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Special Report: In Blockchain We Trust

By Karen Haywood Queen Contributing Editor, SME Media
Brett Brune
By Brett Brune Editor in Chief, Smart Manufacturing

The technology behind the rise of cryptocurrencies is widely expected to bring ‘a common source of truth’ to manufacturing

TokenCommunities CEO Alex Lightman

Blockchain, the public but secure ledger that propelled Bitcoin to success, is primed to move into manufacturing. Early use cases are presenting themselves in aerospace and defense, automotive and pharmaceutical manufacturing, as well as in any sector that is already digitally well-connected.

Combined with other smart technology, blockchain enables improved monitoring of the entire supply chain and makes it easier for multiple parties within manufacturing to work together. By using data from smart sensors, blockchain can help verify that products are authentic and that quality standards have been maintained during shipping without the need for companies to share private, proprietary information. Blockchain also can help establish machines-as-service and can enable automatic payment when performance metrics are reached.

“As we started to look at blockchain, we realized its potential to go way beyond Bitcoin,” IBM’s Krishna Ratakonda said. “Blockchain acts as a common source of truth, processing, organizing and connecting data in a way that was not possible before. People have started to sit up and notice.”

“There’s such a big market,” ITAMCO’s Joel Neidig said. “Every technology leader—IBM, Microsoft, Amazon—is going to be into it. Blockchain will eventually become a technology like the Internet. When the Internet came out, people said, ‘Why would I need the Internet?’ Now everybody needs it. Now business runs on the Internet. How you apply it—the connectivity, the software behind it—that’s where the solutions will happen. The key is developing those first use cases and filling those out.”

A quick primer: Blockchain is a decentralized register made up of endless, connected cryptographic blocks. Data is stored, time stamped—and automatically distributed to many servers at once. Security is a key value. Blockchain is tamper evident: Any change is immediately apparent to all involved. Where multiple entities are involved as on a multiple-tier manufacturing supply chain, blockchain creates a record of every transaction. If someone adds to the data, the widely distributed ledger shows when and where that addition happened. Some call it the “ledger of ledgers.”

Yet, even defining blockchain can be a tangle. Technology? Platform? Concept? Infrastructure? Blockchain is not one single entity either. There are a number of blockchain protocols, the most well-known being Ethereum and Hyperledger, as well as three types/ways of using blockchain: public, private and semi-private/consortium.

“You ask three people and you get five answers,” Microsoft’s Diego Tamburini said. “At its very core, blockchain is a data model that consists of blocks that are linked. Perhaps the most common way to characterize blockchain is as a ‘technology.’ Specific vendors provide platforms that support the technology. For us, it’s a platform and a tool development concept.”

“The Army has blockchain; the Navy has blockchain; the Air Force has blockchain,” said Ken Church of nScrypt. “These blockchains don’t always work together. They won’t work together unless they’re coordinated to work together. There’s no such thing as ‘Blockchain, done, it works.’ It’s really a system, a process, an approach.”

Sysoft’s Sam Adhikari emphatically describes blockchain as a concept, not a technology.

“Like the Web was a concept,” Adhikari said. “Blockchain is an open-data ledger where you can deposit the data, collaborate together and be completely confident the data cannot be changed.”

Data is locked down

Security is an essential selling point. But Blockchain is not 100% secure: In 2016, one hacker exploited a weakness and tricked the Ethereum Decentralized Autonomous Organization system, siphoning off $50 million in Ethereum, according to a 2016 CoinDesk article.

Still, “compared with a regular database, which is always vulnerable to cyber-intrusion, with blockchain it’s almost impossible to alter the data,” Adhikari said.

“Any blockchain application is distributed all over the network,” he added. “Even if a hacker somehow gets into a server, any data alteration will render the whole chain corrupt and everyone will know. Because the data is replicated in many servers, in order to break into blockchain, someone has to break into many, many servers. The problem is: no one knows where all these servers are.”

“Parts of the Internet are not usable now because people are not confident who they are dealing with,” he added. “Blockchain makes the Internet absolutely usable.”

Motivated by the financial crisis of 2008, the developers of cryptocurrencies sought to find “something that the banks couldn’t screw up,” TokenCommunities’ Alex Lightman said at a recent blockchain conference in Spain. “The idea with Bitcoin is you are solving … the basic idea of trust online.”

In terms of importance to society, blockchain is at the same level as the World Wide Web, he said. “Arguably, it’s going to give us Internet the way it was supposed to be—more decentralized… more secure, more private, more equitable, and more accessible."

Cause for snickering or investing?

If you listen to the blockchain buzz, there’s a rush to catch the blockchain train.

“There’s definitely a lot of hype on this topic,” Deloitte Consulting’s Joe Fitzgerald said. “We have a ways to go. There will continue to be hype. It’s an evolving technology. People see the promise in theory and now people are wrestling with how to implement it in practice.” As of now, “blockchain is still immature,” Tamburini said. “Sometimes it sounds like a solution looking for a problem.”

“The hype will always be there,” Adhikari said. “In the late ’80s, early ’90s, I was showing a demo to someone about Yahoo! and the name itself was funny. Everyone started laughing.”

Martin Ruskowski, factory systems research department head at the German Research Center for Artificial Intelligence.

Martin Ruskowski of the German Research Center for Artificial Intelligence said tech firms are “afraid they may lose time on the market.”

“In recent years, those who were able to establish the technology first were able to grow,” he said. “With all platforms, there are benefits of scale. We see it with Facebook. We see it with Amazon. People are afraid all the benefits come earlier, so they are investing.”

‘Killer use case’ sought

Beyond and behind the hype, researchers are figuring out how to develop and best use blockchain to solve manufacturing dilemmas.

“With technology like this, it’s easy to get too excited,” Steamchain’s Michael Cromheecke said. Steamchain enables machine-as-a-service contracts on industrial equipment.

“It’s not a question of will blockchain become impactful but when it will start to gain momentum. There’s a chance that rollout adoption will proceed at an exponential rate. Blockchain has the earmarks of a highly scalable system that solves a lot of challenges today without requiring everyone to be in concert.”

People who ascribe to the “fail fast” way of doing business are jumping into blockchain to see what works and, equally important, what doesn’t work.

“Just like with the Internet and the dot-com bubble, some early blockchain concepts are going to fail,” Neidig said. “Everybody is in agreement blockchain will be utilized in the future but with what applications?”

“Blockchain is living on data from the past,” Ruskowski said. “Who establishes it early has a long track record of transactions in the blockchain. They gain knowledge of what is working and what is not working. The philosophy of ‘try early, fail fast’ is also an approach. Instead of investigating only in theory, they are investigating in their environment. They find out early what are the benefits and what are the shortcomings.

“You need that killer use case to get everyone to join,” he said. “It’s still the early days. It will take several years before we see major applications coming out and high-volume use. But we are starting to see that in the supply chain area. We are already starting to see production incentives.”

As opposed to that solution looking for an ephemeral problem, “early adopters are often in supply chain networks looking to solve a problem they can’t use another technology to solve,” Neidig said. Early use cases of blockchain are in industries and sectors that are already functioning in the digital world with sensors and Big Data analytics.

“They already have the fundamental things in place to connect the physical to the digital, and they just need to change the digital technology they’re using to get incremental benefit,” Fitzgerald said.

Appeal is wide

Blockchain has applications for makers of pharmaceuticals, luxury goods and aerospace and defense products, as well as other high-value, high-risk, highly regulated products, Fitzgerald said.

The value added comes from uncovering and preventing tampering, preventing counterfeiting and identifying where, when and, often, how failures occur.

“Aerospace, car manufacturing and biomedical—those are very highly regulated industries where they need to know the data hasn’t been tampered with in any way,” Neidig said. “You can have sensors validating everything to a digital ledger that is not owned by any one entity.”

Blockchain offers value in five distinct networks within manufacturing, KPMG’s Arun Ghosh said. Those key five networks are planning, sourcing, making, delivering and returning, he said.

”We’re finding enterprise blockchain being deployed, added on as a trust mechanism or trust layer behind enterprise systems, as well as helping ground the trust mechanism as an anchor to understand both supplier authenticity as well as product sort of verifiability.”

Supply chain a natural fit

Blockchain has begun proving its value along supply chains where there are multiple users but not necessarily 100% trust.

As supply chains have wrapped around the world, the need has grown for a better way to monitor and verify supply chain conditions and transactions. With blockchain in use among multiple suppliers, it’s easy to determine where and when value was added or a failure occurred.

“Supply chain has grown truly global over the last 20 years, and supply chain-related blockchain activity has started to pick up,” Ratakonda said. “A lot of the goods we buy are not made near us. They come from far away and change hands multiple times.”

Blockchain is a natural fit for multi-tier manufacturers that want to monitor components from the original raw materials to the final product for authenticity and for conditions during transport.

“The biggest application we currently see is use of blockchain in the supply chain context,” Ruskowski said. “Blockchain is feasible where you have non-trusted environments, such as suppliers delivering parts, and you want to have full traceability throughout your delivery.”

Consider a large, Tier One OEM shipping components to GM or Ford, Neidig said. Without blockchain and other smart technology, the OEM often is unable to trace the raw material it uses. Blockchain shows its value in those second- and third-tier supplier networks by adding a method to control and monitor the process.

“That raw material [may] come from China,” he said. “How do they verify that it didn’t have any conflict minerals (minerals mined in an area experiencing armed conflict where profits benefit the fighters) in it. That needs to be validated and verified. Without blockchain, it’s a paper system. It’s very difficult and time-consuming. The benefit of blockchain is mostly in that area where you lose control.”

Using blockchain to track components and products in cross-border trade emerged as a key use case for a aerospace parts manufacturer, KPMG’s Ghosh said.

“We found a real tangible savings and productivity gain with blockchain in cross-border trade and the value of understanding between shipper, receiver, regulatory body, and customs brokerage,” he said. “We were able to set up a fairly transparent mechanism of not just what was shipped and received but actually the documentation that flows from jurisdiction to jurisdiction, from country to country, as well as the recognition of value-added tax or duty drawbacks, which can now be computed using smart contracts.”

Currently, most companies track products and components only at certain steps of the supply chain where they collect the data, Ruskowski said.

An inspector with a clipboard (or tablet) at a receiving dock checks the temperature of the milk or other product and enters a note saying, “Yes, the temperature was within specs at that moment,” Tamburini said.

In the absence of blockchain, no one can verify if any of that data is altered, Ruskowski said.

“Blockchain has the advantage of the continuous transaction,” he said. “You cannot take out data. You can check if the transaction is part of any change. You can always ensure the transaction is genuine.”

Matthieu Hug, founder and CEO of Tilkal.

In the food and beverage sector, better supply chain monitoring and tracking via blockchain gives manufacturers the ability to act quickly to recall a product, for example food, and companies can avoid lawsuits and bad publicity, said Matthieu Hug, founder and CEO of Tilkal, which
describes its main offering as a digital identity platform organizing traceability across supply chain stakeholders.

“Nobody has an end-to-end view” of the supply chain at this point in time, Hug said. “If you want to buy a frozen product, nobody in the supply chain is able to tell you the temperature of this item from the time it went out of the factory until the time it arrived. One of the consequences of that is nobody is able to properly organize a recall of an entire product.”

Oracle’s Bhagat Nainani said blockchain can also help medical and other manufacturers keep track of every asset and transaction in their operations with end-to-end, shareable, non-repudiable record-keeping.

With blockchain, every event or transaction in the supply chain is recorded in a shared ledger after it’s verified and agreed upon by at least two parties through a smart contract, he said. In manufacturing, the entire chain or just parts can be shared with collaborators.

“This is an area where we feel technology has a lot of promise because having this notion of a ledger that’s distributed and tamper proof, using applications such as track-and-trace or our lot-lineage, each trading partner, as they’re transacting with the other partner, can decide which aspects of their transaction can be shared with the broader business network (which can include regulatory agencies, the government and even consumers),” Nainani said.

“Similarly, regulatory agencies want to know which tests were done, what clinical trials data were used before it was released, and things like that,” he added. “Our track-and-trace and lot-lineage are directed toward that.”

Oracle last year started offering blockchain applications for intelligent track-and-trace, lot-lineage and provenance (which helps with unique device identifier compliance), intelligent cold chain and warranty and usage tracking.

“Blockchain provides a unique way of addressing these (applications) because it handles problems that were not possible to address before in an easy way, the main one being end-to-end visibility across the supply chain,” he said. “When we talk to large companies, what we find is they have visibility mostly into one level of their supply chain and they would like to share information and have visibility across it, but there’s no easy way to share information and even if it is shared, they’re not guaranteed that it’s easily verifiable.”

The verifiable nature of the information, and its resulting trustworthiness, can help device manufacturers do a root cause analysis easily because any tampering is immediately evident.

It can also save money in the event of a recall. Current practice is to recall every device to preserve a manufacturer’s reputation and provide an answer to skeptics. But with blockchain, since every device is traceable end-to-end in a tamper-evident—some say tamper-proof—record, only those devices that present a problem need be recalled.

Bhagat Nainani, group VP of IoT and blockchain applications development at Oracle.

“With blockchain, you actually have more trust in the transactions that are happening,” Nainani said.

Collaboration will be easier

Within aerospace, pharmaceutical and other industries, blockchain will make it easier for companies to work together. No company wants to be blamed for a failure it did not cause.

The appeal can be especially strong for small companies that don’t have the deep pockets to rectify a problem they did not cause but yet may be blamed for.

“One of the reasons companies don’t want to work together is because of the trust issue,” Adhikari said. “Small companies are always worried they will be blamed for something that goes wrong in manufacturing. If an engine has been manufactured and there’s a failure, the blockchain data can show during an investigation the root cause of the trouble. There is a way to trace back the audit trail.”

Within a manufacturing supply chain, pharmaceutical companies, suppliers and regulators can track and monitor production, Siemens’ Philippe Labalette said. “With this technology, we will be able to share batch parameters with different companies in a secure way.”

Counterfeiting will be harder

Beyond the food and beverage sector, blockchain makes it possible for manufacturers to trace products and components to more easily identify and prevent counterfeiting and certify products meet certain standards.

“We see efforts mostly in large companies … in the automotive, pharmaceutical and food industries where you want to have traceability,” Ruskowski said. “It’s about traceability of quality. They want to monitor the whole supply chain and make sure the product they’re buying is an original product, not one with fake ingredients.”

There is a significant financial incentive to validate products and reduce knock-offs.

The total amount of counterfeiting worldwide, in products ranging from watches to defense equipment, reached $1.2 trillion in 2017 and is projected to reach $1.82 trillion by 2020, according to the 2018 Global Brand Counterfeiting Report.

Blockchain can help shippers track pharmaceutical containers in a way that is auditable and non-repudiable, Hug said.

By combining blockchain with data analysis capabilities, blockchain helps companies identify where thefts occur and reduce or eliminate counterfeit drugs, he added.

Fitzgerald chimed in: “For pharmaceuticals, for aircraft, you’re lowering the risk of counterfeiting and reducing the risk of doing excessive inspections, compliance and [maintaining] records of where things have been.”

In the future, someone about to buy a luxury handbag on eBay could type the serial number and learn where and when it was originally sold, who else has owned it and, most important, whether it is really the brand it purports to be, he said.

Custom, multi-component, high-value products also are a good use case for blockchain, Ratakonda said. Consider a circuit board’s complex chip, which likely includes designs from dozens of manufacturers.

“How do you then go back and ensure that each sales dollar gets accurately split among all those different competing manufacturers,” Ratakonda said. Blockchain makes it easy to slice that financial pie.

Another model to come

Ruskowski’s team at the German Research Center for AI has been investigating the possibilities for using blockchain within a self-contained factory and hasn’t yet seen good use cases.
Within a single production environment where everyone is trusted, blockchain doesn’t add value, he said.

“We found out it’s not really true that blockchain can solve everything,” Ruskowski said. “It’s feasible with a non-trusted environment with a limited number of participants. It doesn’t solve every problem on the market. The technology is promising but it has some issues that have to be addressed in the future. Today’s blockchain will not be the model we see on the market in the end. There will be another model.”

Greensparc’s Trevor Curwin is skeptical that blockchain’s application to power grids will ever do away with the middleman—because the complexities of providing power are so great, he said during a recent conference panel talk in Barcelona on blockchain technology.

It is possible blockchain technology could enable “a distributed network of suppliers that that you can then trust,” he added.

But the models he has seen so far prove that “we’re in early days,” Curwin said.

‘Everyone can see what is happening’

But even a factory working with just one supplier can derive benefit.

Blockchain makes it possible for direct, automatic machine-to-machine reordering and shipping of inventory, said Labalette, who works closely with the IC3 blockchain initiative. That initiative is based at the Jacobs Technion-Cornell Institute at Cornell Tech and is funded in part by a National Science Foundation grant.

Instead of a human keeping up with inventory needs, a machine using blockchain can automatically recognize that inventory will be depleted in a few days or a few months, order the replacement product from a supplier, and then enable automatic payment, he said.

“It’s not only efficient but it’s possible to have better tracking,” Labalette said. “We create an environment in which the performance data of the machine is collected in a way that all parties have visibility. When the data goes in, everyone sees the same version of the truth at the same time. Everyone can see what is happening and the financial calculation.”

Newfangled contracts envisioned

Another application is automated, performance-based contracts and warranties.

The value of smart contracts extends beyond track-and-trace to integrating accounts receivable with accounts payable for all components moving from the supply chain to a warehouse, KPMG’s Ghosh said.

Arun Ghosh, U.S. blockchain leader at KPMG.

“Smart contracts are being used not just to understand where, what and when but also to actually push and pull events to trigger payments, or recognize revenue, and even put it into a journal entry in an ERP system,” he added.

Steamchain is positioning itself as a firm that can develop tailored applications, such as automated contracts, for manufacturers and others to use, Cromheecke said. In these use cases, blockchain tracks the production quantity and quality of what a machine makes and automatically causes payment to be sent based on performance.

In one hypothetical scenario, the first payment for a factory machine would be released when the machine archived a benchmark of 400 components per minute over 17 shifts; the second payment when the machine reached 500 components per minute over 30 shifts and the third payment when the machine achieved 800 components per minute over 30 shifts, he said.

This scenario would prove to be a very convenient and flexible alternative to the traditional site acceptance process that today is very subjective and short term, he added.

These use cases could be especially valuable in situations where Company A owns production machines being used by Company B to produce products for Company A, Cromheecke said. In this scenario, there’s no need for human checking or monitoring and no opportunity for human fudging or stonewalling—the truth is in the blockchain.

“It’s a very elegant way to deploy a business model that has proven successful in many other industries,” he said. “We think it unlocks a world of possibilities.”

Ilene Wolff contributed to this report.

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