Traceability, Blockchain and Counterfeit Materials

Traceability, Blockchain and Counterfeit Materials

By Michael Ford, Aegis Software


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With news of shortages of electronic components coming around again, focus is on the supply-chain: inventory management, grey market purchases, counterfeit materials, quality issues, increased cost of inspection and more. It is surely time to consider a permanent solution for the unnecessary negative effects of material shortages, on a global basis. With an idea for the introduction of the “Secure Supply-Chain”, based on blockchain technology and traceability, benefits are there for all of the “good guys” involved.

Here we go again. The news that the availability of certain materials is going to be limited or restricted sends purchasing departments in every company going through the factory long-term schedules, performing risk assessments of any materials that may be in danger of not being available when needed. The probable action is to secure as much as potentially needed of any material with availability risk, as soon as possible in order to ensure no starvation of production in the foreseeable future. This of course quickly compounds the problem, making the situation far worse than the actual issue that triggered the initial shortage itself.

For those not ahead of the game, plan “B” will be to identify alternative or substitute materials that are available, which have near enough the equivalent functionality and performance. Companies will then become progressively more desperate for materials as the shortages begin to bite. Companies that don’t have adequate control and visibility of materials in the warehouse and out on the shop-floor will experience unexpected line stoppages, happening more and more frequently, and without warning. These are caused by gaps between material stock levels reported by ERP and the actual physical materials that can be found. Unless there is a digital MES system connected to machines as materials are consumed and spoiled, with the ability to track the precise material movement and storage on the shop-floor, this is likely to be a very significant issue.

The shortage of just one, even a seemingly insignificant material, such as an SMT resistor, can mean production has to stop.  The “boom” of advance material purchase eventually gives way to a “bust”, as over-stocking in many cases will lead to materials being sold back into the supply-chain via the “grey market”, further increasing the risk of the use of materials that may have become contaminated or be beyond their shelf-life. Looking back at the previous material shortage cycle, it was interesting from a third party viewpoint to hear the cases where production had been shut down due to a perceived lack of materials, only to later discover that they had in fact the materials needed. The materials had simply been lost from visibility within the factory due to poor materials management.

Manufacturing costs increase in this environment not only due to the stoppages, but also due to the huge effort required to inspect “unfamiliar” materials. Incoming inspection and the use of x-ray equipment etc. will hopefully discover poor quality, incorrectly substituted, and the new problem today, counterfeit materials. The current situation is a dream landscape for counterfeiters, who can expect to get away with even the most brazen of counterfeit ingress. With all the confusion in the supply-chain, it is extremely unlikely that they will be accountable for their crimes. It is not only material shortage scenarios however, that create these issues. Counterfeit materials have recently become a part of everyday life for most manufacturers, whether they know it or not. It is time to put an end to this problem before some very serious consequence occurs.

Blockchain Technology Could Be a Solution

The answer could come from an idea being put together today by key leaders in the industry. There are two elements to the solution. The first is the use of blockchain technology to identify genuine materials. The material manufacturer will for example, provide materials in modular bonded packaging, with a code that links to material technical reference and tracking data stored as a permissioned blockchain. Throughout distribution, the path of the materials is tracked. As the packaging is modular, it is unlikely that distributors will have to split packages, but if they do, they can also create bonded packaging under their own responsibility, inheriting the past data of the material, assigning a new blockchain.

The assembly manufacturer then receives the bonded packaging, ensures that it is intact, then reads the code that provides access to the blockchain data, the tracking portion of which can be verified. This flow can apply to raw materials, as well as sub-assemblies. As materials are then used in manufacturing, a digital MES system with full material traceability will track where every component instance of each secure material package is used. In case of any quality issue, including counterfeit detection, there is a proven audit trail back to the secure package and then back to the responsibility of that specific material.

The companies initially putting this idea together are IBM and Aegis software, with application of blockchain and traceability in the form of IPC-1782. As Michelle Lam, IBM Supply Chain Engineering Blockchain Council Chair says, “Blockchain can complete the missing link between stakeholders to achieve end-to-end supply chain traceability.” The benefits that would be obtained from this activity are expected to far exceed any additional cost burden for each stage of the flow.

For the assembly manufacturer, there is no need for additional incoming material inspection beyond verification of the blockchain code. Trusted supplier relationships can be resumed. In addition, the booking-in process of materials to ERP and MES is now digital, with all material characteristics and specifications being available through the blockchain reducing engineering data preparation times. The adoption of exact traceability as a standard part of a complete modern digital MES solution will be required, supporting direct connection with production machines, including the support of the IPC Connected Factory Exchange (CFX) IIoT standard coming towards the end of this year, which in itself provides numerous operational benefits.

Raw material manufacturers also benefit, as false calls on materials performance issues are eliminated, and costs of bespoke package labeling for customers disappears. Distribution companies following the secure supply-chain practices can also enjoy the trusted supplier status at a new level, and avoid false calls of quality and counterfeit materials issues.

As well as the establishment of the secure supply-chain, the integrity of materials stock held at any location, including within the factory shop-floor operation, warehousing and even ordered material, can be seen very accurately, bringing an increased confidence to material supply, which will go a long way to smoothing out perceived material shortages, and, going upstream, allows material manufacturers better visibility of their customer requirements.

In all, the benefits to the global industry for the secure supply-chain idea as a whole, are likely to be immense. The change however that this represents is also somewhat significant. Will the ramifications of the current examples of material shortages, the rise in the ingress of counterfeit materials, and the availability of some cool technology, come together as a perfect storm to make the secure supply chain a reality? We all have a part to play. Time to make your voice heard, or, learn to live with the increasing consequences of not doing so.


x Brown