Smart Factories and Blockchain: How to stay on the cutting edge of technology

Most manufacturers have already applied classic business management concepts, such as just-in-time production and continuous improvement initiatives, to enhance cash flow and efficiency. But those efforts might not be enough to stay competitive in a technology-driven marketplace. Here’s how smart factories and blockchain technologies are expected to revolutionize the manufacturing industry in the 21st century.

Creating “smarter” factories

The Manufacturing Leadership Council (MLC) has identified several important issues facing manufacturers over the next year. Smart factories are a pivotal part of the MLC’s agenda in a data-driven future.

The MLC envisions that factories of the future will embrace the potential of new and evolving production models, materials and technologies. This requires digitization — from start to finish — of procurement, production and engineering processes. As a result, smart factories will be more cost-efficient, responsive, automated and sustainable than factories today. In addition, management will be able to analyze the manufacturing process using real-time, cross-functional data, enabling management to adapt quickly and seize new business opportunities.

For example, a smart warehouse might be equipped with sensors that automatically detect when materials, parts, and accessories are at the reorder point. Then the system would send an alert to the procurement department to order more materials — or it would communicate directly with a supplier about reordering the item. If the company owns more than one warehouse, the system might also identify other warehouses that have the items in stock.

Defining “blockchain”

On the other hand, blockchain is most commonly associated with Bitcoin transactions. But its potential uses extend far beyond digital currencies. Blockchain is essentially a distributed ledger that’s shared among thousands, or even millions, of computers (or “nodes”) rather than being housed on one central server. (see video: Understanding Blockchain in under two minutes)

Blockchain provides safeguards against errors, fraud or tampering, which helps to engender trust with supply chain partners. The technology is encrypted and requires digital signatures to protect participants’ identities. Moreover, it’s not controlled by any single party.

Widespread implementation of blockchain is several years away. In the meantime, it’s important for manufacturers to learn about the technology and brainstorm ways it can simplify and add value to supply chain transactions. Over the long run, blockchain may eliminate the need for third-party payment processors.

Taking the plunge

Technological change is a moving target that will require ongoing financial investment. Before upgrading your processes and systems to take advantage of emerging smart-factory or blockchain technology, it’s important to crunch the numbers and evaluate your options.

Contact your BMF advisor to help address the financial side of the equation.

About the Authors

Cindy S. Johnson
Cindy S. Johnson
Partner Emeritus, Assurance and Advisory
John E. Jenkins
John E. Jenkins
Partner, Taxation Services


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