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Blockchain technology could drive efficiency for auto suppliers

INSIGHT ARTICLE  | 

When it comes to innovative disruption, the public’s attention is often focused on bitcoin’s impact on financing and investment options. However, it is important to understand that blockchain, the underlying technology that is often mistakenly conflated with bitcoin, could be a worldwide disruptor deep in the supply chain of many industries.

The attraction of blockchain technology is its promise to provide an immutable digital ledger of transactions. As such, it is this underlying technology—an open, distributed ledger—that makes monetary and other transactions work. These transactions can include the bitcoin, but they may also include records of ownership, marriage certificates and anything else where the order of the transaction is important. A blockchain is a secure permanent record of each transaction; it cannot be reversed.

Blockchain usage in the auto industry

There are a number of compelling cases that could be made for using blockchain technology in the automotive sector. Since it implements a transactional ledger, for example, blockchain could be useful for tracking parts. As a part is moved through the manufacturing ecosystem, a record could be created of the specific car in which a part was installed. That part can continue to be tracked as it is removed from one car and inserted in another in the aftermarket. At any time, a manufacturer, service center or car dealer can track every part in a car.

Similarly, recalls can also leverage blockchain technologies to understand where a recalled part is in every vehicle. Reverse recalls could be performed as well. Given a series of cars with a similar problem, a manufacturer could quickly track back what the common part or common manufacturer date of parts are among a series of cars.

The key is the network

The key among these uses of blockchain is not the technology but the network. Bitcoin’s popularity and strength as a store of value grows with the increasing network of users who have adopted and support it. There is a growing network of support for a food-recall blockchain driven by major players in the food industry. A network of companies in the automotive industry adopting the technology would be needed to achieve the same disruption.

Since it requires a network, the disruption would happen slowly. A recall blockchain may begin with only one manufacturer and one supplier, but that is not a reason to ignore the potential impact on the industry. Because many of these uses create efficiencies in the supply chain, they would also squeeze margins of suppliers. Those who want to survive will not want to be excluded.

Organizations should be thinking about ways this technology can affect their supply chains, especially those processes that are wasteful or ineffective. Suppliers trying to drive efficiency internally may be best positioned for the future by considering this innovative technology.


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