I’m often the person who presents the basics of blockchain technology to people at electronics companies, which brings a small but enjoyable reward with it: I get to see the light come on in executives’ eyes when they realize that blockchain can solve a real-life problem for them. Our discussions almost always get more animated and meaningful at that point, when a CXO discovers that there may be a solution to a perennial problem that they have been dealing with for years.
Far from being a “solution in search of a problem,” blockchain may well be the only realistic solution to some problems that have plagued electronics companies since the previous millennium.
But that initial excitement often doesn’t generate blockchain projects right away. It took some months to understand why that might be. I think there are three primary reasons:
- By design, Blockchain is targeted at multi-party Traditional cost accounting processes often don’t capture the full cost of these processes in a single functional area, so companies may not be aware of the true cost of a dysfunctional process. (For instance, supplier quality issues may be spread across multiple manufacturing facilities, procurement, and the quality organization.)
- Even if the costs are well captured and understood at a single company, they may not be significant enough to justify investing in a custom-developed solution for that company.
- And… even if the costs are understood, and even if there is a good business case for a custom solution, an individual company may still be reluctant to commit to building a solution unless they can be confident that their business partners will want to use that solution as well.
There’s a way to address those reasons: set up a consortium of like-minded companies that are willing to work together to solve the problem. Recently, IBM reached out to a number of other companies in the electronics industry to see if they would be interested in exploring this idea. Roughly 40 companies expressed interest, and representatives from about 20 companies invested two days in mid-October to talk through four industry-wide problems and how those problems could be effectively addressed with blockchain-based solutions, sponsored by a group of companies.
Executives from a broad cross-section of companies in the electronics industry participated in the discussion. The companies included component manufacturers, subassembly manufacturers, distributors and OEMs in several segments of the industry. There was strong participation during the sessions, with open and frank discussions. We discussed four different use cases:
- Anti-Counterfeiting: Finding a way to prevent the entry of counterfeit parts into the supply chain (and particularly into the reverse supply chain) would reduce risks for consumers and reduce costs and liabilities for OEMs and other companies in the electronics value chain. Counterfeit parts have been an issue in electronics for decades. There are ways to solve the problem, either by facilitating detection or by making it easy to verify authentic parts, but these methods require the ability to coordinate actions among multiple “good” players while preventing access by the counterfeiters. A secure, multi-party process is needed – a perfect fit for blockchain.
- Materials Content Declarations: Complying with product environmental regulations (in other words, laws and regulations like RoHS and REACH, that apply to product composition, not the operations of the factory that manufactures the product) requires companies to collect information about the materials content of each part and subassembly they purchase to be incorporated in their products. The list of materials that must be reported in various countries is often dozens of pages long. Even though most of the information to be reported is the same from company to company, the collection protocol is almost always unique – so companies are forced to invest precious resources in matching suppliers’ disclosures to the requirements of each customer. A secure, common approach that would allow suppliers to enter materials content data one time, to be accessed by multiple different customers, could reduce labor costs for the entire industry. It would, of course, need to include excellent provisions for privacy – again, one of the features of blockchain technology.
- Responsible Sourcing: Whether required by local laws or not, most responsible electronics companies have “responsible sourcing” efforts – initiatives designed to avoid purchasing parts that contain materials from “conflict” mines or which were produced using child labor. Even the very largest, most powerful electronics companies continue to expend efforts to build processes that assure only responsibly produced materials go into their products. But they struggle to build processes that can be audited, since much or all of the critical activity occurs thousands of miles away. Blockchain’s excellent provenance capabilities makes transfer records immutable, providing a much higher level of assurance that parts are, in fact, being manufactured from responsibly sourced materials.
- “Know Your Supplier:” The influence of Sarbanes-Oxley and similar legislation have made it more time-consuming to establish relationships between companies. The same information needs to be prepared and validated each time a company wants to sell to, or buy from, a new partner. Some companies have seen the cycle time to set up a new supplier expand to more than a month, and the amount of information required from suppliers has grown to the point where it may not always be cost-effective to deal with every potential customer. The financial industry has already had some success with a “Know Your Customer” application, where individual consumers can submit their personal information one time, then permit access to that information to multiple businesses (e.g. banks and utilities). Blockchain technology’s privacy capabilities would permit a supplier’s pre-populated and validated “Master Data” to be prepared once and used many times – shortening the cycle time to set up a new customer-supplier relationship and taking non-value-added expense and labor out of the process.
Two of these use cases – Responsible Sourcing & Know Your Supplier – have been developed fully enough to actively solicit participants in an identified consortium structure. The other two (Anti-Counterfeiting and Materials Content Declaration) are both in their early stages and would benefit from a larger group of participating companies. No matter what, we think that the consortium concept is compelling. It can provide a way to solve significant industry problems with the best technology, and do it in a way that will ensure the solution will last, and bring real benefits to its users.