Published 10/1/2018

Can Blockchain Help Machine Shops Win Work?

The record-keeping system underlying cryptocurrencies like Bitcoin could automate the front office, secure intellectual property and plug data-driven manufacturers into increasingly data-driven supply chains.

Matt Danford

Former Senior Editor, Modern Machine Shop

How does a small or mid-sized machine shop establish relationships with large, high-tech original equipment manufacturers? By devoting time and resources to that end. However, a respectable sales and marketing effort might not be enough, even if the shop is ideally suited for the work. Meanwhile, a small product design company without the OEM’s army of purchasing managers or high-volume orders might struggle to connect with the shop, just as the shop struggles to connect with the OEM. Open capacity and advanced capability aside, the shop’s spindles remain still. The OEM sources elsewhere, possibly even overseas. No one wins.

SyncFab, a technology developer near Silicon Valley, is touting a new way. Since 2013, the company has been developing a cloud-based network to simplify complex supply chains by better connecting manufacturers and parts purchasers. In this system, manufacturers use an online interface to bid on jobs that SyncFab has already pre-vetted by shopfloor capability and capacity. From there, the company acts as an intermediary, tracking production, managing logistics and payments, and otherwise streamlining interactions between a shop and its new customer. Manufacturers join for free, and purchasers pay a small markup on each successful request for quote (RFQ).

SyncFab CEO Jeremy Goodwin characterizes the company as a champion of reshoring and of environmentally friendly manufacturing. Who gets a purchaser’s work depends not only on the competitiveness of the bids, but also on who is local and who is clean. So far, manufacturing membership has grown to include more than half of the precision CNC machining and additive manufacturing businesses in San Francisco, Oakland and San Leandro, California.

Although SyncFab only began marketing member shops’ services to purchasers beyond Northern California this year, the intended scope is international. The vehicle of this expansion will be blockchain, the record-keeping technology underlying cryptocurrencies like Bitcoin. In blockchain, SyncFab sees the same promise for manufacturers that has attracted interest from companies ranging from J.P. Morgan Chase to GlaxxoSmithKline: the secure storage and efficient exchange of virtually any critical data, whether it be medical or financial records or full 3D part files.

Such a platform could eliminate a barrier to doing business that’s as old as humankind: lack of trust. Inherently credible and simultaneously accessible and secure, blockchain-embedded data could provide a foundation for completely anonymous parties to connect and transact with less risk and overhead than by traditional means of doing business. Specifically, SyncFab expects blockchain to help address the following supply-chain inefficiencies:

Lack of access. SyncFab’s services are targeted particularly at smaller chain participants: shops with limited time and resources to find and quote work, and parts purchasers feeling shut out by brokers and other intermediaries that increase the cost and complexity of placing orders. By removing the trust barrier, blockchain eliminates intermediaries and enables manufacturers and their customers to connect directly. The SyncFab manufacturing blockchain even enables shops to get paid for simply quoting work, regardless of whether they take the job.
Lack of data security. Adding data to a blockchain involves a robust, computerized verification process. Once encrypted therein, data is essentially locked away, accessible only to those who own it and those who are authorized to view it. Blockchain—and the intellectual property therein—is inherently secure and always up to date.
Lack of transparency. Authorized parties enjoy instant access to their blockchain-secured data from any location. There is no need for traditional usernames, passwords, firewalls or other complex (and potentially vulnerable) safeguards. Part data, process data, and data used to track orders, production and shipping can flow freely.
Lack of efficiency. Blockchain-based automation eliminates inefficiencies ingrained in manual tasks like drawing up RFQs, submitting bids, reviewing proposals and tracking paperwork. Automated, condition-based and instantaneous transactions make payment for work both timely and guaranteed (a particular advantage for cash-strapped smaller shops). Miscommunication, mistakes and delays associated with back-and-forth among human beings become less common.

Taken to the extreme of its potential, blockchain could make sourcing parts as easy as using a ride-hailing service like Uber or Lyft, Mr. Goodwin says. In this future, machine shop and prospective customer connect directly and anonymously, matched by computer programs that pull blockchain data to compare machining resources to work requirements. There is no need for the customer to worry about the shop’s capacity, capability or reputation, because the shop has already been vetted according to service history, machine specifications, quality certifications and other records embedded (and securely encrypted) in the blockchain. When the work begins, blockchain automation can streamline complex, typically manual tasks associated with ordering parts, tracking production throughout the supply chain and processing payments.

Getting there will not be easy. At the time this article was being written, SyncFab users were taking their first, tentative toe-dips into blockchain. The MFG Token, a new form of cryptocurrency that is to be the lifeblood of the evolving network, had only just been integrated. No matter. Whatever the future holds, machine shops using this service will likely get a head start in leveraging a technology that could transform not just manufacturing, but the entire economy. They will be prepared if the day ever comes when customers demand levels of transparency, data security and communications and transaction efficiency that only blockchain can provide.

Safeguarding Data

Blockchain is perhaps easiest to understand in the context of its most basic functionality: a record-keeping system for monetary transactions (the most well-known blockchain is designed specifically and only for buying, selling and storing Bitcoins). SyncFab’s blockchain stores records of transactions conducted with the company’s new MFG Tokens. Like Bitcoin or any other cryptocurrency, the MFG Token is essentially a form of digital cash (hence the term “currency”) that is exchanged online between virtual “wallets.” Whereas traditional currency is traded through banks, cryptocurrency is transferred directly from one party to another. Records of all transactions are automatically encrypted (hence the term “crypto”) into strings of code. The code can be cracked only with unique, virtual “keys” associated with the wallets involved in the exchange.

Together, these records form the blockchain, a shared, digital history of all transactions ever conducted with any given cryptocurrency (in this case, MFG Tokens). More specifically, groups of cryptocurrency transaction records are bundled together into “blocks” that are then linked together in chronological order. Cryptographic links and time stamps make the blocks inseparable. This chain of blocked transaction data is not stored in a single, centralized location, like a bank ledger. There is no master copy of the transaction history, nor any central authority debiting and crediting accounts. Every participant’s computer (in this case, every MFG Token user’s computer) can host its own automatically and continuously updating copy of the entire blockchain.

In this way, each cryptocurrency user’s computer acts as a check on the others. The need for broad consensus on the content and chronology of the records makes the system inherently resistant to any attempt at fraud (say, using the same digital coins for multiple transactions). After all, a distributed ledger presents no single point of access. It also does nothing to prevent everyone trading in a given cryptocurrency from seeing every transaction, but the aforementioned “keys” keep amounts, identities and other details private. Anyone hoping to break into or alter the distributed database would have two choices: convince the majority of users to join in, or hack the majority of users’ computers, even as those computers continue to synchronize the constantly growing blockchain.

SyncFab, of course, is interested in more than just monetary transactions. Blockchain’s great promise is that a distributed database can be more than a bank ledger. It can be a platform for storing and exchanging records of virtually any transaction or asset, from RFQ details and order histories to design revisions and inspection-device calibration reports. As such, blockchain could be as important to the industry’s future as advances in artificial intelligence, robotics and other technologies widely credited for driving the fourth industrial revolution, Mr. Goodwin says. However, bringing a truly decentralized, peer-to-peer manufacturing ecosystem into existence requires widespread buy-in. Manufacturers need to get past their uncertainty and their fear about this new and unfamiliar technology.

Using MFG Tokens

Many of SyncFab’s users have already made a literal buy-in. MFG Tokens were introduced in a token sale that ended in April. Transactions in this new cryptocurrency have not replaced traditional, U.S.-dollar payments for work (not yet, anyway). For now, at least, the online network continues to operate much as it always has. However, purchasers are using MFG Tokens to pay SyncFab’s transaction fees. Perhaps more notably, the tokens will soon provide extra incentive for participants to interact. For machine shops, the promise is even easier access to work and even greater ability to do what they do best: make parts.

This new incentive system will operate similarly to a hotel rewards program, and the MFG Tokens will be the “points.” It will work like this: A purchaser can entice manufacturers by attaching MFG Tokens to an RFQ as a kind of bounty. Any shop that proposes a viable production process fast enough can claim a portion of this bounty, even if the purchaser does not accept the quote (the winner, of course, gets the work and part of the bounty). Shops can also post their own MFG Token bounties, essentially offering instant, guaranteed discounts to purchasers that order (or re-order more quickly) from them. Buyers get access, and shops get paid for the significant work involved in quoting a job—work that is typically uncompensated, or perhaps even deemed unworthy of a shop’s time and effort. Lower-quantity parts orders attract more attention. More parts get made locally. The network becomes more responsive.

Without blockchain, there would be no incentive for SyncFab to set up such a system, Mr. Goodwin says. After all, revenue from the sale of MFG Tokens is a major source of funding for the network’s continued development. Meanwhile, the bounties will serve as a relatively risk-free means of demonstrating the difference between an instant, automated blockchain transaction and one that involves banks, accountants and multiple verification steps. The example is expected to be particularly poignant for smaller machine shops, which can face cash-flow problems due to lengthy payment terms (30, 60 and even 90 days are common).

Of course, blockchain is about more than just efficient transactions. As users participate in this system, they will become more familiar with its potential for data security, and for tracking production, shipping and more. The greater their familiarity, the thinking goes, the more eager and willing they will be to embrace the technology’s full promise for serving as what Mr. Goodwin calls “a bridge to the Industrial Internet.”

Automating Supply Chain Transactions

Not all blockchains can be a bridge because not all blockchains are created equal. Capability to store and exchange more than just records of monetary transactions is a primary reason why SyncFab chose to set up on the Ethereum platform, and to base the MFG Token on the currency of that network, Ether (specifically, on the ERC20 Token Standard).

On Ethereum blockchains, cryptocurrency is more than just digital money. Ether-based utility tokens like the MFG Token are the “fuel” for blockchain-based automation called smart contracts. Smart contracts are essentially simple computer programs that use blockchain-embedded data to determine whether certain conditions have been met before performing a specific, automatic function. For instance, a smart contract might transfer a certain number of tokens to another virtual wallet as a payment once an inspection report is approved. MFG Tokens are the “fuel” in that they pay for creating and updating smart contracts, the processing power required to execute them, and, via SyncFab’s transaction fees and token sale revenue, further development of the platform.

The latter point is particularly critical because smart contracts are not designed to work in isolation. As depicted in the photo gallery above, they are the building blocks of more complex, decentralized applications (dApps) that automate complex tasks. The eventual goal of SyncFab’s evolving dApp is to automate procurement, with matchmaking performed by comparisons of incorruptible data embedded (and encrypted) in the smart manufacturing blockchain. Anonymous manufacturers and parts purchasers could agree to do business without even a phone call, let alone a face-to-face meeting. As work proceeds, there would be no risk of referring to an outdated copy of, say, a part-inspection report or quality certification, because there is no such thing as an outdated copy on the blockchain. Eventually, smart contracts could even facilitate real-time, automatic and fully secure production updates via direct feed from machine tool CNCs.

Preparing the Shop

Achieving these goals requires more than just SyncFab’s continued development. Also necessary is a buy-in from the users—hence the planned use of MFG Token bounties as incentives to adopt blockchain and purchase MFG Tokens. The intent is that shops will begin to think more deeply about blockchain and what it will take to participate in future supply chains. “We want to start the process of troubleshooting on the shop floor,” Mr. Goodwin says about the bounties. “We see these incentives as contributing to the mobilization of resources and effort that will be required to get where we need to be.”

Even prior to the unveiling of bounties, a CNC machining business that is new to the free network may have work to do. For instance, it must be comfortable with digital invoicing rather than manual. Pending further dApp development, it must also be comfortable with wire-transfer payments rather than traditional paper checks.

With the front office in order, Mr. Goodwin’s shopfloor troubleshooting can begin. Preparing for broader blockchain-based functionality requires networking equipment and adopting machine-monitoring systems. It requires learning to leverage data, and data-management software, and all the other technologies and philosophies that make a shop “smart.” If blockchain takes hold, it is the interconnected, data-driven operation that will be most accessible and most prized by those seeking its manufacturing services, whether the prospect is a small product developer or an OEM eager to reduce overhead and streamline its supply chain.

SyncFab, meanwhile, will continue to sweeten incentives by developing the dApp, introducing new smart contracts and reformatting existing smart contracts to better match the realities of business. Current markups will be replaced by fees more appropriate to how participants use the system. Ultimately, the hope is that others will adopt the MFG Token and SyncFab’s established protocols to fuel other smart-manufacturing blockchains, even as the company continues to expand its own network.