Use of Blockchain in the Manufacturing Industry

By | IoT and Analytics, Manufacturing

Recently we talked about blockchain in the oil & gas industry, and the next logical question is…

What about blockchain in the manufacturing industry?

Blockchain is a transparent distributed ledger system that offers highly secure, highly reliable transaction authentication. As materials, products, parts and money are exchanged throughout manufacturing supply chain, blockchain technology can be used to provide better visibility, scalability and security.

Blockchain for lot tracking

Supply chain transparency is critical for manufacturers. Food manufacturers are required to comply with the “one up, one back” approach, keeping track of where produce came from and where it’s going. Automakers also need to track their suppliers through to their end customers.

Blockchain technology provides a unique identifier to each part, making it possible for manufacturers to identify defects sooner, and pinpoint the problem causation. For example, in the food industry, blockchain can track expiration dates, storage temperatures and shipping information. Rather than recalling all product, the food manufacturer could just pull the food that was tainted in the one truck where refrigeration unit failed. Product could be recalled before it ever reaches consumers.

Blockchain for preventative maintenance

Today, manufacturers concerned about maximizing uptime are adopting IoT and predictive analytics to identify maintenance issues before equipment breaks down. Blockchain will add another layer of accountability and visibility, efficiently getting the right parts and people to the right place at the right time. The maintenance work order could be sent securely to multiple service providers and the best match automatically selected based on location, skills and availability.

Blockchain for product lifecycle management

When manufacturers sell their products through integrators or distributors, they often lose visibility of where their product is being used by end customers. Blockchain technology offers the promise of improved product lifecycle management, enabling OEMs to provide end customers notifications about product sunset dates and offer extended service agreements.

Blockchain for regulatory compliance

Hazardous materials, pharma, food manufacturers and other highly-regulated manufacturing environments can provide visibility to regulators in real-time.

Blockchain to defend against counterfeit goods

An article by Automation World highlights how blockchain is being used to validate product authenticity. By registering each product on the blockchain registry with a unique ID and key attributes, the product can then be scanned for authenticity at each point from manufacturing to sale, recovering lost revenue and upholding the company’s reputation.

Blockchain for supply chain finance

Blockchain can be used to manage the transfer of goods, managing payments with each transfer. It speeds up transactions by eliminating the need for banks and brokers.  In the video below, you can see how Microsoft’s Coco blockchain distributed ledger can be used to manage smart contracts and purchase orders across the supply chain.

Blockchain for innovation

When will the manufacturing industry embrace blockchain? When customers demand it. Blockchain is in its infancy. New uses for blockchain technology will emerge regularly as the technology becomes more mainstream.

The challenge of blockchain for manufacturers

The biggest challenge for manufacturers is determining how blockchain and Smart Contracts can improve business.  To validate potential applications and assess future development opportunities, answer the following four questions to determine whether or not blockchain is appropriate in a situation:

  • Do multiple parties share data?
  • Do multiple parties update data?
  • Is there a requirement for verification?
  • Can intermediaries be removed and reduce cost and complexity?

If you answered yes to all these questions, you have a potential scenario to apply blockchain.

Microsoft is taking bold steps to develop a robust B2B blockchain framework to support Smart Contracts.  The Coco Framework extends the Microsoft Cloud to enable enterprise blockchain networks that deliver:

  • Fast throughput
  • Rich, flexible confidentiality models
  • Network policy management
  • Support for non-deterministic transactions

Microsoft Cloud technology, including Dynamics 365 and Power BI, provide an agile framework for manufacturers to modernize their manufacturing operations. Solutions like MCA’s ManufacturingCONNECT can accelerate the implementation process significantly.

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Author: Brad Smith, Analytics Practice Director


By | Lean, Manufacturing

Why is it that every time I am out with customers I end up with something new to blog about? Probably because I am insanely curious about each customer as I look to creatively help them to improve their manufacturing processes in their specific business context.

Meet our customer: A highly engineered automotive manufacturing parts supplier

Our customer is a high mix manufacturer, a Tier 1 supplier in the automotive manufacturing industry. While some Tier 1 suppliers are extremely large companies in their own right, this company is actually pretty small. They supply highly engineered products specific to particular OEM brands and models.

Their automotive customers sent all their high volume work off-shore, which leaves our poor client scrambling to do more production runs, with lower volume and a wider range of products.

Low Volume, high mix, no forecast visibility

Many of our customers handle low volume, high mix manufacturing processes. What’s challenging here is that their customers aren’t doing a good job of forecasting. (Surprise, surprise!)  In this case, customer forecasts and firm orders are changing substantially from week to week – often within our customer’s purchasing lead and sometimes within our customer’s contractual lead time.  In effect, they are being taken advantage of by their much larger customers.

What’s a little guy to do?

Their goal was to reduce lead time as much as possible by  developing a highly responsive supply chain to adapt to all these last-minute changes. They decided they could become world-class at new product introductions and rapid changeovers. Easy, right? Problem solved?   Not so fast!

To get the lowest unit price, they had to rely on large, off-shore suppliers. While the pricing is great, there are a number of downsides.

  1. The large suppliers produce at scale, and require full container orders.
  2. Off-shore means long, sometimes unpredictable, lead times.
  3. In many cases, they’ve become locked in with these suppliers for a variety of reasons.

As they described their situation, I wrote down one word on my notepad. “SQUEEZED

Squeezed from both directions

They are getting pressure from their customers to meet their ever-changing demand and pressure from their suppliers to abide by their long lead times and larger batch sizes.  Since they are a not-so-big company, they have no leverage in either direction. They inevitably have too much inventory of the wrong things and a supply chain that is slow to respond. This is eating into their profits and causing stress and frustration.

How did this happen?

You can see how they may have gotten there. Originally, they probably made much of their end-product themselves, using commodity level items. Along comes a supplier who can handle some of their manufacturing at a lower unit cost – which sounds like a great deal! So they outsource a portion of their manufacturing to the supplier.

The supplier then gets bought or relocates their own manufacturing overseas, increasing the lead time and minimum order size. Since our customer has already eliminated this part of their own manufacturing capabilities, they are locked in to this supplier.

This situation happens over and over again. I often see production equipment idled and collecting dust because that work has been outsourced.

What should they do now?

Since they can’t turn back the clock, the only way forward is to get through it. Here are some ideas.

  1. Start enforcing contractual lead times. Customers are notoriously difficult to manage, but they need to start taking a stand for what’s acceptable and what they can deliver.
  2. Start re-shoring their supply chain as much as possible, potentially even bringing some of the work back in house.
  3. Re-establish vertical integration. Increase use of commodity-level components and reduce dependence on sole suppliers.
  4. Understand the financial and risk tradeoffs of local vs. remote suppliers.

Understanding the tradeoffs of local vs. offshore suppliers

Traditional landed cost considers only duty and transportation in addition to unit cost. The reality is that manufacturers need to factor in other costs and risks to understand the impact of off-shore sourcing. These include:

  1. Carrying cost of inventory due to large inventory levels required
  2. Storage cost
  3. Risk of inventory obsolescence
  4. Risk of inventory shrinkage
  5. Expediting costs for emergency situations
  6. Demand volatility
  7. Demand risk

I worked with one company with a target for a certain level of inventory turns and broke down the turns by country of origin and then projected turns based on shifting the country of origin.  This gave them some strategic targets to march towards.

If you are “squeezed” it’s time to think outside the vice.

Written By: Phil Coy