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Blockchain: Lose the block and chain to be useful, Capacilon MD | Q&A

Exclusive Q&A. Manufacturing and supply chains need to get smarter, less linear, and more modular and responsive, says Capacilon MD Jai Tamhane. But some of the technologies that promise to help transform the sector, such as blockchain, are completely inappropriate, he says. Internet of Business pulls up a chair for an in-depth conversation.

Germany-based Capacilon is a provider of technology services to manufacturing industries such as printing, automotive, and food and beverages. But rather than push organisations towards a productised solution, or be an evangelist for a technology type, it advocates choosing the right path to match strategic business needs, checking all available options.

This hype-busting approach sets it apart in a provider market dominated by noise, and by analyst sentiment that amplifies the perceived importance of one technology over an another. As waves build behind AI, blockchain, cryptocurrencies, and other innovations, Internet of Business seeks out the signal in the noise in this exclusive Q&A.

Internet of Business: Your company says that it ‘demystifies’ blockchain and the Internet of Things. What do you mean by that? Is it that people don’t understand these technologies yet, misunderstand them, perhaps, or simply believe too much of the hype?

Jai Tamhane, MD, Capacilon GmbH & Co KG: “The hype is certainly inducing misconceptions about the capabilities, maturity, and history of these technologies.

“Capacilon aims to understand the customer as the very first step of engagement. We invest a lot of time and energy in order to understand the status quo. Why is the customer experiencing problems and how did they get there? The history and the setting is unique for each customer.

“In some cases, even the same issue may arise out of a completely different sequence of events. So our aim is to understand the delicate balance between solving a problem and disturbing the ecosystem.

“Our competitors promote technologies, solutions, or products without even being in the customer’s shoes. We, on the other hand, may even recommend that the project in question isn’t of value to the customer and provide a detailed explanation why.

“We highlight the hidden impact within their ecosystem. We identify the trade-offs that they face when they are leaning towards one or other technology. We ensure that the project makes financial sense to the customer before it even starts.”

Jai Tamhane speaks at an Internet of Manufacturing event earlier this year.

How important is it to be vendor neutral, and will that be increasingly vital in the years ahead? Do proprietary systems have any role in the IoT?

“We have chosen to be vendor- and solution-neutral. It’s very easy to fall into the trap of ‘We can productise it’, but unfortunately, one size does not fit all. So, products end up packing in too much functionality and result in being overly expensive for the part that the customer actually needs.

In the quest for covering as many scenarios as possible, products tend to become complex and rigid. This results in the business having to adapt to the product, rather than the other way around.”

The archetypal enterprise IT problem: business process re-engineering was often about changing the business to fit the needs of the software, which increasingly seems like an antiquated idea.

Let’s move onto a different topic. Cost is a critical factor with IoT programmes: often costs – of devices, processes, and so on – need to be driven as low as possible to make IoT implementations work. How critical are cost and simplicity to the IoT, in manufacturing and supply chain technologies?

“The question has two separate dimensions of ‘cost’. There is a cost of designing and implementing an IoT project. That includes the human effort, licences, hardware costs, and the software solution. But there is also an indirect cost: the cost of disrupting the existing, functioning, end-to-end processes within the ecosystem.

“This indirect cost is the biggest of the two. Companies risk ending up in a more rigid and misaligned ecosystem if these indirect effects have been ignored before the start of the project.”

The blockchain problem

Why do you think some organisations – banks, for example – feel threatened by technologies such as blockchain? So much promise has been attached to distributed ledgers, and yet many organisations clearly fail to understand them. Blockchain or hashgraph is a technology type that has many benefits in terms of data-ownership equality and audibility, perhaps, but it is also slow and complex.

“Blockchain is one of the least discussed technologies in terms of what it actually is. Even the ‘simplified’ videos are overly complicated. There is no resource easily available on the internet that allows people to source the required information at a level they can understand.

“My take on this is that no one wants to explain it a level that people will actually understand, because then it becomes apparent that this is not suitable for most use cases.”

Internet of Business has done exactly that in a number of recent reports, and has said that it isn’t suitable for many types of deployment – as have other blockchain experts. It’s the same with cryptocurrency, there is so much hype but very little clarity. One issue is that transactions in banking would be so much slower using blockchain/crypto.

Having said that, blockchain is a technology that Capacilon advocates, and creates services around. So what is your message about blockchain, how can you help, what is it good for – and what isn’t it appropriate for? At present, you don’t sound very enthusiastic about it. Is that true?

“Blockchain needs to mature into something a lot less linear – not like a chain – and it needs to move away from the concept of blocks. These enhancements could render blockchain suitable for a lot of the applications that are currently being considered as candidates in the manufacturing and supply chain landscapes. The irony is, then, it would no longer be ‘block’ or ‘chain’.”

• This article describes possible evolutions of blockchain towards transaction graph or ‘tangle’ technologies – IoB.

It also seems that blockchain could create overly rigid systems that humans feel trapped by. For example, a worker who never wants to leave the factory floor because his micropayments will stop. Is blockchain emerging as an underlying technology for completely automated systems, rather than systems staffed by human beings?

“I would give a very similar answer to before. It needs to move away from ‘block’ and ‘chain’ before we even consider the viability of the technology.”

Manufacturing and supply chain

Please outline your vision for how manufacturing can, and will, be transformed by the IoT.

“The IoT has been in manufacturing for more than a decade already, maybe even two. Factories would not have run until now without connectivity, data collection, analysis, and feedback. Manufacturing knows this, but marketing doesn’t.

“Our vision of the future of manufacturing is Modular Manufacturing.

We believe that the current linear production lines, where the product simply travels, more or less, in a straight line from raw materials to finished goods, needs to change for companies to remain competitive.”

Like blockchain needs to change, in fact: your vision is that everything should be less linear…

“Factories are already moving in this direction. This is a step-by-step modification, rather than a complete overhaul of the factory. The more modular manufacturing becomes, the more the value that IoT can bring to it.

“As companies migrate along this path, machine learning – supervised or unsupervised – would start becoming lucrative in terms of the value it brings to the production process.

“Supply chain is further ahead on the modularisation path. Once manufacturing is also able to be flexible and responsive, IoT and machine learning would be able to bring significant value across the entire supply chain.”

Will blockchain be part of this?

“It will not – at least not in its current form. It needs to go through a couple of major architectural changes to converge towards the demands of the production processes.”

Will the IoT – and perhaps even blockchain – start to remove the distinctions between manufacturing, distribution, and the supply chain. In other words, will they increasingly be part of a single, seamless process from order to retail and deployment?

“Nope. That is the role of pure supply chain politics.”

Can you explain what you mean by that?

“For manufacturing, distribution, and supply chain to merge seamlessly, quite a few of the dominant players in the global market would need to relinquish their market power. A seamless process would make the entire cycle even more flexible, thereby reducing the barriers to entry for new players. The global giants would put up a fight through the various tools available to them.”

That’s why Amazon is seeking to own every part of the ecosystem, including deliveries, of course, becoming the second most valuable company on the planet, overtaking Google.

Sean Culey has spoken about the emergence of PAL value chains: integrated manufacturing and distribution chains that are personalised, automated, and localised. This would seem to tally with your own views: not a monolithic or linear system, but a grid of flexible, responsive, local functions. Do you agree?

“I am divided on this issue. Too much PAL would eradicate the need for brand value. It would be interesting to see how premium brands react once we start approaching the point of no return. Plus, there is the legal issue of what exactly can be copyrighted.”

Can you expand on that?

“The answer is similar to the one above regarding a seamless process of delivering a product to the end user. PAL would introduce a significant level of flexibility in the entire value chain, which allows almost any new entrant to compete on price, service, perceived quality, social significance, or simply clever marketing.

“The brand value that the big players have built over the decades starts losing its dominance if there are local alternatives that are closer to the end user in terms of geography and social connections.

“A new market entrant living in a local community is likely to possess more local influence than an obscure legal entity, even if the brand is well-known. Hence, I suspect that the premium brands may – again – put up a fight against it.”

Are the days of monolithic manufacturing, offshore outsourcing, slow global distribution, and so on, numbered? Will the IoT, blockchain, and other technologies, allow manufacturing to be much more localised, smart, and based on user need – rather than the cheapest labour?

“Manufacturing will rearrange in order to optimise tax, import/export duties, and public sentiment. Meanwhile, supply chain will be in a race to zero, and AI will become the cheapest labour until there is a tax on robots in the workplace.

Manufacturing job losses are beginning to take centre stage all around the world. Politicians need the votes to be elected, and they have a much bigger chance if they put up a stand against any new paradigms that may seem to be against the jobs of the voters.”

“The reason I stress ‘seem’ in the previous statement is because it is the perception of the voters that matters. There may be a grand benefit to society as a whole, but if politicians believe that it is easier to simply go against the new disruptive wave rather than engaging in ‘truth-telling’, they may simply choose the path of least resistance.

“To use the Brexit referendum as an analogy, you start seeing parallels in terms of how some may choose to twist the truth a little bit to get popular support. This is the public sentiment part.”

• Read Internet of Business’ in-depth report on how public sentiment is being manipulated by AI and analytics systems for political gain: Cambridge Analytica vs Facebook: Why AI laws are inadequate

“Supply chain is being optimised at phenomenal speeds. A combination of real estate costs, transportation network, labour costs, and free trade agreements is constantly being evaluated to find the lowest overall cost to the supply chain.

“As this gets optimised even further, competing supply chain giants would essentially be focusing on extraordinarily large volumes and extremely low margins. This is the ‘race to zero’ that I was referring to earlier. As an analogy, cloud storage is already in a race to zero phase.

“Regarding AI, it is important to consider that the lawmakers are still being elected by humans. If AI starts affecting jobs and there is a social cost because of it, governments could choose to put a social tax on technologies that simply replace the jobs of their voters.

“Protectionism is not limited to preventing other countries from taking the jobs away. It also includes technology, especially when AI is a consideration.”