Why Manufacturing Is So Expensive and How Blockchain Can Reduce Costs

Thanks to globalization, the fourth industrial revolution is now upon us. The manufacturing sector has been particularly impacted by the effects of globalization.

 

For instance, assembling products at numerous locations worldwide involves multiple parties, each dealing with complex and fragmented IT systems. Manufacturers have to manually inspect each and every order routed through their ERP systems. They must be in constant communication with suppliers and customers on a daily basis.

 

Manufacturing executives and consultants have acknowledged that there is a growing need for a fully automated supply chain, a digitized production process, and full interconnectivity with both suppliers and customers.

 

Why Today’s Manufacturing Processes Are Unsustainably Expensive

Typically, the manufacturing process is defined by a hierarchical structure in which everything begins with corporate planning at the highest level. The next level is production planning and controls as well as logistics. Finally, the lowest level involves direct control of plants and machines. Each level has their own software and communication systems that operate independently of each other.

 

What if, however, one of the involved parties wanted to make a change in the production process? The problem with a hierarchical system is that making even one change is expensive as it is. Plus, if they make a change to one part of the process, then they must also make changes to the other parts in the system, causing costs to pile up even more. Therefore, the current system is inflexible, difficult to change, and lacks much-needed interconnectivity.

 

To further compound the problem, suppliers and manufacturers are also under increasing pressure to keep up with rapidly shifting demands from customers. With disjointed hierarchical systems, they cannot adequately keep up with changing requirements on shorter innovation cycles.

 

Automation and Interconnectivity Will Lower Supply Chain Costs

Fortunately, a revolutionary solution is just around the corner. All participants in a supply chain can potentially use blockchain technology to make manufacturing more efficient and less expensive.

 

Blockchain is one form of a distributed ledger system that would enable the manufacturing industry to switch from a hierarchical system to a decentralized peer-to-peer production network. The benefits are multifold: blockchain technology can lower manufacturing costs by automating most processes, reducing manual interaction, and settling payments automatically using smart contracts.

 

A decentralized production network interconnects all participants: customers, product designers, suppliers, and manufacturers. Each would have access to the necessary resources and ability to improve manufacturing processes. If anyone wanted to change any part of the process, they could do so easily, quickly, and inexpensively.

 

In a decentralized production network, a trusted intermediary is no longer necessary. As a result, digital assets could easily be transferred between users, manufacturers and suppliers via smart contracts. Not only does this increase trust and transparency between all parties, but it also speeds up the entire manufacturing process.

 

The end result would be a more robust and cost-efficient supply chain with greater visibility, higher fault tolerance and less wasted inventory.

 

The Future of Manufacturing Lies with Blockchain Technology

Before the blockchain era, a company needing to sell products had to search for suitable suppliers, negotiate with manufacturers, and coordinate with multiple parties throughout the entire production process.

 

Now a company can potentially use blockchain technology to interconnect suppliers, manufacturing partners, and customers with a single smart contract—eliminating middle intermediaries. Manufacturers can then fully automate their supply chains by relaying production orders from smart contracts to production facilities through interconnected IoT devices, thereby boosting efficiency while driving down costs.

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