Jeremy Goodwin — SyncFab
The global supply chain is an estimated $75 trillion system, roughly two-thirds of the world’s GDP. The scale and complexity of the supply chain is difficult to comprehend; it underpins the entire world’s commerce and industry. Despite the importance of this massive networked system on many facets of our lives, its legal processes still involve huge amounts of paperwork, often in folders duct-taped to the doors of shipping containers. There is also a persistent lack of transparency that conceals questionable financial practices, such as modern day slavery.
At the second Internet of Agreements conference, Jeremy Goodwin of SyncFab outlined the current state of the supply chain and the massive inefficiencies throughout the system. He then introduced the notion of a Fourth Industrial Revolution, in which the Internet of Things (IoT) and the Industrial Internet of Things (IIoT) will form a decentralized manufacturing supply chain better able to match the pace of modern trade. After acknowledging the incredible impact that a whole host of technologies will bring—artificial intelligence, robotics, industrial manufacturing, etc.—he identified blockchain as the emergent technology with the greatest potential impact on supply chains.
Jeremy then presented SyncFab’s approach to using blockchain and smart contracts to create more automated, reliable, and peer-to-peer processes in the manufacturing supply chain, as well as the role of the MFG utility token.
Transcript
Good afternoon everybody! I’ve been given the signal that perhaps we will get started with the next session, as people are rolling back in from the coffee break. It’s a great pleasure to be here with you all today this afternoon. It seems like the conference has been going really well, and it’s my hope and intention to keep you equally as interested and engaged for this next session which has a lot of data. The purpose of this session is to talk less about the legalese and the legal mechanics of the Internet of Agreements, and to put more in context the implications that blockchain technology is going to have on the current status of international trade and the global economy.
My name is Jeremy Goodwin, I’m the founding CEO of a company called SyncFab, which is short for Synchronised Fabrication, and I’m here from the San Francisco Bay Area. We are a manufacturing procurement platform and supply chain management company, working in economic development partnership with the City of San Francisco and the East Bay city of San Leandro, which is the industrial park of the city. Given that we’re in an economic development partnership with the City, it makes sense that we’re talking about trade and the global economy, so I’m just going to kick it off.
We’ve heard a lot about blockchain technology and we’ve already been given the introduction. How can that blockchain technology support simpler creation of commercial agreements and resolution of disputes between businesses all around the world in different jurisdictions? In a nutshell, the centralised or distributed ledger technology facilitates broker disintermediation, securing trustless transactions fulfilment with smart contracts on the blockchain.
How is this blockchain technology going to revolutionise the manufacturing supply chain, and why is that important for world trade and the global economy? Well, international trade depends on making and enforcing agreements between counterparties in different jurisdictions, as has been covered to a great extent in a prior conversation. Multilateral trade and dispute resolution framework agreements have facilitated the steady growth of world trade and development to date, based on the General Agreement on Tariffs and Trade, GATT, which was set up in 1948, and the World Trade Organisation as recent as 1995, which is when I was a junior in university.
Now we are poised for yet a new era of international trade prosperity, with the adoption of blockchain distributed ledger technology, but this won’t be without its fair share of industry challenges and resistance. This is because seamlessly executed smart contracts stand to disrupt not only the supply chain status quo but also international contract law, throwing a spotlight on the purpose behind regulation itself. Furthermore, what is SyncFab and what brings us here today? Incentive alignment is another feature of the blockchain, but it’s a core feature that I will highlight, and how that incentive compatibility principle will serve and does serve as the grease to the gears of blockchain that will transform the manufacturing supply chain as we know it, accelerating a ramp-up to the Fourth Industrial Revolution.
For background, the status of the global economy today currently stands in an excess value of 75 trillion US dollars, according to the World Bank, which is forecasting global growth this year of 3.1%, following and outperforming 2017, as recovery and investment, manufacturing and trade continues, and as commodity-exporting lesser developed countries benefit from firming commodity prices.
What’s interesting to note is that this year is expected to be the first year since the financial crisis that the global economy will operating at or near full capacity, according to the World Bank president. How that’s divided up is the advanced economies are currently performing at about a 2.2% rate growth, with emerging and developing economies at 4.5%, and, interestingly enough, India is projected to be the fastest-growing country this year at 7.3%. Most of this growth is coming from demand-side, growth-driven policies that are coordinated at the governmental level internationally, in the forms of monetary stimulus and fiscal policies, as well as some limited Keynesian-style spend in infrastructure. But these are short-term measures by nature and are unsustainable for growth going forward.
Most of world trade has been facilitated by these multilateral trade agencies, such as the World Trade Organisation, the International Chamber of Commerce, as well as non-governmental agencies and advocacy forums, like the World Economic Forum and the International Chamber of Commerce. I did an internship at the UN Conference on Trade and Development, interestingly enough, back in 1996, working specifically on coordination between developing countries on their currency, so it’s interesting to speak about it today. The World Bank highlights that sustained growth going forward will depend more on productivity gains and less on the short-term, demand-side measures. This is evident, as economic growth is already at or near full capacity, so that investments in education and technology, human and physical capital are expected to drive growth going forward.
It’s also interesting to note, given the need for productivity growth drivers in light of manufacturing activity, which has dropped off since 1995, bottoming in 2009 just after the financial crisis, picking up for about one year in 2010, dropping off again, and only just starting to trend upward again in 2015, which, we believe, is evidence that the world economy is weaning itself off the overindulgence of this financial engineering and service industries, while reconciling the definition of what productivity is and productivity gains, which evidence themselves most clearly in the manufacturing industry.
What is the potential for blockchain in the macro context of world trade? Blockchain is expected to play a substantial role in the technological progression needed to drive more sustainable, longer-term growth in the global economy, which is illustrated in related projections and analyses. The World Economic Forum has identified blockchain technology as one of its six mega trends in the expected transition to a more digital and connected world. In the World Trade Organisation’s view, technologies development will affect trade more than any other factor between now and 2035, boosting trade by as much as 15%, with advanced economies benefitting by 9%, and China benefitting the most by a whopping 55%.
Transparent data from the blockchain will allow for more efficient trade negotiations. Traditionally, countries have a tough time preparing for trade talks, and delegations, especially representing emerging economies, are not always fully equipped to face tough and detailed minutia. New technologies, however, can help delegations gather and structure information, as well as predict different negotiation scenarios. Similarly, at this year’s World Economic Forum, there was a lot of emphasis on how digital technologies like blockchain will help improve inefficiencies in trade and supply chains, especially for small businesses and developing countries. The World Economic Forum’s Global Agenda Council on the Future of Software & Society recently conducted a survey of more than 800 information and communication executives and experts, which concluded that blockchain would reach a tipping point, a point at which it becomes more broadly adopted, by as early as 2023 by governments. In 2025 it is expected that 10% of global GDP will be transacted on the blockchain, and an interesting data point, based on a discussion I had previously with Vinay, is that by 2025 10% of people would wear clothes connected to the Internet by that year, and by 2027 that the blockchain will be more broadly adopted by the general public.
There’s also a number of cryptocurrency initiatives at the national level. In a working paper simulation just a year ago, 30% of the United Kingdom’s GDP was transacted in a digital currency, and the Bank of England suggested it could increase GDP by 3% as a result of reduced interest rates, reduced tax rates and lower transaction costs, by introducing a central bank digital currency, the CBDC they called it. The US Commodity and Futures Trade Commissioner, Christopher Giancarlo, also acknowledged that at the heart of the financial crisis, the most critical element, was the lack of visibility into the counterparty credit exposure of one major financial institution to another, and that blockchain technology provides that visibility, as well as protections for privacy.
So it is no wonder that there are varying estimates, by no means inclusive, of some 14+ national cryptocurrency initiatives being explored in Estonia, Canada with the Maple Coin, Ecuador with their Sistema de Dinero Electrónico, Kyrgyzstan with the Golden Rock, Singapore, Sweden with the e-krona, Palestine with the pound, and, interestingly enough, a Native American coin that’s been experimented with called the MazaCoin with the Lakota nation, Senegal, Tunisia, Japan, Kenya, South Africa, and of course Russia and China. In 2018 blockchain is increasingly being seen as the killer application in supply chain management, which is positioned to set off a global supply chain revolution, and the most common examples used are trade finance and shipping.
The application of blockchain technology to trade finance will help trade finance recordkeeping, because a lot of trade finance recordkeeping is still based on inefficient systems, including faxes, spreadsheets, emails, phone calls and paper. But it will also help small and medium-sized enterprises and lesser-developed countries gain access to more formal credit structures through a broader and richer trade finance network, by sharing financial data in a security-rich and transparent public arena. Shipping is also being cited as a major use case for blockchain, as it should quicken processing times, making the flow of import and export documentation, customs declarations, duty payments and shipping manifests more efficient and reliable, or, as the Financial Times reported, “In cross-border trade participants would benefit from simpler, automated workflows, and bribe-taking border officials and illicit traders would lose out.” That bit was too humorous to leave out.
At SyncFab we see the greatest use case for blockchain way upstream, in the manufacturing supply chain, making them more transparent and responsive. This is mapped to include, just for some context of blockchain initiatives, in light of the national cryptocurrency initiatives that are taking place in Africa at the moment, and it highlights a little more of the detail in Tunisia and Senegal, South Africa, Kenyan and Nigerian initiatives.
While offering great promise, to simultaneously accelerate processing and improving security, blockchain and DLT technologies will also face their fair share of challenges, from entrenched interests that stand to lose their standing in the industries that blockchain will disrupt. The first issue is an area which is beyond my scope of expertise, where lawyers and regulators are having a field day. But it underscores a very important point: what is the purpose of regulation in contract law? Is it to prevent fraud and encourage innovation, or is it simply to maintain the status quo?
Number two, monopolies and protectionism. This is clearly an area where vested interests are going to resist the progression of blockchain technology implementation, to the extent that it runs counter to their interests, though they will still likely have to give in to the end of the overarching trend of adoption. The same applies for intermediary lobbies, since the whole function of blockchain is creating decentralisation and disintermediating brokers, so certain lobbies like the National Customs Brokers and Forwarders Association will probably resist that.
Lastly, I think it’s very important to point out that many multinational corporations like and have grown used to the comfort of their opaque supply chains, which have oftentimes provided them with an air of premium exclusivity for their brands of production. It has also shielded accountability for questionable production practices. In my former life, working for quite a bit of time in China on the ground, I’ve heard – recounted over many years, in colourful detail – stories from independent quality assurance acquaintances, whose job it is to inspect the supply chains of their international subcontractors, and none of them are very flattering.
Bringing that into perspective, right now is actually a very good time for the manufacturing industry, which is prospering, with global, coordinated government fiscal and monetary stimulus policies driving demand to support it. Most factories I speak to at the moment are all very busy, which is not to say that they’re necessarily very efficient. The global supply chain is actually under great strain at the moment to keep up with current demand, which is precisely why it needs greater productivity gains to sustain current growth levels going forward. Many factories in China have actually been shuttered since the 2008 financial crisis, to address overcapacity and structural issues there in their own economy, and lean factories that have remained in the US and Europe, following decades of intense trade competition, are relying on an ageing workforce and decreasing overall labour participation rates, to continue to churn out the goods of the greater demand in the economy at the moment. This will need to be offset by advanced manufacturing technologies.
As I mentioned before, the global economy is currently at about 75 trillion US dollars, and the manufacturing industry represents about 16% of that, at $12 trillion. It grew at its fastest rate last year since 2011, according to the JPMorgan Global Manufacturing index, and it’s projected to continue its growth until the end of this year at that rate. In addition to that, different think tanks are projecting the value of what they call the Industrial Internet of Things, or connected smart factory, which is in its early stages, to reach a value of four trillion dollars by 2024. This is new value being created on top of the existing $12 trillion, so where is all that value going to come from? It requires an immense mobilisation of resources and effort to create all of that new value. By 2020, it’s projected that the US is going to recapture the number one position in the manufacturing phase by that year. This is not so much to wave the flag or anything, just more so that in the context of the trend that I want to discuss about responsive local supply chains, we’re positioning our company at the centre of where that trend is beginning. Because it’s not that very well known that California is actually the centre of manufacturing activity in the US. People usually think about Detroit or Philadelphia, and when they think about California, they think more about Hollywood perhaps and Silicon Valley more for software, but hardware is making a comeback.
Supported by innovations and materials science, robotics, industrial automation, artificial intelligence, machine learning, computer-aided design, computer-aided manufacturing, 3D printing and third party logistics, although all these work hand in hand, arguably none of them stand to bring greater incentive and efficiency gains to the arrival of a smart connected factory or the industrial revolution than blockchain. Why is that?
In order to understand the benefits of blockchain in manufacturing, we first need an overview of the basic needs of the manufacturing supply chain. Manufacturing oftentimes is oversimplified and frequently misunderstood. Take, for example, our broadly diversified global conglomerate, active in diverse industries, with numerous offices in many countries, in a vast network of group-operating companies with a multinational workforce, and the supply chain that’s needed to power all of that globally. Recently we’ve come into contact with many of such companies who are looking for application solutions in blockchain. Generally those manufacturers require responsive supply chain for just-in-time production needs and local market design customisation preferences for their local consumers, and at SyncFab we see this also as the most eco-friendly solution going forward, because the more you’re making stuff in your backyard, the more you care what and how it’s made.
You need traceability in your supply chain so that you can locate where your parts are in the supply chain at any given point in time. You require accountability in your supply chain, to prevent order reneging and for recourse on poor quality control, or incomplete information or certifications, and this is also very important for responsible production practices. Of course security is very important, supply chain security is a paramount need for the protection of intellectual property and other assets, and for small and medium-sized businesses and individual innovators and entrepreneurs greater accessibility to the supply chains is also a great need.
How are those needs currently being met in the supply chain? For small and medium-sized businesses, the way they’re meeting it is by getting on an airplane, getting on an airplane or perhaps searching Google. For larger companies, they’re investing heavily in trusted relationship networks. You have armies of product program managers at these big corporations that manage their tier one, tier two and tier three original equipment manufacturers. You have manufacturers’ reps that run around in the field that sign agreements with these conglomerates, representing them, to procure from different manufacturers. You have line engineer relationships on the production lines who relationships with different subcontractors. Of course you have your banking project and trade finance relationships, third party logistics relationships, and all of these provide an air of exclusivity for the supply chain and the premium brand of the companies, but they’re also very opaque, and they can be slow and expensive of course.
There’s a lot of centralised asset control in terms of the equipment, intellectual property, of course petty cash. There’s cloud-based enterprise resource management for the most sophisticated and advanced supply chains of some of these companies, centralisation of the technical documentation that goes with the parts of many of these products and finished goods, and all of these feel very secure, but, as we’ve noticed with recent hacks in various organisations, the firewalls that protect a lot of those assets are hackable. This centralised asset control also requires synchronous supply chain infrastructure across tier one, tier two, tier three, which is practically possible. If something is not centrally stored, it makes it very difficult to find it.
What’s also interesting to note is that these multinational manufacturers are using traditional return on investment metrics driving their capital expenditure budgets. These are good for retained earnings versus research and development, reinvestment, they’re good for financial planning, for their sales and marketing, and their good for calculating total landed cost for their supply chain. But do they provide sufficient incentive to mobilise the resources needed to be competitive in the coming Fourth Industrial Revolution, which, as I showed in the previous slide, is projected to be a four trillion US dollars by 2024; I don’t need to remind you that’s only six years away.
So, is manufacturing working as it is, which is what I hear more often than not from venture capitalists, and from other people who are what I call industry sideline observers, who are unfamiliar with the pains of supply chain bottlenecks? It is no secret that manufacturing is highly inefficient, facing a never-ending struggle for improvement, and the best time to innovate is when market conditions are good, which, as I’ve clearly laid out, or as Peter Drucker, who is viewed as the manufacturing visionary, said, “The best way to predict the future is by creating it.”
How can those needs that I just pointed out before, how can they be better met using blockchain? In the context of the current centralised asset management system, as is well-known, the blockchain decentralises that and protects it with consensus. This is the highest form of online asset security available currently, and it’s superior to the offline protection offered by NDAs, which is the predominant practice in the industry at the moment, and it replaces that dependence on firewalls, which are hackable, at the end of the day.
What is very interesting in light of the mobilisation of resources that’s required to reach to generate a whole new value of four trillion dollars by 2024? Well, obviously in light of the reason why cryptocurrency was initiated, we don’t want to see all that money just printed by central banks, we want to see the creation of real value, and what we’re witnessing with technological progression, of which blockchain is playing a big part, is creating this new value in the form of technology incentives, the creation of new economies on top of existing economies. The Satoshi Nakamoto incentive compatibility principle works brilliantly here: it ensures incentive compatibility, and checks user behaviour compliance. I can’t speak to the legal mechanics of the Internet of Agreements, but the incentive compatibility principle that was created by Satoshi Nakamoto at least provides that incentive mechanics to check that. When properly designed, this provides further incentive for more responsive supply chains, and it mobilises what I call an aggregation of marginal gains, which are necessary to orchestrate added support for the onramp to the Industrial Internet of Things. This aggregation of marginal gains are ultimately what amount to the new value creation in the new economy.
As you’re very familiar by now, these trust-free smart contracts, they’re accountable and responsive by design. They are self-executing performance-based payment agreements that streamline the procurement process, and they replace brokers and intermediaries, removing the need for heavy investment in those trust-based relationships and supply chain networks. Now, this next part is very exciting, because it’s a dream come true for supply chain managers, of what they refer to as the Ledger of Things. We hear a lot of talk about the Internet of Things, and the blockchain itself is referred to as distributed ledger technology. With the convergences of the two, there’s the reality of a Ledger of Things. Its traceable architecture provides the foundation for a truly transparent supply chain, and it enables data collateralisation, which is the primary digital asset and will become the new competitive edge for manufacturers going forward, and it will likely replace the need for cloud enterprise resource management systems.
A use case for blockchain in the manufacturing supply chain is precisely that product data management cycle. It creates the possibility for a birth certificate registry for precision parts that go into the final finished goods. Think of that dreaded recall that you get from a car, for everything from a steering rack perhaps to an engine block. Manufacturers invest a lot of money… The current status quo is they’ll have lots of file cabinets and armies of quality assurance managers and product program managers that will keep all of this documentation, and what they need to do is they need to know where a certain part is in the supply chain at any given point in time. They also want to be able to access the original record and not a copy, which the blockchain allows for, as it records an immutable version of the original record that can’t be tampered with. But also, when it’s accessed by either a maintenance or repair person, or someone in a sensitive industry, like defence for example, it’s versionless, so they don’t need to go hunting around for the different versions as they’re updated over time, it’s secured, and it’s infrastructure agnostic. As I just explained previously, where you have these very complex supply chains over various tiers sometimes, and diverse regions and diverse geographies and diverse industries, it allows for that infrastructure agnostic execution.
As further testimony to the important implications that blockchain brings to the supply chain, it was recently recorded in an executive survey, conducted by Deloitte, of industry executives’ plans to explore and implement blockchain solutions at the highest number of favourable respondence, 58%, were in the manufacturing supply chain industry, and, interestingly enough, the lowest number of favourable respondence actually was in the financial industry.
This brings me to what is SyncFab. We are an Ethereum-based, decentralised application and protocol, connecting supply chain purchase managers directly with hardware manufacturing suppliers peer-to-peer, for streamlined procurement on the blockchain. Buyers tend to include purchase managers, designers, engineers, inventors, innovators, entrepreneurs, idea people, creatives, even schools, fab labs and government procurement. There are generally three types of manufacturers – I’ve tried to simplify it, because it’s such a broad industry – you have those manufacturers that are just brands, they don’t necessarily design their product, and they definitely don’t manufacture it, if they’re not designing. Then you have the second type, which is they’ll brand it, they’ll design it, but they don’t manufacture. And then the last, which is the closest to a real manufacturer, someone like in the automotive industry: they have a brand, they do intensive design and engineering, but they still don’t manufacture even 100% of their product. It’s very difficult for a manufacturer to manufacture 100% of their product under their own roof, unless it’s a very simple product; even the automotive industry, they outsource a great part of their manufacturing process to subcontractors So it’s interesting that manufacturers can play on both sides of procurement, supplying as well as purchasing.
How the SyncFab decentralised application and protocol works is it’s essentially, at the moment, on the manufacturing supply chain side, it’s the first decentralised smart manufacturing supply chain protocol, incentivised for just-in-time production, by what we call the MFG token, and it’s secured for product life cycle management and a suite of additional blockchain-powered services, using our smart manufacturing D’App. What smart manufacturing refers to is data-driven manufacturing, it’s the refinement of processes that go into manufacturing of the final precision part. This is viewed as the key towards advanced manufacturing going forward. There’s many different technologies, as I’ve highlighted before, in the advanced manufacturing stream, of which smart manufacturing is beginning to play a much more important part. A lot of this data does not exist currently in a pooled or in a shared environment, so it’s the convergence of the two which is an important trend that’s beginning to emerge.
In order to achieve that, a secure and holistic cross-industry blockchain, not confined to current siloed databases, will reap the maximum multiplier effect for that data collateralisation efficiency gains across an emerging ledger of things. For this reason, we’re big believers in the value of public-private hybrid blockchain model, which is why we engage in public-private partnerships offline. We’re currently partnered with the cities that I mentioned before, and we’re also in a federal partnership called the Clean Energy Smart Manufacturing Innovation Institute. As short-term as the US has been in a lot of its economic and other policies, one smart initiative that the prior administration did was the creation of what is called the National Network for Manufacturing Innovation, and I liken that, and I see some similarities and parallels to some of the policies that China does, so that was kind of smart of them to do, and that was done by the previous administration.
That being said, the latest was what they called the Clean Energy Smart Manufacturing Innovation Institute, which encouraged major manufacturers in the US to collaborate together in a neutral environment, and to pool their data on certain areas that they could identify that they were willing to collaborate on, without giving up or divulging commercial secrets. Because of that, it’s under the auspice of the Department of Energy and the Department of Commerce, and it includes manufacturers as large as Raytheon and Honeywell, and as small as some smaller companies. We see this as a key to the industry going forward. Now, what’s so great and powerful about blockchain is that it allows for the pooling of data in a secure and anonymised environment so that you can leverage the big data analytics across that pooled data, whilst securing the commercial secrets of those individual companies at the same time. This is in the very early stages of exploration, but we believe that this key to the smart manufacturing trend going forward.
The MFG token, which I mentioned before – essentially, MFG is short for manufacturing – and what we’re looking to do is to leverage the blockchain and the incentive alignment principle to incentivise key actions in the supply chain, to create this responsive local supply chain. There’s something called an RFQ, which is a request for quote. Currently, manufacturers and subcontractors, suppliers to the industry, they’re expected to quote jobs in the free time for free, and this can take anywhere from a half an hour to half a day to half a month, depending on the complexity of the job and depending on their availability. As you can imagine, when they receive an RFQ for a particular prototype or product, if they don’t recognise you, if it’s not a large order, if it wasn’t introduced through a pre-existing relationship, or if you weren’t Tesla, good luck getting a quote. That’s oftentimes when you have to jump on a plane and go somewhere where you don’t know that many people, to try and get a quote.
So, what we’re looking to do is to even the playing field if you will, to incentivise those manufacturers to be more responsive to offering quotes, not only to the small innovators but also to many medium-sized manufacturers who are being squeezed out by the larger manufacturers who are monopolising a lot of the existing local production capacity, so that’s what that offers on the RFQ side. There’s also something called an ECR, an engineering change request: once an order is submitted for a procurement process, more often than not engineers and designers, they have a lot of modifications to make, and when they send through those engineering change requests, it takes up additional time of the manufacturers, who don’t always have the time to be as responsive as they need to be, so a token would be used to submit those ECRs.
On the supplier side, they can be used to incentivise faster reorders. Now, what usually happens is after an order is successfully completed, the buyers will usually wait another six months to a year before they submit another reorder, but it would be nice for the manufacturers who have already configured their production line for production of that particular precision part or good to run that order again before operating costs change, with change in energy costs, operational costs, labour costs, etc., so to incentivise faster reorders would be a much more efficient process in the industry. Also, as I’ve highlighted before, product data management, where manufacturers are incentivised to submit and maintain all of the documentation on the blockchain, it creates a new income stream for them. So instead of relying just the razor thin margins that they get in the manufacturing industry so that they can remain competitive in the marketplace, they can also have a creation of this new income stream to maintain those records on the blockchain.
Other applications that we foresee in the future are things like insurance and other offsets for the production of precision parts. More often than not, many orders will go bad, and usually what happens is the manufacturer has to eat the entire cost of that, in terms of raw materials, labour costs, machine operating time, and that can be devastating. So to the extent that the blockchain or cryptocurrency, or through the implementation of these new incentive structures, if even a small percentage of that can be used to offset that operating cost, then that is a great benefit to the manufacturers. So ultimately secured by the MFG token, our protocol will launch a blockchain efficiency optimised, what we call a new economy substitute for the existing manufacturing supply chain incentive structure that will also include recurring incentive models, compensating suppliers for their order response time with tokens in an ongoing incentive model, compensating them for the integrity of their product data management records on the blockchain. We believe these new incentive structures will inspire suppliers to embrace the blockchain technology so that they can be more proactive, troubleshooting their own blockchain compatibility and connectedness to the future industrial Internet of Things straight from the shop floor, further accelerating the ramp-up towards the connected smart factory of the Industrial Internet of Things.
Now, when you usually go into a manufacturer, a lot of these manufacturers and blue-collar workers, and you ask them about blockchain, “What do you think about blockchain?” they’ll say, “Well, I know what a block is, I know what a chain is, and I know that there’s some technology in there.” When you ask them about Bitcoin, they say, “Yeah, that’s a fraud, isn’t it?” But then you ask them, “What if you can earn a Bitcoin-type derivative just doing what you do every day? Is that interesting to you?” and they say, “Tell me a little more, walk me through that.” By doing this, we’re not only creating a new income stream for them but also getting them to think more broadly what is blockchain and how can they be more compatible with it.
Finishing off or heading towards the completion, just a little bit about our company. We’ve been around since 2013, we’ve been covered in the press, when we were awarded a part of the partnership in 2016, they listed it on the White House website, and we were covered in various other publications. Our company has been around since 2013. We’re having a token sale at the moment, so there’s been ratings that are fairly good.
As I mentioned previously, the size of the total economy, the market that we’re currently focusing on in precision manufacturing, there are metrics that we’re using… In light of a responsive local supply chain, we believe that local manufacturing in the US is going to be more competitive for the US market, local manufacturing in China is going to be more competitive for the Chinese market, etc., and so users of different procurement platforms become fair game for new customers for our product. According to an economic census conducted by the US, approximately 90% of the manufacturing subcontractors are mom-and-pop, small suppliers, so it’s really interesting in the context of how do we get these manufacturers to troubleshoot and to brainstorm from the shop floor, to participate in this revolution which is critical to achieve competitiveness going forward. Currently, the State of California is importing about 10 times what it exports, so that’s just an interesting fact that we had.
The precision manufacturing market is growing. These statistics are a little bit outdated, because the last time the US conducted an economic census was in 2012. They’re supposed to conduct another one at the end of 2017, at which point we can update these numbers, but they’re still interesting.
And just some select members of our blockchain team, I’m up there and we have various other members, and we also have a great advisory board. Some of these people you might recognise, some of them you might not. I was just with Jeff Berwick in the middle there, just a few days ago down in Acapulco, Mexico, there was a great conference about the application of cryptocurrencies to achieve more autonomy in the governance of individual financial security.
We have our social media as well, please follow us, and now I’ll take some questions. There’s a lot of information there, so… Yeah, I didn’t play baseball. [laughter]
Question: Thank you for your presentation. I had a question about the token and the product. I was thinking, if you are launching a token sale, aren’t you attracting speculation, making the token volatile, and how does that impact then going to mainstream the currency that’s driving your project?
Jeremy: Yeah, that’s a very good question. We’re actually targeting manufacturing buyers and suppliers, so it’s particular to the manufacturing procurement process and the manufacturing procurement platform. So in order for those to participate, they need to qualify as one of those, and in order to create an income stream for those manufacturers, it’s precisely… It’s not meant to target speculators at all. It’s just targeted at manufacturers and their suppliers.
Question: So I for example would not be able to buy a token?
Jeremy: It depends. Do you have any hardware prototypes that you might be thinking of prototyping? Do you have anything along those lines, anything you want to get 3D printed or manufactured? Those are the people that we’re targeting.
Question: How do you sift that out, how do you… Is there a qualifier to get the token? Is that what you’re saying?
Jeremy: We’ve worked with manufacturers and supply chain purchase managers for quite a long time, or at least since 2013, so since then we have an existing audience and an existing following, so as we’re presenting that, we share the information with them. We already have a good idea of who those people are, but at the same time, when they participate, they do submit their particulars, they submit their information, which we ask them, and they need to participate in the buyer and supplier ecosystem.
Question: What’s to stop someone creating a company specifically as a vehicle for speculation? This is a conversation that cropped up about two days ago, at another blockchain meetup, where they were talking about exactly this problem. If you’re dealing with a token that’s going to be available for people to use, you’re going to get speculators. Unless you are very, very careful about vetting who takes part, it’s going to end up being speculated.
Jeremy: Was that a comment or a question? How are we going to stop speculation?
Question: Yeah, how are you going to stop people from speculating with that coin? [~7, 47:06]
Vinay Gupa (CEO, Mattereum): The question is clear, the question is clear.
Jeremy: Currently, we’re an ERC20 token, so it’s fixed to the Ethereum platform. I understand that the Ethereum platform has some fluctuation, speculation that gets involved there. In terms of how we prevent speculation, we have specific qualification criteria for people who participate, for people who get involved, that they’re involved in the manufacturing industry. To the extent that manufacturers want to speculate… I mean, oftentimes they’ll buy materials in advance, which is an important part of the supply chain process. You have buyers who will want to pre-purchase access to capacity on a production network, which is a very important part of the procurement process, and will become an increasingly important part for both large and medium-sized buyers. We work with a lot of medium-sized procurement managers who need very quick and rapid access to supply, and more oftentimes than not they’re willing to charge a large premium. So ultimately what we’re looking to do is to spread that, by giving them the ability to pre-purchase access to capacity in this manufacturing network.
Vinay: There’s a lot of capital tied up in the manufacturing equipment which is partially idle? Do you have any kind of estimate of how much capital that is, either in California or globally? Just how much stuff is tied up in inactive machines?
Jeremy: In inactive machines?
Vinay: In inactive machines.
Jeremy: Based on our tours and visits at various factories around, we’ve noticed… The thing is, in order for the machines to operate, currently there are human operators, and because of the ageing workforce primarily, a lot of those machines are sitting idle. So it’s not necessarily just that they don’t have sufficient orders, but that they don’t necessarily have the expert personnel to operate the machines, as well as the machines’ constraints themselves to be able to… There’s also setup required for those machines, and so all of that, when added up, amounts to downtime.
As a general rule of thumb, they’re operating at about 50% capacity. I mean, even though the World Bank estimates that the global economy is operating at or near full capacity, and that means that the manufacturing supply chain is under strain, but it’s still only operating at about 50% of its actual capacity, and a large reason of that is because of the unavailability of the properly trained and qualified personnel in the manufacturing process, and that a lot more productivity can actually be had from the process itself. The potential for automation of certain processes, although scary to jobs, depending on how you look at it and how the workforce is trained, can actually create new job opportunities as well that are better compensated for things like equipment installation, operation, and maintenance and repair.
In terms of the financial value that’s locked up therein? If you just take 50% of the size of the manufacturing industry, it’s probably somewhere therein.
Question: I’ve worked in a manufacturing and engineering company for a number of years, and I can really see how this would help to improve efficiencies and lower costs, especially around quality control. But, if I understand right, the lower-tier supply chain companies I think would maybe find it really hard to implement some of the processes, if they don’t have a digital MRP system, or if they don’t have that kind of component control. I guess the whole point of this system is to help implement that, but I wondered if you imagine that prime contractors would support their lower-tier in implementing this kind of system? How do you see the leadership of this kind of implementation going? Would that be a top-down implementation phase?
Jeremy: That’s a very good question, and it’s precisely because of the… It’s the impending arrival of this smart connected factory that we’re presented with and really where are all the resource is going to come from to mobilise the necessary troubleshooting as well as investment of resources to get that to become a reality, where some are going to be ready, others at least need to be somewhat ready so that they can remain in existence afterwards. We believe that it’s going to be more of a push-pull, and the brilliance of blockchain with this incentive structure is that it offers some assistance.
Certainly we are already going out in the field, working with individual shops and these smaller and medium-sized businesses, to get them to think about how to be more compatible and how to be more proactive and responsive, in addition to bringing them new business. But at the same time, it’s this compensation of what they’re currently not being incentivised to do, to quote more jobs and to think about, “What is blockchain, and how can we be more compatible with it? How can we connect more with it?” that it’s that added incentive that will facilitate that more as well.
What’s interesting, in light of the speculative question that the gentleman behind you raised previously, is that these kind of traditional metrics that manufacturers are using to calculate their return on investment and their capital expenditure budgets, that with all this new value that’s projected to be created by 2024, and that massive mobilisation of resources that’s required to make that a reality, that it kind of requires those budgeting and operations departments to rethink how they are allocating their investments and their resources so that they are competitive and prepared when that Industrial Internet of Things arrives in some say six years, some say eight.