Manufacturing is where blockchain technology can prove revolutionary. Customers want products customized to their changing preferences and still expect on-time delivery. The manufacturing industry is therefore pressured to keep up with shortening innovation cycles while balancing mass production with mass customization.
To meet these demands, manufacturers are now turning to blockchain, which can provide a digitized production process with better supply chain visibility. There are seven ways the manufacturing industry can benefit by using smart contracts on a blockchain-based production protocol:
1. Supply Chain Transparency
One of the biggest problems in traditional manufacturing is the lack of visibility into their supply chains. Each part or product needs to move from point A to point B, but there is hardly any visibility into what happens between these points. In other words, nobody knows where each individual part is at any given moment. However, with the decentralized and immutable properties of distributed ledger technology, sharing real-time supply chain data with all involved parties is possible.
2. Increased Interoperability with IoT
Smart manufacturing is on the rise. When machines in factories are controlled by robots and smart sensors, automation becomes much easier. Smart sensors on machines can send data to the blockchain, helping manufacturers obtain real-time data about sensor values and events. Manufacturers can also streamline factory operations, fix machine problems as they happen, and make instantaneous micropayments to machines.
3. Tamper-proof Recordkeeping
One of the most common complaints from entrepreneurs fulfilling product orders is that their ideas frequently get copied by other suppliers, effectively diluting their market share. Entrepreneurs with new product ideas could secure their patents on the blockchain without fear of IP theft. Securing intellectual property is one of the best use cases for distributed ledger technologies with immutable and tamper-proof recordkeeping.
4. Decentralization of Decision Making
In traditional manufacturing, decisions are passed down from top-level—and centralized—corporate offices to logistics and to individual production plants. Because each level within the hierarchical system has its own communication system and IT infrastructure, decisions must be constantly communicated to everyone on every level. Costly inefficiencies are inevitable in a fragmented industry with a hierarchical decision-making process. Decentralized decision-making lets cyber-physical systems make simple decisions on their own, and also encourages each participant in the ecosystem to become as autonomous as possible.
5. Elimination of Redundancy
Blockchain technology helps manufacturers organize and digitize their processes by integrating IP protection, proof of existence, proof of ownership, legal agreements and audits onto a single platform. All parties, including customers, suppliers, manufacturers, transport agents, even smart sensors and IoT devices, will have a virtual copy of all information on this platform. This cloud-networked interconnectivity eliminates fragmentation and redundancy, effectively streamlining daily operations and reducing paperwork.
6. Interconnectivity of Suppliers and Manufacturers
As mentioned in the previous point, cloud-networked interconnectivity not only integrates a fragmented manufacturing industry, but it also uses cyber-physical systems to automate data exchanges, interoperability processes, decision-making, and payments. With Ricardian smart contracts, smart sensors and IoT devices on factory equipment can communicate with each other, helping suppliers and manufacturers monitor their production analytics in real-time.
7. Reduced Costs
All of the above factors, particularly the decentralization of decision-making, digitization of information, elimination of redundancy, and automation of repetitive tasks, helps decrease costs and paperwork in manufacturing. Lower costs in fulfilling production orders also opens the door for smaller businesses to manufacture their own products.