By Frank Cavallaro, CEO of A2 Global
The chip shortage has surfaced a myriad of problems for industry participants:
- The need for supply chain transparency
- The need for supply chain security
- A model to understand true buyer demand
The last two years have underscored the need for deep analysis into the electronic component supply chain down to the source. Enter: Blockchain 2.0.
Frank Cavallaro
Blockchain 2.0, an extension Blockchain 1.0, introduced the concept of decentralization of business and markets through smart contracts and improved security and transparency. While the full impacts of Blockchain 2.0 are still in development and the technology is not yet widespread, its benefits are promising for managing supply chains: Accurate recording of price, date, location, quality, and certification of components; simplifying data privacy solutions; and streamlining authentication services.
Though Blockchain 2.0’s specific uses are still in development, at a high level, there are three ways that it will impact semiconductor supply chains.
Enhanced Security
Shortages have magnified component quality concerns. As of 2021, the substandard chip market exceeded $75 billion in global value which has led to larger conversations in managing quality control and authenticating components without a substantial investment in resources from buyers.
Integrating Blockchain 2.0 into the full scope of the semiconductor manufacturing process helps ease the problem of substandard components entering the market. During production, a manufacturing process machine can be registered on a blockchain with a unique identity to track performance, and maintenance history can be recorded. This can significantly lessen the burden of manually identifying substandard chips and reduce their likelihood of being bought.
We’re already seeing this emerge with the use of blockchain-encrypted NFC tags. The tags are attached to a component to efficiently authenticate its origin without interfering with the chip’s performance, effectively linking blockchain and the physical world.
Greater Visibility
Recovery from shortage challenges has emphasized an ongoing need for deeper supply chain visibility and planning. A traditional planning method used by supply chain partners is Collaborative Planning, Forecasting and Replenishment (CPFR) where firms communicate together for inventory planning to meet customer demand while reducing costs. Blockchain 2.0 optimizes this process by storing component data in a secure ledger for partners to access and analyze in one place.
CFPR can be applied to any industry where inventory levels can have far-reaching consequences – the automotive industry is an excellent case study as we are still seeing vehicle shortages due to component constraints. Not only are major automotive manufacturers working together to balance inventory, but they are also doing it with blockchain.
In 2017, leading car manufacturers joined forces and launched the Mobility Open Blockchain Initiative (MOBI) to incorporate blockchain into the automotive supply chain. Founded by leading automakers including Ford, GM, and BMW, MOBI now represents more than 80 percent of the global auto manufacturing by volume. By leveraging the resources of other manufacturers in a blockchain ledger, car companies can track chips and other components throughout the production process for better security and transparency in sourcing components.
We will continue to see an emphasis on supply chain visibility as the chip shortage begins to ease and buyers can strategize for the future. Blockchain 2.0 holds promise in providing the resources needed for better planning.
Anticipation of Customers’ Needs
Unsurprisingly, the current shortage has left buyers wary of the future and want to minimize uncertainties; Blockchain 2.0 can support this. Blockchain houses historical data transfers, smart contracts, and component tracing which gives suppliers insight into customers’ buying habits and component preferences. With this information, they can make more informed decisions and recommendations that are curated to a buyer’s needs.
These insights also provide suppliers with a competitive edge. Customers will naturally gravitate towards the solutions that make them feel most secure, so suppliers gaining insights from Blockchain 2.0 will have an advantage in the market by reducing costs and maintaining customer satisfaction.
What’s the Takeaway?
Blockchain 2.0 has the potential to disrupt the global semiconductor supply chain as the industry is searching for new solutions to mitigate future constraints. If deployed strategically, it could help solve three of the most pressing problems exacerbated by the shortage that are here to stay: Security, visibility, and buyer apprehension. This, however, is a future solution as suppliers are searching for stabilizing solutions to ease current constraints – as the market settles and they can think longer-term, Blockchain 2.0 could be a viable solution to keep them innovative and agile.