Blockchain: manufacturing’s 4th industrial revolution (4IR)

August 02, 2018
Chris Wheal

Manufacturing is swotting up on blockchain technology, working out how to apply its myriad of uses in storing massive amounts of information and delivering digital trust over a transparent ledger.

For manufacturing, blockchain is swept up into a swirl of digital changes referred to as the fourth industrial revolution (4IR) which includes big data, artificial intelligence (AI), Internet of Things (IoT), robotics, 3-D printing and virtual reality.

Companies are waking up to the possibilities of disruptive technologies such as blockchain and its ability to reduce risk, fraud and transaction costs and are investing accordingly.

Blockchain part of the 4IR for manufacturing?

Millions spent

International Data Corp (IDC) says $945m was spent on blockchain solutions in 2017 growing to $2.1bn during 2018. The research company projects spending to grow over the 2016-2021 period at a stupendous annual growth rate (CAGR) of 81.2% to a total spend of $9.2bn in 2021.

As Chris Richards, head of business environment policy at UK manufacturer’s organisation, EEF says: “The benefits for manufacturing are pretty clear – smarter supply chains, smarter production, smarter products.”

Trough of disillusionment

The Frankfurt School Blockchain Center put out a paper in November 2017 that discussed both the high potential of blockchain for manufacturing and its challenges. It estimated the current maturity phase of blockchain using the Gartner Hype Cycle (a tool used to assess the expectations of a technology over time since it emerged) to predict future developments of the technology.

According to the paper usually when a technology emerges there is euphoria and unrealistic expectations emerge. When expectations are not reached, the peak of the technology is passed and the expectations fall into the trough of disillusionment.

Afterwards, when an increasing number of people understands the technology, the slope of enlightenment happens and finally mainstream adoption takes place on the plateau of productivity.

The paper found that based on its interviewed experts: “All agree that blockchain has not passed the trough of disillusionment yet and most think that blockchain is currently on the peak of inflated expectations or slightly before or after it. However, some believe the peak is still ahead and that the hype will increase even further in the next couple of years.”

Put it in context

When we look at manufacturing and blockchain it should be viewed in the context of the global landscape of manufacturing. What we understand about manufacturing today is not the same as what our parents or grandparents understood. For more than a decade now, traditional manufacturing, where companies simply made things, has shifted to encompass expansion into other areas such as services.

This blurring between the manufacturing and service helped companies to stay competitive. An academic paper, the Servitization of Manufacturing: An analysis of Global Trends by Andy Neely illustrated that for manufacturers to survive many expanded in to areas of service.

Examples abound, IBM, a former manufacturer of hardware and computers, has refashioned itself into a company that offers business solutions including blockchain, big data and IoT. BP and Shell both manufacture oil and petroleum products and run extensive service retail operations.

Manufacturing is also very much an economic force in the US, where manufacturers contributed $2.25trn to the US economy in 2016 according to the National Association of Manufacturers. US manufacturers have experienced a surge in growth over the past couple decades, that has made them more “lean” and more competitive globally.

In the UK, it’s a slightly different take. Organisations such as the EEF see 4IR resuscitating an industry it says has ‘flatlined’ for the past decade. The digital revolution is an opportunity for the industry to get back on track and drive productivity gains across the whole economy.

Don’t believe the hype? ‘evangelical tech’

Chris Richards, head of business environment policy at UK manufacturer’s organisation, EEF

However, the World Economic Forum (WEF), in a paper in April 2018 that delved behind the hype in blockchain, issued a warning. The new tech should be less about current ‘technology evangelism’ – obtaining blockchain for blockchain’s sake – and more about determining what you want to achieve and how blockchain could be deployed to help you achieve it.

The WEF wrote bluntly: “This level of evangelism is both unwarranted and damaging to the overall development work required to reap the benefits of distributed ledger technologies (DLT), of which blockchain is the best-known example.”

In short, WEF wants companies to be realistic about blockchain benefits, finding the right use case(s) that can take advantage of the benefits and then apply rigour to how the tech is embedded into the company.

It’s an argument that the EEF also acknowledges in a recent fact sheet, while admitting that the ball is well and truly rolling for manufacturers. Richards said: “What I can say based on our survey is that the Fourth Industrial Revolution definitely isn’t hype – it’s something our members believe is happening. In fact, 80% think it will be a reality by 2025 and almost all think it will be a good thing.

“But perhaps the word revolution is too dramatic. We’re looking at the conception phase at the moment and moving towards optimisation of existing technology. The revolution itself will come later.”

Get smart – case use for manufacturing

Manufacturers looking to get to the conception phase would be wise to consider blockchain or AI technology not in isolation but as part of its overall digital and company strategy. It is not only ensuring the technology is in place to meet your business needs, but also understanding whether technical, business and governance models are adequate to support them.

In fact, some of the more jazzier elements from 4IR are drawing greater attention such as robotics in manufacturing but EEF judges that the real value of ‘smart factories’ goes way beyond that and describes the digital revolution as very much “data driven”. How data can link physical and cyber networks and provide real insights to boost productivity.

The industry won’t transform overnight. It’s the kind of change that for it to be become an intrinsic part of operations, requires a high level of trust in the technology and almost certainly requires a wholesale adjustment in company culture.

Richards advises: “That kind of internal change doesn’t happen quickly and needs to happen on the shop floor not just at management level.”

Addressing the drawbacks

But there are real challenges preventing digital steps from turning into strides. Although drawn by the promise of blockchain technology, barriers have slowed down progress beyond proof of concept.

Across all sectors, companies are dealing with challenges such as low levels of understanding at management and executive level; scepticism about blockchain (particularly given its difficulty to scale); a lack of skills for implementation; resistance to change within the company; and lack of funds to invest.

Demand for training and development is high across various sectors. Companies simply do not have the skill levels required to keep up with both the scale of investment required to respond to and to incorporate many emerging technologies.

PwC found in its Global Digital Operations 2018 report that many companies still take a passive approach to innovation. In 2007, executives said they most often turned to technology vendors and consulting firms to explore how to apply emerging technologies to their business needs.

In 2017, companies still pretty much relied on the same means for innovation despite the range of resources from incubators/startups, crowdsourcing options, makers, open source methods, and university labs.

These are impediments that make it difficult for manufacturers to walk the line between trying to take advantage of opportunity now and failing losing money by not having a considered approach or waiting to adapt their business and risk being left behind.

Getting ready today for tomorrow

Manufacturing is doing as it has always done and is using technology to improve operational efficiency. As factories become more interconnected, autonomy and automation are creating for more seamless operations.

Blockchain has the potential to free up capital flows, lower transaction costs and speed up processes. It also provides added security because decentralised computers make it harder to hack.

One of the areas that is seeing the most activity perhaps because of the immediate value it can bring is towards combatting counterfeit products and fraud. Currently, a number of companies are test piloting use cases in the supply chain.

Large to small- to mid-size companies are embracing a digital strategy to deliver value to their customers and to gain a competitive edge. PwC said companies are in the early adoption phase and an increasing number of firms (around 24-28%) are implementing technology including blockchain to connect and automate across systems consequently to reduce errors and inefficiencies through a more reliable, safe and consistent data source.

Collaborative approaches between trading partners, suppliers, manufacturers, distributors, and transportation companies to build common framework and create standards allowing companies to build applications.

IBM and shipping company Maersk announced a joint venture to test the application of blockchain in logistics

Smart examples

Collaboration is the way forward as exhibited by the Hyperledger framework hosted by The Linux Foundation. It began in 2016 and brings together a cross sector of innovators working to create an open, standardised and enterprise-grade distributed ledger blockchain frameworks and code bases to support business transactions.

Brian Behlendorf, its executive calls it an umbrella for open source blockchain and smart contract technologies. In a blog in 2016, Behlendorf wrote that “Blockchain and smart contracts are still in the early stages of a 20-year, if not a 50-year, adoption and maturation cycle.”

At the beginning of 2018, IBM and shipping company Maersk announced a joint venture to test the application of blockchain in logistics. The new company is using blockchain to track containers during the shipping process. In a release, the new venture was described as “reducing global trade barriers and increasing efficiency across international supply chains…connecting the entire supply chain ecosystem.”

Effectively, the platform could reduce the paperwork that comes with the shipping process, making it more rapid with the added bonus of fraud prevention and reduction in costs.

There are other projects through large companies or start ups aiming to verify and authenticate information (through digital passports) about products on a blockchain to determine origin, and thereby prevent the sale of fake goods.

Future tech

In the future, we will see this emerging technology begin to change the work is carried out from how engineers approach design to how AI systems alter the way humans interact on the shop floor and in the office.

Manufacturers must take a global view because technological change is happening at this level and only the most ambitious will harness its benefits.

However, as authors of the Frankfurt School of Business Blockchain report remind us, it’s a long haul: “Companies that are working on, or starting new projects using blockchain, should be prepared to experience setbacks and even loss of interest in their projects.”

 

Post written by Chris Wheal
Chris Wheal is editor of OpenLedger's news and features service. An award-wining business journalists himself, he runs a team of freelance journalists from across the UK and north America.

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