These days it’s all about industry 4.0. For some that means digitization, sensors and automation. Others call it the fourth industrial revolution which is about decentralization and local production. But decentralization can also mean decentralized trust. In this article, I want to talk about the true advantages of the digital era as well as the benefits of a new technology called blockchain that provides decentralized trust. Specifically: how this could apply to the steel industry in general.
I experience a lot of confusion as to what is considered digital in the steel industry, and what I consider to be truly digital for the steel industry. A related topic that is implicit to any industry is trust. When speaking to any actor in the supply chain I hear that trust is an issue. Why have a system of certificates and an army of third party inspectors if we all trust each other? The challenge is to provide more trust without adding extra layers of bureaucracy. We see the confusion come to life with the Material Test Certificate. Following are some examples.
With paper documents, information is permanent; if you made a mistake you need to use typex to erase it, or just start over again. To digitize documents, we made a computer editor such as WordPerfect, but in the end, you still print it out. The next wave of digitization was email. In the beginning people struggled with how to make email an official letter but today we are accustomed to this and take advantage of a fully digital experience. Physical addresses are replaced with email addresses; address, subject, and date are separated from the content. Emails are automatically archived, and can be searched by content, sorted by date, subject or receiver/ sender address and accessed from any terminal. An email can be sent instantly to multiple receivers who in one swift click can reply to all. It is so closely linked to the sender and trusted that deals are often made by a simple “agreed” in reply to a proposal.
In the steel industry we have another ‘letter’ that needs true digitization; the Material Test Certificate (MTC). They used to be on paper, are now in PDF format but still being printed, stamped, signed, scanned and emailed. Some of you ‘digitally sign’ the printed document, by pasting in an image of a signature; this looks like the analog letter, but does it hold the same value?
Digitization has made the distribution of MTC’s a little easier because PDFs can be emailed. Yet in some ways we have created a worse experience as the PDF is still printed, stamped, signed and scanned again, which requires more work. The system is also susceptible to fraud. With an official paper document it is much harder to change a number or even completely falsify that document. I need to have stamps made, forge signatures with a pen etc. But with a digital format, all bets are off. PDF certificates can be falsified in the blink of an eye and in most case you must rely on your quality manager’s intuition.
A sales person at a non-disclosed steel mill dealing in the oil & gas business explained: “We sell 5 pipes with certificates, and suddenly there are 100 pipes on the market carrying the same certificate. We then get the blame if something goes wrong with the other pipes, and we have a difficult time fighting those claims”.
Many players in the industry maintain their own databases, in other words the infamous ERP systems. If an MTC transfers (thus changes ownership) from one supplier to the manufacturer in a specific supply chain, the DATA that is contained on the certificate is manually copied from the document into an ERP system because machines can’t read the underlying data on a PDF. Needless to say this procedure is error-prone. The individual databases between all players are completely separated. Data privacy is another important topic; one should not be emailing PDFs left and right. The advantages of true digitization is the advent of platforms breaking down data silos and increasing efficiency without losing security and privacy of data.
I often hear the following: “But we sign our certificates digitally”, meaning you copy and paste a digital image of a signature into a PDF. Yet the same principle applies as mentioned before; one can copy and paste any image very easily and you can’t tell who placed the image. Digitization when unchecked and unsecure can easily scale up problems and errors along the supply chain. No one likes to directly admit these issues, but the need to have a labor intensive QA department seems to be pretty clear admittance.
A well-known issue stemming from the digital upgrade to PDFs is counterfeiting. Particularly in the Middle East, companies try to blame suppliers for fake products that did not originate from them. For the company to defend itself, they need to engage in costly and time consuming material characterization to prove the product is counterfeit. This requires getting a physical sample of the counterfeited product laboratory tested. It may not even be possible to prove the product did not come from them. This can lead to millions of dollars in fines, not to mention the potentially devastating results of material failures on subsea platforms or plants.
An increasing focus on corporate social responsibility demands a more rigorous traceability system. Companies (end users) need insights into their supply chains to ensure products comply with their company’s CSR goals and local regulations. Corporate Sustainability and Responsibility (CSR) is already a key factor for large listed companies when deciding what products they may buy. This trend is trickling downstream at high speed. Enterprises with provably cleaner production processes will have an advantage over the competition. New factories are being outfitted with sensors, IoT, smart processing, smart materials and so forth. The future is inevitable. Some might claim that there is a traceability system in place. A process of certification is in place whether done internally (3.1) or externally (3.2).
Another argument I often hear is that companies only do business with companies that have an ISO 9001 accreditation. While that is a good start it doesn’t solve the problem of counterfeiting and human errors. With multiple links in the chain, there is an incentive for opaqueness and room for human error.
Starting with the true digitization of material certificates alone is a good starting point. It is manageable, easily solved and the first step towards the true digital future.
Blockchain is a technology that enables us to store information/data irrefutably in time. It is sort of an Excel file, but every new line inserted into this excel file is stored permanently. Every user who wants to add a line or cell needs to have a cryptographic key to identify themselves and to perform the action. So every new transaction (new line or action) is added to a block (a group of transactions). In their turn a block is added to blockchain (a chain of blocks), that is linked to the person that executed that transaction. So all information is permanent, and can be traced back to the key that added the transaction. If you know who the key belongs to, you can trace any transaction that person has ever done. For example, if people who use Bitcoin to sell illegal goods are caught, they are caught for every transaction they have ever performed. It is only private as long as no one can link you back to the key. The number of illegal transactions using bitcoin is therefore a very small percentage, nothing compared to cash money. Newspaper reports suggest otherwise but it is a statistically insignificant number.
Blocks are added at a certain interval, for example every 10 minutes. That means that you know with a 100% certainty that every 10 minutes that piece of information was added. But what does that all matter if you can control all the data. Who is to say you didn’t create a fake blockchain? This is where decentralization comes in.
Bitcoin, the first large scale use case of blockchain, is a decentralized blockchain. This means that the excel file is stored on thousands of connected computers worldwide. These computers (miners) compete with each other to solve a mathematical puzzle. When they are the first to solve it, they get to decide which block will be added to the blockchain. All other miners will accept the block and update their data accordingly.
So far the bitcoin blockchain has not been hacked. This is simply because you need so much calculating power to do so that it is virtually impossible. The hacks you see in the news are not hacks of the blockchain itself, but of the cryptographic keys of users that have been stolen and then used to empty their accounts. Usually it concerns crypto exchanges that keep keys for users so that they don’t have to deal with the technical complexities of handling keys. Compare it to living in a flat and the concierge has all the keys to all the front doors. If you rob the concierge, all apartments can be opened.
We believe that blockchain could be applied specifically to material test certificates provided we can create a unique certificate for each individual end-product. With steel, the information stored on the certificates is crucial, and securing this information would close a lot of the loopholes counterfeiters make use of today. Referring to the earlier example where a company sells 5 pipes yet 100 pipes appear on the market with the same certificate; if you no longer have a document that can be infinitely copied and emailed, and each pipe has a unique ID belonging to a unique document that can’t be copied or modified, it becomes a lot harder to sell 100 pipes with just 5 certificates. Certificates that can’t be copied have to be digitally transferred. This means that if you transfer it to a customer it is no longer in your possession, so you can’t sell the next pipe with the same ID without having the unique digital blockchain certificate that comes with it.
This technology is currently piloted at Vallourec, Inox Tech, SFF-Group, Element Materials Technology and SiTech.
SteelTrace is a blockchain based platform for all companies, from steel production to installer to end client, that enables traceability of steel quality via the first true digital certificate. The SteelTrace platform enables data storage in an unchangeable format, exchange of ownership of certificate instead of sending copies, traceable ownership to the original source, and data storage so that machines can understand the certificates content. For information please visit https://steeltrace.eu/