Could blockchain beat the pirates?

Chris Johnson, managing director at specialist bearing supplier SMB Bearings, investigates three benefits of blockchain to increase traceability in the bearing supply chain.

In 2019, NSK reported the seizure of counterfeit NSK packaging and labels in Hebei Province, China. During the seizure more than 23,000 fake boxes and cartons were discovered in Linxi County, Xintai City. With bearing counterfeiting seemingly on the rise, how can we combat the risks of this damaging practice?

According to the World Bearing Association (WBA) the total cost of counterfeit bearings to the global economy is around 4.2 trillion USD, putting 5.2 million jobs at risk worldwide. While each manufacturer has their own unique stamp and etched part number that is standard across their bearings, detecting a counterfeit bearing can be challenging. Often, only the smallest discrepancies may unveil the difference between an authentic and a counterfeit component.

Counterfeit bearings are a frequent cause of personal injury and material damage to vehicles and industrial machines. The best way for buyers to protect themselves and their customers is to purchase only direct from the manufacturer or through a certified distributor.

So why do some companies still continue to purchase counterfeit bearings? Cost is almost certainly the overriding factor here. However, although the offer price for the bearings may initially look attractive, buyers must ask themselves what the potential hidden costs are in terms of product liability and credibility with their customers if the product turns out to be counterfeit and things inevitably start to go wrong. These could, for example, be critical bearings on high value machinery in a production plant. The buyer therefore needs to take into account the cost of any production downtime if the bearing fails early.

In addition to lost sales and significant loss of image through inferior-quality goods that may affect future business, there have been enormous costs arising from the investigation, seizure and professional disposal of counterfeit bearings. The disposal requires tight security, as only fully destroying the counterfeits will eliminate the danger for the consumer.

But the damage affects not only those companies that produce brand-name goods and invest heavily in research, development and quality assurance. It also affects those companies that install these components. Rolling bearings are used in virtually every piece of rotating plant and safety-critical machinery and vehicles, from machine tools, robots and wind turbines, through to passenger cars, trucks and rail vehicles.

Although the visible inconsistencies in counterfeits may be small, the potential consequences of installing such a component in an industrial machine is high. Could blockchain solve this problem?

Quality assurance

Blockchain is a Distributed Ledger Technology (DLT) that is gaining traction as a tool to fight product piracy in the bearing market. The technology acts as a database made up of a sequential chain of blocks, each with timestamped data. It consists of a digital ledger for data validation, without centralised control, containing all the transactions made by the users of a certain network. This results in a historical trail of records or transactions.

Blockchain offers a way to guarantee all the steps of the process have been done according to the specifications and associates a digital token to the physical good that makes it impossible to clone it.

While counterfeit bearings may look like the authentic component, quality and lifespan are often severely compromised. When bearings are produced and sold, companies have unique identifiers that can be verified with a dedicated service which is associated with data certificates, using timestamp, on blockchain. The buyer will therefore know automatically that a fake bearing has been offered to them if this information isn’t available.

Smart contracts

Smart contracts are self-executing contracts stored on a blockchain with the terms of the agreement between buyer and seller directly written into lines of code. They are commonly used to automate the execution of an agreement to ensure that all parties are absolutely certain of the outcome. This occurs without any intermediary’s involvement or time loss. Smart contracts deployed to blockchains render transactions traceable, transparent, and irreversible.

Smart contracts are also used to automate a workflow and trigger the next action when conditions are met. For example, if an EZO bearing is designed and manufactured by Sapparo Precision Inc in Japan, the provenance of the bearing, along with its manufacturing process would be recorded digitally. Traditional paper-based systems see forms pass through multiple hands between manufacturer and end user, but with smart contracts all the steps are recorded and stored on a blockchain.

Trust in the supply chain

Blockchain’s versatility means it has been attracting attention as a valuable technology for supply chain distribution. When supply chains are fragmented, information about the provenance of a component can be diluted over time. Blockchain’s ability to handle secure and traceable transactions could strengthen trust among supply chain participants because they can keep track of shipments, deliveries and product quality during transport.

Ultimately, if there seems to be something different about a stamp or part number on your bearing, it may be a counterfeit. The best way to safeguard authenticity is to buy directly from the manufacturer or from a distributor authorised by the manufacturer. However, when this isn’t possible, blockchain is proving to be a useful tool to ensure quality assurance and transparency in the bearing supply chain.