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Commentary: Will Auto Companies Bring Blockchain Into Real-World Supply Chains First?

FreightWaves

At The New York Supply Chain Meetup we have held several events focused on supply chain and blockchain. During each of those events we have tried to figure out what it will take for blockchain, or some other distributed ledger technology, to become widely applied in a real world industrial supply chain. Naturally, an unspoken question during these discussions is "Which industry will be the first to find an application for which a blockchain-based solution is the best of all the alternatives available?"

On Monday, October 14, the Nikkei Asian Review reported that five automakers will begin field tests in the United States next month to test blockchain-based identification systems that enable drivers to pay various types of fees without using cash or credit cards.

The size and scope of the global automotive manufacturing industry

According to IBISWorld, as of April 2019, the global car and automobile manufacturing industry was trending towards:

  • $3 trillion in annual sales for 2019.
  • 4.5% in compound annual growth for the five years between 2014 and 2019.
  • Employed 2,580,803 people.
  • Was made up of 1,760 businesses.

The exhibit below shows market share based on 2018 revenue.

To get a sense of how complex automotive supply chains are – Toyota Motor Corp (NYSE: TM) vehicles are sold in 170 countries and regions. Those sales to customers are enabled by a network of 51 manufacturing partners in 28 countries and regions.

The exhibit below shows the number of cars sold.

 

According to World Vehicle Population Rose 4.6% in 2016, by Sarah Petit at Wards Intelligence, "The global vehicle population stood at 1.32 billion cars and trucks at the end of 2016, nearly double the volume 20 years prior when vehicles-in-operation totaled 670 million in 1996. Coincidently, the fleet grew at about the same pace in the 20 years through 1996 by roughly doubling 1976's 342 million."

The exhibit below shows the number of vehicles in operation by region, between 2010 and 2016.

What is the potential impact of blockchain in automotive supply chains?

In Blockchain's profound impact on the automotive industry, EY states that blockchains and other distributed ledger technologies will enable:

  • Peer-to-peer interactions between owners and users of vehicles.
  • A reliable means of selling and tracking fractional ownership in vehicles.
  • The maintenance of immutable records of ownership and usage.
  • Spare parts provenance.
  • Simplified and streamlined vehicle title transfer.
  • Other benefits in the procurement, manufacturing, distribution and service functions.

The article is based on EY's Tesseract blockchain technology platform, which is built for original equipment manufacturers in the automotive industry.

What are the reported field trials going to be testing?

According to the Nikkei Asian Review, the trials will test a new vehicle identification system. This system is linked to ownership information, as well as other information such as compliance with service requirements. This system will also be used to identify vehicles on highways, enabling transactions such as toll payments without the need for external devices such as EZ-Pass tags in parts of the United States.

These trials are the outcome of work that is being done by the Mobility Open Blockchain Initiative (MOBI), "a nonprofit global foundation formed to accelerate the adoption of and to promote standards in blockchain, distributed ledgers, and related technologies for the benefit of the smart cities and mobility industries, consumers and communities."

In a press release published on July 7, 2019, MOBI said of its vehicle identification standard (VID): "In order to establish existence, this first standard focuses on the "birth" of the vehicle as a minimum representation of that vehicle's creation. Subsequent VID phases will add additional product definition, ownership history and a log of key events in the vehicle's lifecycle. The result will be a trusted and immutable master record of the vehicle's history and data usage."

Digging beneath the surface: What is a cyber-physical system?

The VID forms the basis for the creation of digital twins of vehicles in which the technology is deployed. A digital twin is a digital or virtual replica of any entity, that enables information about the replicated entity to bridge the physical world and the virtual world – forming a cyber-physical system (CPS), or a cyber-physical network.

According to the Ptolemy Project at the University of California Berkeley; "Cyber-Physical Systems (CPS) are integrations of computation, networking and physical processes. Embedded computers and networks monitor and control the physical processes, with feedback loops where physical processes affect computations and vice versa."

A digital twin must be connected to its corresponding physical counterpart. This connection between physical counterparts and their corresponding digital twins is made possible through the industrial internet of things, pervasive computing and simulation, enabling digital twins to be updated frequently to reflect the real-time condition of their physical counterparts in space and time based on data collected from the physical system. The feedback loops allow inferences about the physical entity's current and future operational states to be reached without the need to interact directly or interfere directly with the physical processes unless that is necessary in order to prevent a breakdown or some other interruption of service.

We are already surrounded by relatively simple and primitive cyber-physical systems. The promise of the future is that advances in information and computational technologies will make such systems much more advanced than in the past. 

Insights from the field

Michael Zargham is a complex systems scientist and architect who has been a speaker at two events organized by The New York Supply Chain Meetup on how blockchains and other distributed computing technologies will transform physical supply chains. Michael holds a Ph.D. in electrical and systems engineering from the University of Pennsylvania. He is the CEO and founder of BlockScience, a consulting firm that works with companies in legacy industries on the conception, design and implementation of cyber-physical systems. He is also an advisor to a number of technology startups.

I asked Zargham for some insights about the economic potential of cyber-physical systems. He said,

"CyberPhysical Systems are large-scale, coordinated systems enabled by advances in IoT, embedded control and decentralized optimization. As our physical systems become increasingly equipped with

internet-connected sensors and decision-making systems, we're seeing a trend towards intelligent infrastructure, e.g, smart grids and autonomous vehicles. Higher combinations of automated decisions systems require some level of trust between the entities sharing that infrastructure, especially when sensitive information or high value assets are being controlled. This is where distributed ledger technology brings great value. The cryptographic guarantees provided by secure multi-party computation can be used to govern access control rights to sensitive data, to automate multi-stakeholder business processes, and to enforce adherence to agreed-upon economic protocols. By bridging automated infrastructure with principles of market design, our intelligent infrastructure is becoming more integrated with our economy. Imagine a future where the digital twin of a truck not only identifies a need for preventative maintenance but can follow all the way through to confirming and paying for that work."

Conclusion

According to Future Market Insights, the "global cyber-physical system market is expected to witness a compound annual growth rate of 8.7% during the period 2018-2028. The market was worth $55,075.3 million in 2017 and is likely to reach a valuation of $137,566.0 million by the end of 2028." This growth is driven primarily by the rapidly decreasing cost of sensors, data storage, cloud computing and other related technologies. 

Recent advances in CPS have not eliminated the uncertainties and risks that could slow the development and adoption of CPS. In An Overview and Some Challenges in Cyber-Physical Systems, Kyoung-Dae Kim and P. R. Kumar group the issues in four broad categories.

  • First: Stability, Performance and Safety – the recent fatalities involving Boeing's 737 MAX provide an incontrovertible example of how the choices made by CPS architects have very real, and potentially deadly consequences.
  • Second: Sensing, Computing and Networking Systems – according to the authors, "due to the scale, structure and behavioral complexities of today's and tomorrow's CPS, it is an important challenge to develop extensible, scalable and adaptable software platforms that can operate in distributed, heterogeneous, time-critical and safety-critical environment." Software and modern communications technologies are relatively immature in comparison to the engineering of physical systems and processes. It is important to ensure that the interaction and behavior of digital and physical systems embodied in CPS in practice matches what the people who design, build and manage such systems expect based on business R&D and academic theory.
  • Third: Modeling, Design and Development – according to the authors, "In tomorrow's CPS, due to the increasing complexity and heterogeneity of systems, it is expected to be even more difficult to design, develop and debug computing systems, which will in turn result in significant increases in overall development costs." As CPS becomes part of more complex processes and systems, the cost associated with developing, protecting and maintaining those systems could increase substantially.
  • Fourth: Others – Security, In-Network Information Processing and other related problems are significant concerns in the management of systems such as smart grids, autonomous transportation, as well as in medical and healthcare systems, among others.

As with many blockchain and supply chain applications, the overarching challenge that CPS has to overcome is the ability to quantify how the costs of such systems compare to the short- and long-term benefits that customers and users will experience.

Image Sourced from Pixabay

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