“Blockchain Manufacturing – Bringing trust from sourcing to distribution of goods”
Transparency in manufacturing supply chain has become essential than ever. The concept is new, but its demand has been significantly increased in today’s global market.
Numerous products are being manufactured globally, but no method of knowing how, when and from where were these products originated, produced and shipped to the buyers.
Before reaching to the buyers, goods travel through a vast network of manufacturers, suppliers, transporters and storage facilities, that participate in the production, design, sales and delivery. In almost every case, the journey of the product remains unseen, resulting in a lack of transparency.
Customers or buyers want to monitor each step of the production process to ensure the authenticity of the product.
If a manufacturing supply chain would be transparent, everything will be monitored and visible to the stakeholders that will help to establish trust in the system.
The blockchain technology can give a new way of tracking a product’s journey, from the production line until it reaches the end consumer.
Manufacturing supply chain can be radically changed by implementing the blockchain with IoT having no middlemen involvement and can bring trust and security to the ecosystem.
How does the manufacturing industry work today?
Manufacturing is the process of adding value to raw materials by turning them into usable products for consumers. Once the product gets manufactured, it is distributed to the buyer.
The supply chain in the manufacturing system involves various entities including people, knowledge process, physical resources, financial contracts and transactions. Involvement of the different entities makes it hard to track the movements of the product within the chain.
The details are stored in multiple databases that can be accessed by limited entities. Also, the clients who place the orders can’t access the product’s manufacturing information in the supply chain.
By enabling product tracking ability at every stage with blockchain, the manufacturing supply chain can become smarter, secure and offer real-time visibility.
Blockchain – Reinventing the manufacturing supply chain
The blockchain enabled system can bring traceability and transparency within the manufacturing supply chain by managing a permanent record of information in a decentralized way and controlled user accesses.
Interfaces involved in the blockchain system
- Native mobile app for the logistics company and merchants.
- Web portal for the supplier, manufacturer and QA team.
Stakeholders involved in the blockchain system
- Merchants or Purchasing Company: Who places the order for product manufacturing
- Manufacturing Company: Responsible for manufacturing the product
- Suppliers: Who provide raw materials to manufacturers
- Logistics Company: Who distributes the manufactured products from one place to another
- Quality Assurance Team: Who checks the products’ quality and ensure that they meet the company’s standards
Step 1: Merchant places the manufacturing order
Merchants can sign in on the platform and upload product’s requirement files in the distributed database, IPFS having addresses hashed and stored on the blockchain.
For example, if a cloth selling firm needs a new collection, they would add the following files in the IPFS.
- Design Pack – Files contain style details with the sketch
- Tech Pack – Files contain style design, bill of Materials (BOM), moisture management tester (MMT) Spec
- CR1 Proto order – Sample order for fit approval
Merchants can share the hash addresses of files stored in the IPFS with the manufacturers while sending them an order request.
Since blockchain maintains the time-stamped records of transactions, it is possible to know what transaction occurred at what date and time.
Step 2: The manufacturing company receives the order
After receiving the order from the merchant, the manufacturer can access the stored data on the blockchain with a hash address of the file.
After accessing the product requirements, the manufacturer can contact the suppliers to deliver the raw materials.
As soon as the manufacturer adds the details like quantity and type of materials required to the blockchain, smart contracts trigger and notify suppliers about the new order.
The information stored on the blockchain is traceable and immutable, enabling the merchant to know how much and from where the raw materials have been ordered for manufacturing.
Step 3: The suppliers receive the order
The suppliers involved in the system can get all the raw material details added by the manufacturer quickly from the blockchain.
After a supplier gets the details, the next step is to add invoice along with the raw materials images to keep the stakeholders informed regarding the placed order.
As soon as the manufacturer approves the supplier’s request, the supplier gets a notification to pack the order.
At the time of packaging, the supplier adds details like the type and quantity of the raw material and packaging date on the blockchain.
Once the order is packed, the supplier marks the status on the blockchain as “Packed”, and contact the logistics service provider to distribute the items to the manufacturer.
Invoice bill and all the delivery details would be added on the blockchain, which will be visible to stakeholders within the network.
Step 4: Logistic service provider adds parcel details on the blockchain
Before starting its journey from the supplier’s warehouse, the logistics service provider adds details like dispatch time, driver name, vehicle number, number of cartons and type of product on the blockchain.
“Transporting the goods through IoT enabled vehicle could help manufacturer and merchant to get the real-time location of the vehicle through blockchain”
Stakeholders can ensure that the number of received products is same that of the dispatched by accessing the stored information on the blockchain.
Step 5: Order received by the manufacturer
After receiving the order from the supplier, the manufacturer would check the quality and quantity of the materials.
If the received material is not worthy, then the recall request would be sent back to the supplier.
But if it is found good and can be used for manufacturing, the manufacturer can immediately make the payment to the supplier. In the supplier’s account, the payment would be automatically transferred through the regulations built in the Smart Contracts.
All the transactions details would be saved on the blockchain system, enabling stakeholders to know that how much and at what time the payment has been done from manufacturer to supplier.
When the manufacturer starts manufacturing, IoT enabled manufacturing machines can allow merchants to track the real-time production of their products.
With IoT sensors, merchants can monitor production in real-time and can discover issues or changes and report to them more efficiently.
Once the goods are manufactured, manufacturer hands over the products to the QA team to do the quality check.
QA team checks the product and add the following details on the blockchain
- Methods implemented while testing the product
- Product guidelines
- Tests’ results
- Product certification
After getting the approval from QA team, the next step is to deliver the order to merchant.
The manufacturer contacts the logistics service provider for the product’s delivery. Similarly, they would be involved to deliver the goods to the merchant and follows the same process as mentioned in step 4.
The manufacturer can upload the invoice on the blockchain including product’s manufacturing cost and its shipment details, which will be visible to the merchant.
Accessing all the details stored on the blockchain, the merchant can know the price mentioned in the invoice is fair or not. It helps to bring fairness and trust to the system.
Step 6: The merchant receives the order
The blockchain based solution can help to build trust between manufacturer and merchant. After receiving the order, a merchant can validate them to ensure that received order is perfect or not.
The merchant can also analyze the QA test’s results on the blockchain to ensure that the products delivered to them are certified. They can backtrace the entire product’s life cycle in the whole blockchain supply chain system.
If the products are found to be accurate, then the money is automatically transferred to the manufacturer with the help of smart contracts.
The stored data like how the products are made, managed and came from, on the blockchain is permanent and timestamped and can offer stakeholders more transparent and track-and-trace capabilities than ever before.
Following are the challenges along with its solutions that can revolutionize the million-dollar manufacturing industry
Challenge 1: The middleman
The merchants sometimes are blocked by the intermediaries like brokers or reps to contact directly to the manufacturers. Hiring brokers or reps adds cost and time to place orders to the manufacturers.
Solution: The blockchain based solution can help the merchant to place orders directly with registered manufacturers to get the orders quickly without involving the middlemen.
Challenge 2: Quality control
Due to networking, marketing and high pricing, the manufacturers can convince the merchants to use the products without an efficient quality control standards.
Solution: Blockchain based solution uses Smart Contracts that not only ensure the quality of the products but also stipulate capacity, terms, technical capabilities and execute payments automatically if conditions are met.
Challenge 3: Traceability
Tracking the goods’ sources from the initial production to reaching to the buyers including various things like certification, quality checks, materials used and technical documentation that are plagued with errors. Accurate tracking of the products in the supply chain is not assured.
Solution: Stored information on the blockchain is timestamped and cannot be altered by any third party that helps in bringing the traceability in the supply chain.
Challenge 4: Payment
No proper system offers 100% assurance of making payment to the supplier or manufacturer on time. Payment is manual and involves third parties to verify and make payment; the whole process can take upto 30-120 days to do so.
Solution: Smart Contracts enable faster and automatic payments with better cash flow to manufacturers and suppliers.
Challenge 5: Marketing and sales cost
Manufacturers have to invest alot in the marketing and sales to enable buyers to find their facilities. Small manufacturers are unable to compete for high orders because they don’t have much budget to market their business.
Solution: Through the blockchain based solution, the buyers or merchant can directly connect with the small manufacturers who can offer quality products, good pricing quotes and on-time delivery. It helps to eradicate the marketing costs and allows for more competitive quotes.
The blockchain technology has disrupted the whole decentralized information technology paradigm and has marked the onset of a new era. The manufacturing companies can join the network of smart manufacturing supply chain and can save money and time while improving the efficiency of the business process.
To know more about how blockchain can add value to your manufacturing business, connect with the blockchain supply chain technology experts at LeewayHertz.