow and often expensive process entailing paperwork, e-mails, phone calls and site visits. Despite these best efforts to gain assurances among suppliers, manufacturers and other users of raw materials confront billions of dollars a year in fraud and leakage.

As the value chains that support manufacturing in today’s global environment depend on achieving trust among suppliers, distribution partners, service providers and customers, blockchain can positively impact operational efficiencies, reduce production costs and create new business opportunities. This network would provide manufacturers with a granular and real-time view of their global supply chain, documentation of the chain of custody for their products, and immutable records that cannot be altered inappropriately or tampered with.

While the benefits are clear, with respondents to a recent Cognizant study indicating blockchain will be important to their company’s success, a clear strategy must be in place to move beyond early adoption of the technology.

Developing a Blockchain Strategy 

Manufacturers should move quickly to understand where they can leverage blockchain capabilities to address their operational challenges or take advantage of new business opportunities. Equally important, they need to gain experience with what will be required to implement blockchain solutions. Waiting until the direction becomes clear could leave manufacturers playing catchup.

Manufacturers need to take blockchain from theory and put it into practice, identifying concrete business problems and opportunities that the technology can help address. For each use case, a manufacturer should:

  • Determine key performance indicators that can be used to evaluate success. The KPIs will allow the organization to assess performance and communicate value to senior management.
  • Ensure the blockchain project addresses specific business problems or opportunities. Rather than emanating from IT, the initiative should involve key stakeholders from the outset and should be driven by cross-functional teams with a business sponsor.
  • Set clear goals. Assess whether blockchain technology is well suited to the business issue being addressed, and clearly specify which objectives will be achieved.
  • Specify the actions needed for implementation. Assess the required resources, create a process map and develop an implementation guide.
  • Explore a variety of platforms, including both permissioned and permissionless. For each use case, choose a platform based on how well it is tailored to the business need, and not the one with the most buzz.
  • Gain experience collaborating with other players across the value chain. Work with industry partners on blockchain projects and assess the obstacles in working successfully with external organizations.
  • Focus on blockchain projects with real-world potential. The risk of doing nothing is greater than the risk of doing the wrong thing.

Looking Foward

Blockchain’s distributed ledger technology could offer manufacturers the ability to streamline the current time-consuming and expensive processes involved in selecting, vetting and managing relationships with the numerous partners in their complex global supply chains.

While it appears manufacturers are moving cautiously, they do need to move off the sidelines by forming blockchain task forces, identifying use cases, designing pilot projects with specific implementation plans and acquiring the needed skills, either internally or through acquisitions and partnerships.

However, it’s critical for manufacturers to take a nimble, entrepreneurial approach that is required to keep pace with any fast-changing technology, especially one like blockchain. Manufacturers that act aggressively to learn how to leverage blockchain will capture early-mover advantages as blockchain disrupts the manufacturing landscape.

Prasad Satyavolu is Global Head of Innovation, Manufacturing and Logistics at Cognizant.

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