April 11, 2019
By Jeff Sorensen and Bobby Bono
Bitcoin may grab all the headlines, but blockchain, the technology that powers it, isn’t just for cryptocurrencies. There’s enormous potential in the industrial sector as well. It has the power to revolutionize how manufacturers design, engineer, make, and scale their products. Visionary early adopters will be at a distinct advantage.
Blockchain can solve thorny problems of trust and transparency. It’s easier to imagine how when it’s seen as a type of next-generation business process improvement software that has the power to help overcome long-standing hurdles to more efficient operations, rather than merely the platform on which wildly fluctuating cryptocurrencies are built.
Simply put, blockchain is a distributed ledger of transactions. Rather than being kept in a single, centralized location, it’s held by all the users in a network. To update the ledger, they must agree that a transaction is valid. There’s no need for a trusted authority’s approval, and once a transaction is recorded it’s virtually impossible to erase. That’s why blockchain is potentially such a powerful tool for certain industrial applications.
And there’s certainly room for forward-thinking manufacturers to become blockchain early adopters. When PwC surveyed 600 global executives across industries, 12% said they perceived the industrial products and manufacturing sector as being a leader in the development of blockchain solutions. Of course, that’s far behind financial services’ 46%. But it’s also tied for second place with the energy and utilities sector. The bottom line is there’s a huge opportunity for growth.
What might that look like? For manufacturers and other industrial companies, we believe blockchain is particularly well suited to help solve problems caused by a lack of visibility into complex systems and processes involving many different parties. It could be used to monitor supply chains, track the provenance of materials and prevent counterfeiting and manage technicians’ credentials to ensure only qualified workers service sensitive equipment. In addition to satisfying a company’s own need for greater transparency, the indelible record blockchain enables could help build confidence with business partners or respond to regulators’ inquiries.
Concrete examples will help illuminate blockchain’s potential. Automakers are ultimately responsible for the safety of the vehicles they manufacture, but may lack sufficient visibility into their supply chains to know whether a defective component is the result of low-quality steel, the work of one of their suppliers or a problem in their own factory. A blockchain solution that tracks parts through the value chain could provide clarity that’s difficult to achieve when information is stored by multiple parties on systems that may not be compatible. Increased transparency enabled by blockchain could improve response time and effectiveness in case of a recall. And even when there isn’t a quality concern, it could strengthen inventory management by highlighting potential bottlenecks in real time.
Blockchain isn’t just about process improvement — it can improve the value of products as well. An aircraft manufacturer, for instance, could create a blockchain solution that provides an up-to-the-minute view of every part on its planes, including its manufacturer, when it was last serviced and by whom, and how long until it reaches the end of its life. For aircraft operators, this could cut maintenance times, reduce spare-part inventory needs and increase asset utilization. For leased aircraft, which make up a substantial portion of the global fleet, blockchain’s indelible records could provide a meaningful increase in residual value.
It might be tempting to see blockchain as primarily a technological challenge, but realizing the kinds of benefits outlined above relies first and foremost on solving some good, old-fashioned business problems. Some involve things every manufacturing should be doing already, like making sure workers have the digital skills they need to contribute today and into the future. But others are somewhat unique to setting up a successful blockchain project.
And the stakes here are high: More than half (54%) of companies in our survey that said they abandoned blockchain projects in the prototype stage said the results didn’t justify the cost. Fortunately, there are best practices that can reduce the risk that your blockchain project will come to a similar end.
When building a business case for blockchain applications, it’s important to start small. Don’t assume blockchain will revolutionize your business model overnight. Instead, choose a single process or product as the initial focus of the project. It will also be necessary to build an ecosystem of participants — these could be suppliers, customers or a combination of diverse stakeholders. Building buy-in among these players on how the blockchain will work, who will own it, who can add to it, and who can access its data, will be crucial. Making sure it comports with regulatory requirements in the jurisdictions in which you operate will also be crucial.
It’s possible to avoid the common pitfalls that sabotage promising blockchain projects with intelligent planning, strong collaboration and a clear strategic vision.There is still plenty of room for industrial companies to be blockchain pioneers.