Blockchain and the automotive supply chain

“The blockchain is an incorruptible digital ledger of economic transactions that can be programmed to record not just financial transactions but virtually everything of value.”

Don & Alex Tapscott, authors of the ‘Blockchain Revolution’

Like so many exciting new technologies, Blockchain is being heavily promoted in many areas of business but there are some fairly major gaps in the understanding of this new business tool. The explanation above only touches on the mechanics and power of Blockchain and what it might mean for the automotive supply chain.

Our supply chain is often derided by critics as lagging behind in IT intelligence; Blockchain offers a tremendous opportunity to revolutionise the existing digital infrastructure. With the looming onset of Brexit, there has never been a more opportune time to implement a system of transactional and organisational protocols that do not require manual intervention, are blind to geographical borders, and can streamline the passage of any type of freight or service by harnessing IT power to track, organise and deliver information and thus goods and services without having reference points that are fixed by place, time or organisational identity.

What is Blockchain?

The blockchain is certainly a novel and ingenious invention. It is allegedly the brainchild of a person or group of people known by the pseudonym, Satoshi Nakamoto.

Simply put, by allowing digital information to be distributed but not copied, blockchain technology has created the backbone of a new type of internet. It was originally devised for the digital currency, Bitcoin, now the global technology community is finding other potential uses for the technology.

To better visualise the protocol, picture a spreadsheet that is duplicated thousands of times across a network of computers. Then imagine that this network is designed to regularly update this spreadsheet and you have a basic understanding of the blockchain.

Information held on a blockchain exists as a shared - and continually reconciled - database. This is a way of using the network that has obvious benefits. The blockchain database isn’t stored in any single location, meaning the records it keeps are truly public and easily verifiable. No centralised version of this information exists for a hacker to corrupt. Hosted by millions of computers simultaneously, its data is accessible to anyone on the internet.

How can it benefit the automotive supply chain?

Blockchain can be applied to many challenges of the supply chain in such obvious areas as the maintenance of complex records and the tracking of goods and services. Major benefits are a much less easily corruptible and better-automated alternative to centralised databases.

In the realm of tracking and checking materials and services, a blockchain-based supply chain management system enables much accurate record keeping and provenance tracking as the product information can be accessed through the help of embedded sensors and RFID tags. The history of a product right from its origination to where it is in the present time can be traced through blockchain. Moreover, this type of accurate provenance tracking can be used to detect frauds in any part of the supply chain.

Ranging from parts suppliers, manufacturers to sellers, the automotive supply chain is a highly complex and broad sector with multiple participants. Delivering real customer value requires analysis of existing IT and business processes along with solutions that abide by the permissions of security, confidentiality, and authorisation. Blockchain can turn out to be an ideal solution. For automotive suppliers, blockchain can be used to protect their brands from duplicate products and to create customer-centric business models.

Countering component counterfeiting

In the automotive industry, counterfeit products raise a significant issue for the automotive manufacturers. Also, the current market of counterfeit spare parts is estimated at several billion dollars. Such products can make their way to the supply chain either directly or through the OEM and aftermarket suppliers. Counterfeit spare parts are not reliable as they often have degraded quality levels and they often tend to fail which brings dissatisfaction to the end customers ultimately leading them to revoke their trust in the brand. Introducing blockchain technology for counterfeiting products proves to be significantly advantageous as it allows spare parts to be identified uniquely and represent them digitally. Digital identification of spare parts adds transparency to the system and it can be shared among multiple parties in the network.

Advantages for inbound and outbound

Inbound logistics and smart manufacturing with blockchain can allow the automotive supply chain to be more efficient. Currently, the tracking of individual components of an inbound supply chain is complex and prone to errors. The coordination among multi-tier suppliers, third party logistics, and transportation companies through the manufacturing plant is necessary for effective functioning of the supply chain. By using blockchain, companies can ensure the availability of accurate and real-time information amongst different parties. People involved can check the status, quantity as well as the location of individual parts.

Similarly, the outbound supply chain is also a complex network which consists of distributors, manufacturers importers, and dealers. These participants don’t have a common data sharing model as well which makes it difficult for them to exchange information. A shared blockchain based system can improve visibility and transparency which, in turn, ensures faster transactions and shorter settlement periods.

Cost reduction

In the ever-present pursuit of lower costs, the real-time tracking of a product in a supply chain with the help of blockchain reduces the overall cost of moving items in that chain. According to a survey of supply chain workers conducted by APQC and the Digital Supply Chain Institute (DSCI), more than one-third of people cited reduction of costs as the topmost benefit of application of Blockchain in supply chain management.

Administration advantages

When blockchain is applied to speed up administrative processes in supply chains, the extra 
costs occurring in the system are automatically reduced while still guaranteeing the security of 
transactions. The elimination of the middlemen and intermediaries in the supply chain saves the 
risks of frauds, product duplicacy and saves money too. Payments can be processed by 
customers and suppliers within the supply chain by using cryptocurrencies rather than 
customers and suppliers rather than relying on EDI. Moreover, efficiency will be improved and 
the risk of losing products will be reduced with accurate recordkeeping. 

Trust and security

Having trust in complex supply chains with many participants is necessary for smooth operations. For example, when a manufacturer shares his products with suppliers, he/she should be able to depend on them for following factory safety standards. Also, when it comes to regulatory compliances such as custom enforcers, trust plays a vital role. The immutable nature of blockchain in the supply chain is well-designed to prevent tampering and establishing trust. By storing data across its network, the blockchain eliminates the risks that come with data being held centrally.

Its network lacks centralised points of vulnerability that computer hackers can exploit. Today’s internet has security problems that are familiar to everyone. We all rely on the “username/password” system to protect our identity and assets online. Blockchain security methods use encryption technology.

The basis for this are the so-called public and private ‘keys’. A ‘public key’ (a long, randomly-generated string of numbers) is a users’ address on the blockchain. Bitcoins sent across the network gets recorded as belonging to that address. The ‘private key’ is like a password that gives its owner access to their digital assets. Once stored on the blockchain, data is incorruptible. While this is true, protecting digital assets will also require safeguarding of the private key by printing it out, and creating what is referred to as a paper wallet.

OEM activities

Several OEMs are implementing Blockchain but much of the activity is still in its infancy. Audi recently launched a new annual series of public lectures under the heading “Science in Dialogue”. It programme for the year 2019 offers a wide range of topics, including controversial ones such as questions of ethical responsibility associated with the use of artificial intelligence. Interested persons can also learn more about the city of the future, alternative drive systems and the potential of blockchain technologies. The drivers of digitalisation and its impact on our everyday lives will also be examined. The scientists also shared their thoughts and theses on international environmental policy, diversity management and the mindfulness trend. Altogether, academics from eleven European universities were guests at Audi.

“Transformation has many different facets and presents us all with major challenges,” said Wendelin Göbel, Member of the Board of Management for Human Resources and Organisation at AUDI AG. “This is why the diversity of topics at ‘Science in Dialog’ is greater than ever. Together with people from the region, we look forward to insights that surprise and inspire, as well as to discussions that enrich us and remain in our memories.”

Audi is making its employees fit for the digital future: Under the “data.camp” motto, the automobile manufacturer has started a further-training campaign focused on big data and artificial intelligence. Expertise in these areas is an essential basis for the development of cars driving in piloted mode, intelligent robots and digital mobility services. One important element here is Audi’s cooperation with the online platform Udacity.

Outside expertise and BIg Data coming to automotive

In addition to in‑house training, Audi also integrates the expertise of external partners. In this way, the carmaker combines digital learning on the Udacity online platform from Silicon Valley with presence formats it has developed itself. Tutors from the relevant departments at Audi support the participants with queries and learning projects, and ensure a close technical connection with Audi. This further training takes place in parallel with the participants’ work; the “Audi students” are released to participate for ten hours per week. Following the successful conclusion of the complete program, the employees are awarded a so‑called nanodegree from the online platform, for example as a data analyst or machine‑learning engineer. “With purely online courses, the dropout rate is often very high,” said stated Michael Schmid, Head of the Audi Academy. “That’s why we decided in favor of a combination of the online courses offered by Udacity and presence courses here at Audi.”

Daimler deals using Blockchain

Daimler AG and Landesbank Baden-Württemberg (LBBW) have jointly used blockchain technology to execute a financial transaction. Daimler and LBBW successfully tested this innovative technology for capital markets in parallel with the process that is required by regulatory authorities. Through LBBW, Daimler launched a €100 million 1 year corporate Schuldschein within which savings banks (Kreissparkasse) Esslingen-Nürtingen, Ludwigsburg and Ostalb as well as LBBW acted as lenders. The entire transaction — from the origination, distribution, allocation and execution of the Schuldschein loan agreement to the confirmation of repayment and of interest payments — was digitally carried out via blockchain technology in cooperation with the IT subsidiaries TSS (Daimler) and Targens (LBBW).

“This pilot shows our competence at digitisation of financial services for our corporate customers. Technical progress opens completely new ways to make financial processes simpler and more efficient and enables new business models. We want to exploit this potential in order to further improve banking services for our customers,” said Rainer Neske, Chairman of the Board of Managing Directors of LBBW. For this reason, LBBW involved its corporate client Daimler AG in the development process early on and worked together to realise the pilot project. “Daimler was an ideal partner for us, because this company is also greatly interested in using blockchain. Thanks to the constructive and agile collaboration in a joint team, we were soon able to use this technology in a real transaction.”

Kurt Schäfer, Vice President Daimler Treasury, said, “Blockchain can affect nearly the entire value chain. That’s why we, as a leading automaker, want to play an active role in the global blockchain community and help shape the cross-sector blockchain standards. We want to do this in all the areas of application that are important to us: customer relations, sales and marketing, supplier management, digital services, and financial services.” Other possible applications of blockchain technology at Daimler in the financial sector include payment transactions, the securities trade, and the cross-border shipment of goods.