Though blockchain may be best known as the technology underlying cryptocurrencies like Bitcoin, many industries are taking advantage of blockchain's benefits to create a broad variety of transformative business applications. In the manufacturing sector, companies are using blockchain to improve supply chain management, simplify compliance tracking, optimize maintenance, manage inventory and more. They're capitalizing on blockchain's ability to streamline operations, increase visibility into the supply chain and facilitate trusted interactions within an ecosystem of companies. Here's a deep dive into the benefits of blockchain for manufacturing and how companies are applying the technology.

What Is Blockchain?

A blockchain is a distributed, tamper-proof ledger of transactions or other data, referring to the fact that the transactions are stored in a chain of linked blocks. A key benefit of this system is that it allows the blockchain to provide a complete, verified, immutable record of all transactions among a set of users. In a manufacturing environment, for example, an ecosystem of manufacturing companies using blockchain and their suppliers could track supply chain transactions among the companies.

Instead of being held in a single, centralized location, copies of the blockchain are typically stored in a decentralized network by all the users, which is why blockchain is also known as distributed ledger technology. This redundancy means that well-implemented blockchains can continue to operate reliably even if one node in the network fails. Each transaction is verified by multiple users before it's added to the blockchain. Once it has been added, data in the blockchain cannot be changed, thanks to a cryptographic mechanism that incorporates information (a hash) into each block that uniquely identifies details of the previous block.

Blockchains can be either public or private. With public blockchains, which are used for many cryptocurrencies, anyone can view the transactions on the network. With private blockchains, which are more common in manufacturing and other industries, only authorized users can access the network.

Another important blockchain characteristic is the use of smart contracts that are implemented in software and stored on the blockchain. Smart contracts execute automatically when specific rules or conditions are met. For example, a smart contract might trigger payment by a manufacturer to a component supplier once delivery has been verified. The combination of smart contracts and blockchain technology enables companies to transact with each other with greater trust, even if they don't have previous knowledge of the companies they're doing business with.

Key Takeaways

  • A blockchain is a distributed, tamper-proof ledger of transactions that provides a complete, secure, immutable record of all transactions among a set of users.
  • Blockchain offers manufacturers the potential to streamline business operations, improve supply chain visibility and better manage assets.
  • Blockchain is particularly valuable for enabling trusted supply chain interactions among an industry ecosystem of manufacturers and their business partners.
  • Other key use cases include documenting compliance, preventing counterfeiting, tracking sustainability and automating machinery maintenance.

Blockchain in Manufacturing Explained

Blockchain grants manufacturers the potential to streamline operations, gain greater visibility into supply chains and track assets with unprecedented precision, according to PwC, which found that 24% of industrial manufacturing CEOs are exploring or deploying the technology.

Many manufacturers create products by assembling hundreds or thousands of parts from multiple suppliers. Blockchain can help manufacturers track each of those parts before, during and after manufacturing. For example, automakers build cars using many thousands of components from hundreds of sources. Ultimately, they're responsible for the reliability and safety of the car — but if there's a problem that requires a product recall, they need to track down and replace the parts that are causing the problem.

A private auto industry blockchain can help auto manufacturers track information about components from all suppliers. As vendors generate and ship components, they enter the information as blockchain transactions. New details are added as the components are inspected and then incorporated into cars. In the event of a problem, the manufacturer can immediately identify the source of the offending part, the vehicles that contain it, and the component's journey throughout the manufacturing cycle. This enables the manufacturer to trace and remedy problems much more quickly and efficiently.  

Benefits of Blockchain in Manufacturing

Blockchain provides benefits in many industries, but in manufacturing it adds increased operational transparency, speed, efficiency and trust among business partners. Consider the example of a blockchain platform that tracks interactions among manufacturers, their suppliers and their business partners. With appropriate authorization, manufacturers gain visibility in real time into all transactions with their suppliers, as well as a complete history of their working relationship with each business partner. For example, India-based manufacturer Hindalco Industries deployed a blockchain to coordinate work-order progress across its network of contract suppliers. The system enables Hindalco to gain real-time visibility into vendor inventory, enforce service-level agreements (SLAs) with smart contracts, certify and trace the origin and authenticity of products, perform continuous audits and support invoice financing.

5 Ways Blockchain Can Improve Manufacturing

Blockchain can enhance manufacturing operations in a variety of ways. Notably, the fact that blockchain provides a comprehensive and verified single source of data translates into benefits for traceability of components, inventory management and other supply chain applications. The technology can also be applied to automating payments and improving HR. Here are five of the most important ways that blockchain can improve manufacturing.

  1. Improved traceability. A blockchain can provide a detailed audit trail of all transactions associated with the components used in manufacturing. It gives manufacturers end-to-end visibility into their supply chain and, potentially, the entire product cycle. This traceability can be valuable for a variety of applications. For example, it can help manufacturers ensure that they're using genuine components from verified suppliers, and it can help them track the source of product problems.
  2. Enhanced inventory management. The blockchain contains an accurate record of exactly what was shipped to whom and when it was received. This can help eliminate manual data entry errors and reduce the need for manual inventory tracking. The information can also help manufacturers manage perishable goods and ensure timely replenishment to meet demand.
  3. Optimized data security. A well-implemented blockchain offers a high degree of data security. Each transaction must be verified by multiple parties before it can be added to the blockchain. Once added, the data in a private blockchain is highly tamper-proof.
  4. Automated payments. Smart contracts can be used to execute payments automatically when specific conditions are met. This diminishes manual effort and the likelihood of payment errors. For example, a smart contract could automate payments based on an existing service agreement, so that a maintenance provider is paid automatically from a digital wallet when it performs a maintenance operation on factory equipment.
  5. Improved human resources management. Blockchain can help companies manage a variety of traditionally labor-intensive HR tasks. For example, companies that hire seasonal or part-time labor can use blockchain to track the hours worked and pay workers accordingly. In a more futuristic example, people's employment history could be recorded and authenticated using a blockchain, enabling employers to quickly and reliably verify candidates' accomplishments.

7 Use Cases for Blockchain in Manufacturing

Manufacturers are discovering an ever-increasing number of valuable use cases for blockchain technologies. Many of them involve supply chain applications, such as tracking the origin of supplies and monitoring their regulatory compliance. Blockchain can also be used to support operations within manufacturing facilities, including maintenance, quality control and inventory management. Here are seven key use cases for blockchain in manufacturing.

  1. Supply chain management is one of the most common blockchain manufacturing use cases. Coordinating and tracking the supply of thousands of parts from many different suppliers can be a recipe for chaos — but blockchain can help solve the problem. For example, a group of manufacturers and their suppliers operating within a specific industry sector may create a blockchain to track the movement of components across the supply chain. The blockchain provides a single verified source that all parties can use to update and check the status of supplies and, potentially, also to manage replenishment and supplier payments. With a private blockchain, appropriate permissions can ensure that companies have visibility only into certain parts of the data. For example, a supplier might be able to see which products contain their components, but they wouldn't be able to see which products contain components from their competitors.
  2. Tracking the authenticity of supplies. In some industry sectors, counterfeit products and supply chain fraud have been long-standing problems. By tracking materials through every step of their journey from the original supplier, blockchain can help manufacturers ensure that the components they're using are genuine.
  3. Compliance and responsible sourcing. Manufacturers in some industries must meet complex regulatory requirements. Increasingly, they're also concerned about showing that their products are built from materials that were ethically and sustainably sourced. Blockchain can help in both of these areas. For example, a major automaker created a blockchain project to track compliance documentation for roughly 30,000 parts that go into each new car. The blockchain helps the manufacturer and its partners manage documentation for a complex set of industry-specific and national safety and environmental regulations.
  4. Equipment maintenance. Blockchain can help automate scheduled maintenance and improve asset utilization by reducing costly downtime. Increasingly, advanced production machinery is equipped with sensors and connected to the Industrial Internet of Things (IIoT), enabling companies to better track the machinery's operating status. Blockchain smart contracts can be used to trigger maintenance based on the machine's condition and existing service agreements.
  5. Product life-cycle monitoring. Blockchain can be used to track products and their components throughout their entire life cycle, including after they've been delivered to customers. For example, aircraft manufacturers could determine exactly which components were used in each airplane. Manufacturers can then use that data to understand and trace problems, such as component failures. The information can also help manufacturers improve sourcing, because it provides a wealth of data about the historical reliability and performance of components from different suppliers.
  6. Inventory management. A blockchain shared among manufacturing facilities, warehouses, suppliers and other business partners provides a single source of inventory information that's accessible to all parties. Manufacturers can track which products are in warehouses at any given time, determine delivery dates and reorder stock based on demand and availability. This helps manufacturers avoid accumulating costly excess inventory. It also helps them orchestrate the delivery of supplies at the right time and monitor whether suppliers are meeting promised delivery schedules.
  7. Quality control. Blockchain can be used to provide an immutable record of quality throughout the entire production process, including the quality of inbound materials and the results of quality inspections during manufacturing. This information can also help track down the source of any problems after products have been delivered to customers. Food manufacturers, for example, must ensure the safety of the ingredients they use, as well as their production processes, and they need to be able to quickly detect and fix the source of any problems.
Use Case Benefit
Supply chain management Simplify tracking of materials across a network of suppliers.
Tracking authenticity Combat counterfeiting; verify the authenticity of components.
Compliance and responsibility sourcing Track regulatory compliance and whether materials are ethically and sustainably sourced.
Equipment maintenance Improve asset utilization by automating maintenance.
Product life-cycle monitoring Track products throughout their life cycle to better understand reliability, utilization and origin of problems.
Inventory management Improve visibility into inventory across all facilities and suppliers.
Quality control Track quality of inbound materials and throughout manufacturing.
Key blockchain use cases in manufacturing.

Automate Inventory Management and Optimize Cash Flow With NetSuite

NetSuite Inventory Management gives businesses a unified, real-time view into inventory across all locations, enabling companies to optimize inventory levels, increase customer satisfaction and free up cash for business growth. NetSuite's cloud-based software automatically tracks orders, sales and inventory levels throughout the inventory life cycle, helping companies increase operating efficiency by eliminating time-consuming, error-prone manual processes. Demand-based replenishment dynamically maintains target stock levels based on factors such as historical and seasonal sales data and supplier lead times. Inventory traceability lets businesses define their preferred fulfillment strategies and minimize waste. Because NetSuite Inventory Management is part of NetSuite's integrated suite of manufacturing applications, manufacturers can run their business on a single platform that handles everything from supply chain management and shop floor control to customer-relationship management (CRM) and marketing.

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Blockchain's ability to provide a comprehensive, immutable record of transactions within and among companies is well suited to manufacturing applications. That's why manufacturers are applying blockchain's capabilities to a growing range of use cases, featuring key applications such as tracing activities across complex and mission-critical manufacturing supply chains. The technology is also being applied to facilitate compliance tracking, thwart counterfeiting, automate maintenance and manage inventory.

Blockchain in Manufacturing FAQs

How can blockchain be used in manufacturing?

Blockchain technology can be applied to manufacturing in multiple ways. It can be used by manufacturers and their business partners to track supply chain transactions, helping to improve supply chain transparency and traceability. Blockchain also has potential for other manufacturing applications, such as inventory management, maintenance and quality control.

How is blockchain used in the supply chain?

A blockchain can be used by individual manufacturers or by an entire industry ecosystem to track all supply chain transactions among business partners. Blockchain is well suited to this task because it provides a complete historical record of all transactions, including each manufacturer's relationship with its supply partners.

How can blockchain technology be a game changer in manufacturing?

Blockchain can transform many areas of manufacturing due to its ability to provide a trusted, immutable record of transactions among multiple companies. For example, companies can use blockchain in supply chain management applications to track orders and supplier relationships, verify the authenticity of raw materials, and monitor ethical sourcing and sustainability.

What industries use blockchain?

Many industries are exploring or already using blockchain. They include industries with complex supply chains and compliance requirements, such as aerospace and automotive manufacturing. Other industries that use blockchain include finance and health care.