Blockchain often gets confused with bitcoin or standard databases. However, blockchain is a separate technology and an extremely useful one for digital uses in industries such as manufacturing, healthcare, energy and logistics. It can complement existing IT infrastructure and improve the way organisations do business in the near future.
Because of its complexity, organisations might not be sure whether they can implement blockchain for their processes. Two key elements indicate whether you should use blockchain: 1) when many stakeholders are engaged in a business process execution or in the supply chain; and 2) when a great deal of paper documentation needs to be manually signed or stamped. Blockchain can help simplify the collaboration among numerous stakeholders and automate bureaucratic procedures such as paper signing, stamping and sending documentation. It can also enable automation, transparency and greater end-to-end control over the process workflow from corporate headquarters to execution of the physical manufacturing or logistics operations.
Blockchain as a tool can completely change the nature of current bureaucratic procedures. Instead of your having to sign or stamp papers and then take them to a stakeholder to certify, you can trigger this verification and delivery process in the blockchain, and the stakeholder automatically will get the information about you, quickly check whether your application is valid, and then approve or deny it. The blockchain records only the decisions of the involved stakeholders, while the data on which the decisions are based are referenced and kept at the traditional database systems under process and quality control of the involved stakeholder.
For example, in manufacturing you might think that the paper process has been eliminated because you receive the order digitally and store it in your database. However, you are printing the production list and distributing it to your production workers so they know what needs to be done. In this way you are losing the digital trail, and this can easily lead to mix-ups in the order. It’s simpler to skip the paper part and move to a smart contract based on a blockchain. In that case, the production team receives the information digitally, and management can track the order fulfilment in real time. It’s also easier to implement quality checks for the production process and basically have greater transparency and an overview of the end-to-end process.
Blockchain allows you to integrate a very large number of stakeholders into a smart blockchain-based contract. In manufacturing, for example, this could include suppliers and logistics companies. The essential element is the agreement between you and the others on what action needs to be executed, when and where. You are tracking the progress of the actions the stakeholder network has agreed upon, following the quality of work, and knowing at all times what needs to be done and by whom. The smart contract allows full transparency over logistics operations for each asset, even if the whole operation is executed by various stakeholders who aren’t necessarily working together.
Everything is based on consensus, and you determine whether the work is being executed as agreed. The blockchain enables organizations to create a scheme where all players in the digital ecosystem can act homogenously, and the organizer can have a full digital overview across the entire process, as well as each process stage in real time.
Why is blockchain a game-changer?
Blockchain is “low maintenance” and more practical than traditional IT systems in which you would need to build in an adaptor and add new layers to ensure the new piece of technology or task could be executed with your system. In the blockchain, there is no need for that. Once you are in the blockchain, it can extract data and information from your digital ecosystem without anyone having to feed it that information. With traditional systems, if there were 500 suppliers and 500 clients, that meant maintaining at least 1,000 connections, executing numerous actions to update everything, patch them, and constantly monitor the adapters and data flows to keep them fully operational.
The blockchain has a letter of agreement, and information is exchanged about all parties and activities, so everyone involved can back-trace the activities. After the initial agreement is signed, there is almost no need for maintenance, except in cases where you have a problematic situation and need to check the process to find and correct a mistake. This relates to situations where the solution is beyond the agreed-upon rules in the given system. You are saving money on licensing costs, basic system operation and resources.
Blockchain has the potential to transform all bureaucratic processes within or between companies, from highly proactive to reactive. The only exceptions are situations where human interaction and facilitation via the traditional paper process are required.
What’s more, blockchain can bring greater trust and quality control to the work process. If you are working with a new supplier for the first time, you can incorporate quality control as a key factor in the smart contract. The supplier and its work is checked in the beginning and at the end, and you can agree on the order and payment based on that quality test.
Blockchain has excellent advantages. However, saying it’s the new ultimate solution might be going too far. This technology is not going to replace traditional enterprise resource planning systems or the business/data warehouse, but its capabilities can bring more transparency, flexibility and a better overview of the entire process, especially in cases where many stakeholders are involved.
Interested in specific applications of blockchain in industries such as manufacturing? Read “Blockchain: A game changer for industrial use cases.”