Digitalization has helped manufacturers overcome numerous challenges, accelerate their processes, and expand their global reach. However, quality, traceability, and conformity issues continue to afflict supply chains. Despite their best efforts, manufacturers need help to ensure complete transparency across their supply chains. Problems such as unethical sourcing of raw materials, counterfeiting, and fraudulent paperwork are prevalent, especially across large supply chains with a global footprint.
This is where blockchain steps in. Originally conceptualized as a foundation for cryptocurrency, blockchain technology has been applied to real-world use cases that require data integrity and traceability. Industries such as banking and finance, healthcare, real estate, retail, and insurance have adopted blockchain to streamline processes and enhance consumer trust.
However, it is in the manufacturing sector where the technology can make a difference. Implementing blockchain in the manufacturing industry can:
- Enhance supply chain transparency and traceability.
- Streamline and automate payments.
- Prevent fraud and counterfeiting.
- Promote sustainable manufacturing practices.
Let’s explore the basics of blockchain, how it integrates into an existing supply chain, how it benefits manufacturers, and how combining it with ERM and data analytics tools can unlock new avenues for growth.
Behind the scenes
So, what exactly is a blockchain, and how does it function? In simple terms, a blockchain is a shared database of records that keeps track of information. Information is stored in blocks, which are linked chronologically and cryptographically, forming a chain of sorts, hence the name blockchain. An identical copy of this database is distributed across a network of computers called nodes. Each node possesses the most recent version of the blockchain, so even if one version is altered, it can be verified against the other existing versions, making it tamperproof.
Information is entered into the blockchain in the form of transactions. To be added to the blockchain, the nodes must authenticate the transaction. Once verified, a new block containing the information, timestamp, and cryptographic hash are added to the blockchain. The timestamp and cryptographic hash ensure that a block cannot be altered or deleted once a block has been recorded. The design also makes it impossible to create duplicate entries.
Before we delve deeper into the topic, we should understand that there are two different types of blockchains—public and private. Public blockchains are used for cryptocurrencies, while private blockchains are preferred for use cases that require privacy and confidentiality, such as manufacturing supply chains.
How can blockchain be integrated into a supply chain?
In a supply chain management blockchain, the nodes comprise trusted supply chain participants, auditing firms, and compliance agencies connected on a private network. Each node is granted a certain level of access to the blockchain, depending on its function. Only certain nodes will be granted the authority by the manufacturer to validate new additions to the blockchain.
Every stage of the supply chain can be considered as a transaction. Once a stage is completed successfully, the concerned participant initiates a transaction by entering all the relevant details. Once validated by an authorized node, a new block containing all the details related to that specific stage of the supply chain is created and added to the blockchain. This happens during every stage of the supply chain process, creating a permanent digital trail that can accurately track the product’s journey, from the sourcing of raw materials to the end consumer’s doorstep.
The integration of blockchain also allows organizations to leverage smart contracts. These are digital contracts whose terms are encoded within the blockchain itself. At the end of each stage in the supply chain, the system checks the data recorded in the blockchain. If the prescribed conditions are met, the contract is executed automatically. Smart contracts can help eliminate paperwork by automating order placements, delivery schedules, and supplier payments, streamlining the manufacturing process.
How does blockchain improve the manufacturing ecosystem?
Integrating blockchain into a manufacturing supply chain offers numerous upsides for manufacturers, suppliers, and consumers.
- Blockchain enhances transparency across the supply chain and enables organizations to track the real-time progress of their products accurately throughout the manufacturing process.
- Manufacturers can use blockchain to ensure all suppliers follow ethical sourcing practices and comply with local labor laws, environmental regulations, and fair trade practices.
- In case of any defects, blockchain allows manufacturers to trace the origin of each component, reducing the time taken to identify and resolve any production issues.
- Manufacturers can prevent counterfeit components from entering the supply chain by ensuring that only trusted participants are allowed in the network.
- With smart contracts in place, payments can be made automatically without paperwork, drastically reducing the chances of fraudulent invoices and claims.
- Blockchain and smart contracts eliminate the chances of disputes between manufacturers and suppliers. Even if differences arise, the technology’s immutability ensures they can be resolved rapidly.
- Manufacturers can enhance consumer confidence by allowing them to trace the origin of raw materials and confirm the provenance of every product sold.
Integrating the blockchain with ERM tools
Integrating ERM tools such as Microsoft’s Dynamics 365 with blockchain will enhance efficiency by easing critical business processes, including finance, procurement, and inventory management.
- A consistent flow of data between the ERM system and the blockchain will ensure that information is kept up to date across both platforms.
- Manufacturers can enable smart contracts that automatically initiate purchase orders for raw materials or components if inventory falls below a certain threshold.
- Payment invoices and other financial documents can be uploaded automatically to the blockchain to improve transparency and eliminate paperwork.
- The integration will also help accelerate audits and compliance checks.
Combining data analytics and blockchain
Combining blockchain, IoT, and advanced data analytics is akin to unlocking a superpower. Manufacturers can enable intelligent contracts based on insights derived from AI-powered data analytics. This means raw material or component orders and payments can be customized and executed automatically in real-time based on forecasted demand, taking manufacturers one step closer to a fully-automated supply chain with minimal human intervention required.
Blockchain is revolutionizing how things are manufactured, introducing transparency, efficiency, and speed into what was once a disorganized and convoluted system. However, integrating it across well-established supply chains poses significant challenges. Nevertheless, the cost benefits and potential opportunities it can uncover will prove enticing enough for manufacturers across industries to integrate blockchain with their supply chains.
