Blockchain in the Manufacturing Industry — Key Use Cases

Introduction

Blockchain technology became popular by providing the technical foundation
for the cryptocurrency Bitcoin and is since then believed to transform many
aspects of the financial services sector (Cong & He, 2019). Nevertheless, the
possibilities of this innovative technology reach far beyond the facilitation of
payments. With the creation of touring-complete blockchains such as
Ethereum and Hyperledger, a broader and more flexible range of applications
was made possible (Nærland et al., 2017). They have the potential to affect a
wide range of sectors besides the financial industry. Especially in conjunction
with Industry 4.0 and the Internet of Things (IoT), blockchain technology
might also play an essential role in overcoming current challenges in the
manufacturing industry (Babich & Hilary, 2020).

Smart factories and the IoT

The IoT. Combining the concepts and technologies inherent in Industry 4.0,
the picture of a smart factory is drawn. This vision depicts a fully autonomous
factory where machines communicate with each other and make decisions in
the absence of human interaction based on data received from various
sensors. One of the leading technologies believed to enable smart factories is
the IoT. With the rise of IoT, borders between the physical world and the
internet will vanish (Ng & Wakenshaw, 2017). With relatively inexpensive
technologies such as radio-frequency identification (RFID) tags, physical
objects can be uniquely identified in a virtual system and real-time statements
about their status, location, and other properties can be made (Ng &
Wakenshaw, 2017). Known as the IIoT, this concept is expected to have a
major impact on the manufacturing industry. However, certain crucial
challenges arise with the implementation of this concept.

Smart Maintenance

Effective maintenance of machines has an important effect on a firm’s performance and is therefore a crucial managerial challenge as stated by de Jonge and Scarf (2020). They also find that firms increasingly recognize the benefits of planning maintenance measures proactively instead of just reacting to occurred incidents. Nevertheless, many companies still leave the potential of machine data unused (Bokrantz et al., 2020) and therefore also lack automation in maintenance processes. According to Bokrantz et al. (2020), one of the main features of so-called smart maintenance is datadriven decision-making. With the availability of IIoT, this can be made possible based on data provided by smart machines. Sensors and other measurement technologies integrated into the equipment could, for instance, track erosion and the status of specific parts and inform the machine operator in real-time about their insight.

Figure 1: Blockchain in Smart Maintenance

Dynamic Leasing

Dynamic leasing does not only follow current trends towards performance or condition-based contracting, it can also provide significant benefits for the operating company and the machine manufacturer. Dynamic leasing describes the idea that monthly leasing rates are adjusted based on predefined parameters such as hours of usage or conducted maintenance measures. As an increasing number of machines and factories in Industry 4.0 will be equipped with sensors (Lasi et al., 2014), technically, this model is already feasible. What might suppress the broader application of this business model is the need for close relationships in performance-based contracts (Hypko et al., 2010) and missing trust in the correctness of the machine data. Blockchain technology has the potential to establish the required confidence and trust for both parties to enter into a condition-based contract (Cole et al., 2019).

Quality Assurance

Product quality is an important factor for manufacturers and their reputation.
Blockchain technology can offer benefits for quality management as well as
anti-counterfeiting policies in many ways.

Figure 2: Blockchain in Quality Assurance
Figure 3: The role of blockchain in manufacturing

Risks and challenges of blockchain technology

Compared to other technologies, blockchain is a relatively young and at least
for its implementation in the IoT or manufacturing not prevalent technology
(Schmidt & Wagner, 2019). It becomes evident that there are also substantial
risks, challenges, and prerequisites that need to be addressed and evaluated
in the light of the respective use case.

Table 1: Challenges of blockchain technology in the manufacturing industry

Conclusion

We find that blockchain technology can be utilized as the underlying
technology to facilitate data storage and exchange between participants. This
form of data exchange holds significant advantages compared to traditional
systems such as enhanced security, transparency, privacy, and
interoperability overcoming current challenges of the IoT in these areas. We
also found that smart contracts can support the automation of processes in
the manufacturing industry, thereby further increasing operational and cost
efficiency. Combined with the trust-building feature of the technology, it can
enable new forms of intercompany interaction and collaboration.

Remarks

Download the article as a PDF file. More information about the Frankfurt School Blockchain Center on the Internet, on Twitter or on Facebook.

About the Author

Johannes Schwab is pursuing his Master of Finance at Frankfurt School of Finance & Management. In the course of his bachelor’s thesis, he dealt with the application of blockchain technology in the manufacturing sector. You can contact Johannes via mail (johannes.schwab@fs-students.de) or LinkedIn
(
www.linkedin.com/in/johannesschwab/)

References

Aleshi, A., Seker, R., & Babiceanu, R. F. (2019). Blockchain model for enhancing aircraft maintenance records security. Proceedings of the 2019 IEEE International Symposium on Technologies for Homeland Security. https://doi.org/10.1109/hst47167.2019.9032943.

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