From the factory floor to homes, there’s no doubt the Internet of Things (IoT) is growing quickly. While devices’ use can currently be seen for everything from improving machine up-time on the plant floor to controlling air conditioning in residential homes, the implications of IoT strategic use in the supply chain is beginning to be seen.
Five years ago, it was cost prohibitive to manufacture the necessary parts for the connected devices that exist today. However, the rise of smartphones and tablets that use similar components drove an increase in the production of components, which led to a rise in the number of manufacturers and an array of price points for varying specifications or quality of product, explains Mark Spates, president, Internet of Things Consortium. Consequently, it became feasible for companies to purchase radios, sensors, cameras and other materials at a reasonable price. Innovation then began once cost was no longer prohibitive, Spates says.
The market is growing quickly. Recent research from IDC forecasts the IoT market in manufacturing operations will grow from $42.2 billion in 2013 to $98.8 billion in 2018, with growth mainly driven by ongoing efforts to increase efficiency and link islands of automation. The hottest U.S. market, according to the IDC forecast, is connected vehicles, with 34.8 percent year-over-year growth anticipated in 2015.
The outcome is that smart connected products have the potential to radically shake up business models, says Bill McBeath, chief research officer, ChainLink Research. For manufacturers, there is a natural progression from selling things, to selling things + services—such as maintenance and repair)—and even to selling outcomes (product-as-a-service model). Building intelligence and connectivity into products is a key enabler of these shifts, but ultimately, business will also need to develop new types of payment and subscription pricing models, support structures, service level agreements, and service organizations and partnerships, says McBeath.
Much of the allure is due to the technology’s significant potential. For instance, IoT can enable companies to achieve better predictability of demand through real-time visibility of demand and service signals, write Maha Muzumdar, vice president, supply chain, Products Business Group, Oracle, and Margie Steele, principal consultant, Oracle, in an IndustryWeek article. With better predictability, planning & execution tools, companies can adjust pricing and promotions strategies to shape demand, move additional product quickly, drive revenue growth, and further expand margins for a high-demand product with limited market supply, they explain.
The output of planning tools can enable dynamic shelving in retail and consumer goods industries and can adjust truck destinations, routes and truck types when shipping in response to this more accurate and timely information, Muzumdar and Steele write. For example, if the demand for a product is high, the supply chain needs to adjust to purchase the additional raw materials, plan the capacity to meet this additional demand, and deliver the product to the retailer to take advantage of the new IoT signal.
To improve alignment and collaboration, IoT can enhance the S&OP process by providing real-time visibility to all the key dimensions for success—demand, supply, inventory, product, risk, and performance—across the organization and throughout the extended supply chain. As Muzumdar and Steele note, such real-time visibility of performance and collaboration can enable companies to improve alignment across the enterprise to achieve the right balance of supply and demand, aligned with strategic business goals.
What are your thoughts on IoT and the impact it may ultimately have on supply chain operations? Does your company have a strategy for using the IoT to improve supply chain performance?