How Will Blockchain Impact the Semiconductor Supply Chain? · EMSNow

by Arthur · September 20, 2022

By Frank Cavallaro, CEO of A2 Global

The chip shortage has raised a myriad of issues for industry participants:

The need for transparency in the supply chain
The need for supply chain security
A model for understanding real buyer demand

The last two years have emphasized 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 impact of Blockchain 2.0 is still in development and the technology is not yet widespread, the benefits are promising for managing supply chains: Accurate recording of price, date, location, quality and certification of components; simplification of data protection solutions; and streamlining authentication services.

Although Blockchain 2.0’s specific applications are still evolving, at a high level, there are three ways it will impact semiconductor supply chains.

Improved security

Shortages have raised concerns about component quality. As of 2021, the substandard chip market exceeded $75 billion in global value, prompting greater conversations in managing quality control and authenticating components without a significant investment in resources from buyers.

Integrating Blockchain 2.0 into the entire scope of the semiconductor manufacturing process helps alleviate the problem of substandard components entering the market. During production, a production process machine can be registered on a blockchain with a unique identity to track performance, and maintenance history can be recorded. This can significantly reduce the burden of identifying substandard chips and reduce the likelihood of being purchased.

We are already seeing this emerge with the use of blockchain-encrypted NFC tags. The tags are attached to a component to effectively authenticate its origin without interfering with the chip’s performance, effectively connecting the blockchain and the physical world.

Greater visibility

Recovery from shortage challenges has underscored 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 used in any industry where inventory levels can have far-reaching consequences – the automotive industry is an excellent case study as we continue to see car shortages due to component constraints. Not only are major automakers working together to balance inventory, but they’re 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 car manufacturers including Ford, GM and BMW, MOBI now represents more than 80 percent of global car production by volume. By leveraging the resources of other manufacturers in a blockchain ledger, car companies can track chips and other components throughout the manufacturing process for better security and transparency in component procurement.

We will continue to see an emphasis on supply chain visibility as chip shortages begin to ease and buyers can strategize for the future. Blockchain 2.0 promises to provide the resources needed for better planning.

Anticipation of customer needs

Unsurprisingly, the current shortage has left buyers wary of the future and wanting to minimize uncertainty; Blockchain 2.0 can support this. Blockchain accommodates historical data transfers, smart contracts and component tracking that give suppliers insight into customers’ buying habits and component preferences. With this information, they can make more informed decisions and recommendations that are tailored to a buyer’s needs.

This insight also gives suppliers a competitive advantage. Customers will naturally gravitate towards the solutions that make them feel most secure, so providers who gain insight from Blockchain 2.0 will have an advantage in the market by reducing costs and maintaining customer satisfaction.

What is Takeaway?

Blockchain 2.0 has the potential to disrupt the global semiconductor supply chain as the industry looks for new solutions to reduce future constraints. If deployed strategically, it can help address three of the most pressing problems exacerbated by the here-to-be shortage: Security, visibility, and buyer fear. However, this is a future solution as vendors look for stabilizing solutions to ease today’s constraints – as the market settles and they can think long term, Blockchain 2.0 can be a viable solution to keep them innovative and agile.