Blockchain has surfaced as a technology with the potential to resolve many of these issues. Blockchain is ‘an immutable transactional record that maintains and records data in a way that allows multiple stakeholders to share access to the same data and information confidently and securely.’ How can you implement blockchain solutions to benefit your MRO business model?
How can you implement blockchain solutions to benefit your MRO business model?
Aircraft spare parts management challenges
Aircraft spare parts management is one of the most important aircraft maintenance operations. Every movement, change in ownership and condition of aircraft spare parts, for reasons such as modification, maintenance, lease and exchange, must be reported to assure airworthiness. It is vital for you to acquire and track information on the ownership, maintenance, usage history and location of the components. However, this brings challenges because of the following:
1. Large and unique aircraft configuration
A modern aircraft can have more than a million components and unique spare part numbers, often in large quantities per aircraft.
2. Complicated spare parts management
Components can be installed, removed, repaired, maintained, stored and shipped not just within the organization but also across the supply chain.
3. Logistical coordination across the supply chain
Due to the multi-stage and international nature of the supply chain, component maintenance and logistical coordination are extremely complex.
4. Variety of communication media in use
Component data is shared by mail, web-based systems, storage media, paper or verbally amongst the participants of the supply chain.
Blockchain’s promising characteristics
When an aircraft complies with standards of regulation, they receive a Certificate of Airworthiness by a representative of the national aviation authorities. However, when an aircraft loses its airworthiness status, it enters the maintenance process to make sure that it is restored to a safe and reliable standard at the lowest cost.
In the traditional sharing process, MRO providers don’t have immediate access to proprietary maintenance information. Due to the lack of access to complete historical component records, you are required to put in more unnecessary work, resulting in longer lead times and rising costs. This is where blockchain comes in. It acts as a digitally-distributed component logbook among trusted supply chain participants, in a secure and controlled network. Through blockchain, the undisputable data in the digital component logbook will provide MROs with trust in the validity and legitimacy of aircraft spare parts and the data associated with them.
The video below shows one possible solution to the implementation of a spare parts blockchain. In this example, smart contracts are used for the spare parts business network.
Blockchain as a track-and-trace capability
Blockchain has been intensely studied in the application of supply chain management. Blockchain can act as an inter-organization track-and-trace capability by incorporating tangible (e.g. aircraft spare parts) and intangible (e.g. Airworthiness Certificates) assets as smart properties. Smart properties receive a unique identification code that makes it possible to track, control and exchange their ownership without needing to involve intermediaries. These transactions are recognized as a block by the blockchain network. Once the network reaches consensus to validate the spare part transaction, the block is added to the previous chain of blocks.
When the chain is validated, you can choose whether all participants will be able to read, write or review previous transactions. Or, opt for a privately commissioned blockchain, in which you can define rules as to which participant in the blockchain can read or write what data. For example, national aviation authorities will be able to view all transactions, while individual MROs can only edit specific data.
The blockchain doesn’t change how the components are technically tracked or traced; however, it does change how this information is communicated and exchanged. Instead of manually updating maintenance systems with trivial component data, Radio Frequency Identification tags are scanned throughout the component lifecycle. Data from component sensors and databases can be included and forwarded to help describe the quality and condition of the components. Driven by legislation and the need to improve efficiency, supply chain participants and regulatory institutions could use blockchain to access and audit real-time, accurate and complete component data.
The value proposition of blockchain
The value of blockchain as an aircraft spare parts track-and-trace capability is immense. Blockchain can provide MROs with the infrastructure to improve control over the data storage of components, communication, synchronization, and access. When it comes to aircraft spare parts management, blockchain provides value when it comes to immutability, automation, cost-effectiveness, auditability, decentralization, and security. How this is possible is visible in the table below.
The strategic impact of blockchain on the MRO business model
As mentioned in the introduction of our article, MROs face certain challenges when it comes to implementing blockchain within their business model. An intercompany blockchain solution for airplane parts will only be effective when enough MRO companies and the regulating body are involved. The early adopter MROs should create a consortium of companies and, together with the regulator, define the blockchain business network and governance. The most important points to agree upon would then be:
- How should the initial costs for setting up the network be divided?
- Which permissions should each party have within the blockchain network?
- What incentives will be implemented within the business network in order to attract other MROs to join the consortium?
At the same time, blockchain can improve the cooperation and trust between you and your partners through improved exchange activities and transparency. Implementing blockchain allows you to meet your regulatory requirements with more efficient knowledge of components and less administrative work.
Our key observations in the aircraft spare parts industry
Optimal aircraft spare parts track-and-trace practices can lead to operational, legislative and safety benefits for airlines, MROs, and OEMs.
Due to the complexity of aircraft spare parts management, the aviation supply chain is not seen as transparent as desired due to the lack of real-time Inter-Organizational Information Systems. These systems are required to efficiently track, trace and report the movement, modification, and maintenance of aircraft spare parts and communicate this data throughout the whole supply chain. That’s why proprietary maintenance information is not made immediately available in traditional data-sharing processes. The impact of these practices is that ecosystem participants face additional costs since component data may not always be perceived consistent and complete.
The capability of blockchain to hash tangible and intangible assets highlights its potential as an inter-organizational track-and-trace capability.
In recent years, the emergence of blockchain was intensively studied in the application of supply chain management, with evidence pointing out that blockchain in combination with RFID and IoT can address the problem of asset provenance, document manipulation, presence of counterfeit assets, and lack of IT standards to maintain asset copies. The capability of blockchain to hash both tangible (e.g. aircraft spare parts) and intangible (e.g. Airworthiness Certificates) assets highlights its potential as an inter-organizational aircraft spare parts track-and-trace capability. While blockchain does not necessarily change how the actual components are technically tracked or traced, it does change how this information is recorded and exchanged. Compared to alternative technologies, such as cloud storage, blockchain stands out due to the capability of programmable smart contracts to use traceability data to automatically generate Airworthiness Certificates.
Blockchain as an aircraft spare parts track-and-trace capability can be strategically relevant for cost-conscious, innovating MROs.
Once the technical, functional and network related challenges have been addressed, you can adopt blockchain as an inter-organizational information and asset exchange tool among your known and trusted supply chain participants in a transparent, secure and controlled network. Through the combination of cryptographic security, component visibility, and smart contracts, blockchain can streamline the infrastructure that allows you to meet your regulatory requirements. If participants would be willing to share data, it can help all MROs develop new predictive maintenance models, reduce inventory risk, engage in flexible component sourcing strategies, improve quality assurance and more.
Blockchain is strategically relevant for cost-conscious MROs and does not impose a risk to business model robustness in most scenarios.
Find the right peers for a consortium
First things first. The benefits of blockchain in the aircraft spare parts industry are manifold, but how to proceed? Be sure to set up a relevant blockchain consortium. Get into contact with your peers and start collaborative talks with relevant authorities. Find out who's on the same page as you are and start a blockchain pilot to exploit blockchain's potential. Why wait?
This article has been created in collaboration with Dusan Rajkov.