Overcome labor and time shortages with smart contracts

Chief Technology Officer and co-founder at plex systems, focused on next-generation cloud solutions for the manufacturing company.

One obstacle made clear to manufacturers in 2022 is the challenge of successfully navigating supply chain volatility and production planning. Volatility and demand shocks caused manufacturers to strategize and re-strategize based on the latest updates, which changed dramatically at a moment’s notice. In part, the constant change and volatility drove manufacturing to seek technological solutions to address these issues, contributing to a 50% increase in smart manufacturing technology adoption from 2021 to 2022.

Many manufacturers are pursuing smart manufacturing technology to solve operational problems. But what about automating financial productivity and compliance? How can manufacturers ensure they are capturing revenue opportunities that may be overlooked or missed? Taking a smart manufacturing approach includes considering all aspects of running a business. Smart contracts, enabled by an industry-powered blockchain, can automate the execution of transactions and partner interactions to capture lost revenue and ensure contractual compliance, which is critical in today’s competitive market when maintaining business relationships and optimizing profits are key to success.

Paper contract issues and limitations

Companies currently manage paper contracts in a variety of ways, including folder systems, PDFs or tracking documents in an ERP system. Every paper-based contract management strategy introduces opportunities for error and miscommunication.

The problem with these approaches to contract management is that they are “stupid”. Not that the approach itself lacks intelligence, but the contract management process has not evolved into modern times, is still largely manual and paper-based and does not align with a “smart manufacturing” approach. There are several problems with this approach to contract management and tracking.

First, no universal source of truth between contracting parties can be established. Once the contract is agreed, both parties have a copy of the same document as the source of truth. However, contracts inevitably change over time as the agreement between the parties evolves and business conditions change. Blockchain technology ensures that, as contracts change, each party has a copy of the contract that is updated in real time. If two parties do not have a way to ensure that they are continuously operating on the same contractual obligations by leveraging a shared and immutable contractual document, they risk operating under outdated contractual requirements as the document changes.

The second issue is internal version control. Several departments in a company are responsible for maintaining, tracking and executing various parts of a contract. Often, separate departments also store contracts in different ways, which leads to hidden information. This means that contract updates and operations cannot be shared with the entire team, including legal departments.

The third issue is the manual tracking and operations required to manage paper contracts. Paper-based contracts must be maintained and tracked manually. In today’s labor market, where manufacturers are struggling to fill critical, skilled roles, designating contract management responsibilities and ensuring workers can meet these requirements is a significant challenge – especially as more than 2 million manufacturing roles could be unfilled by 2030.

A smarter approach to contract management

Smart contracts are built on I4.0 technologies, just like smart manufacturing technology on the shop floor – unlike paper or PDF-based contracts. I4.0 technology integration enables smart contracts with a level of intelligence and automation that overcomes the challenges of paper and traditional tracking methods, in the same way that digitized manufacturing execution systems (MES) overcome challenges on the shop floor

Smart contracts are stored digitally on an industrial blockchain. This provides a single source of truth, eliminating the need for repeated sharing of contract updates between involved parties. Blockchain technology makes the contract immutable and immutable. This prevents legal gray areas from occurring and ensures that all parties operate on the same contractual obligations – ultimately building trust between business partners.

In the manufacturing industry, contracts have built-in triggers that change prices and fees when various production, procurement or other preset thresholds are met. If contracts are tracked manually, agreed thresholds for additional costs or fees may be missed. For example, a customer contract may identify a specific number of units produced. When this production level is met, the customer sends a set payment rate to the producer. If contracts are tracked manually, producers may not realize that this threshold has been reached and may miss an opportunity for additional revenue, or processing may be delayed along with the revenue stream.

Smart production requires connection between technologies and systems across the company. Back-end systems automate tracking operations, and immediately flag when trigger thresholds are reached. When integrated with enterprise systems, smart contracts can also automate communications with customers and partners, such as sending new price requests or fees. This eliminates the need for slow manual contract tracking and gives workers more time to perform their duties that facilitate meeting trigger thresholds rather than spending time ensuring the resulting revenue is captured.

While smart contracts offer many benefits to today’s manufacturers, this particular use of blockchain technology is in the early stages of adoption. As a result, there are some considerations when evaluating smart contracts. First, there is the emotional trust issue of sharing legal documents with everyone. Second, there are currently legal gray areas surrounding the enforcement of smart contracts, as the concept is so new that even legislative bodies and lawyers have yet to adopt it. Finally, significant technical expertise is required as building a blockchain presence is a prerequisite. Keep these factors in mind and decide if and when smart contracts are the best fit for your organization.

Eliminate risk of errors and recover revenue with smart contracts

Smart contracts simplify legal operations, remove complexity and risk of human error in a critical aspect of manufacturing operations that require repetitive and continuous work. Automation of contract management will be essential to mitigate the impact of a widening gap in production work. As manufacturers continue to struggle to fill their ranks, ensuring workers can focus on operations that drive productivity and add value to their supply chain network of partners, customers and suppliers will be critical to success and growth.

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