Published on 11/21/2016 | Strategy
This week, Silicon Valley hosted a mega-conference known as Internet of Things World. Its speaker roster alone comprised 346 people representing organisations from the obvious (IBM and General Electric) to the surprising (the NFL and the FBI). Semiconductors, industrials and automakers were there in force as were software, healthcare and the public sector.
Since 2014, SCM World has surveyed around 1,000 supply chain executives each year on new technologies with potential to impact supply chain strategies. Making the top three both years – and rising in prominence sharply from 2014 to 2015 – internet of things (IoT) is considered “disruptive and important” by nearly two thirds of respondents, while only 5% say it is irrelevant.
It’s clearly big, but what does it mean to supply chain strategists who aren’t trying to be visionary, yet fear being left behind?
Sense, decide, respond
Tackling IoT in supply chain management begins with tackling the transition from a history of information-poor process flows to a time of ubiquitous data and control.
The discipline has roots in the SCOR model which preaches a linear sequence of work we know as “plan, source, make, deliver”. Through the 1990s and 2000s, this logic helped materials management avoid waste with foresight. The archaic information systems of the time, however, limited supply chain management to very rough cut planning with huge amounts of inventory and lead time buffering uncertainty.
The business processes of the era were batched and clunky, but starting with ERP systems that tied it all together and then an e-commerce revolution that gave real muscle to demand, we started to get faster, leaner and more precise. US Bureau of Census data on inventory-to-sales ratios shows this leaning happening right up until about 2012 when inventories started to pile up again.
The problem may be that we haven’t updated our linear reference model of supply chain for the connected age. Supply chain in the IoT era is all about “sense, decide, respond”. In fact, with this as a roadmap, IoT looks more like a toolbox of solid operational enhancements than a utopian vision of smart-everything.
In supply chain, this includes demand sensing. IoT currently provides such demand sensing for things like printer ink, engine parts and network capacity. Looking ahead to smart apparel, medical devices, vehicles, homes and more, supply chain strategists should begin asking for and analysing new sources of IoT data from the channel or in end use.
IoT also applies to supply sensing. This is a bit less obvious since old-school procurement habits are a bit deaf to the realities of upstream constraints. IoT can and should provide data on capacity, quality, time-to-deliver and much more. This data will help with risk management, available-to-promise and even cost reductions as analysts find pockets of waste or opportunity with suppliers.
IoT and “responding”
Demand response with IoT offers at least two big benefits. One is visibility; the everyday experience of watching your Uber get closer is a clear example that fulfilment managers should strive to replicate. The other is actual delivery. Digital supply chain means shipping product as bits. IoT in customers’ homes or businesses includes hardware that works differently with a code key bought and “shipped” electronically. Samsung, Tesla, Apple, Johnson Controls and many more do this now.
Supply response with IoT means using sensors, actuators and software-controlled production equipment to get away from mass manufacturing and the slow, expensive changeovers. Pioneered by Intel, Harley Davidson and Cisco, smart manufacturing is doing this today. Strategists embracing IoT in supply response will start by looking for ever smaller batches of cost-effective production runs.
There is no IoT in “decide”
An internet-connected supply chain should become increasingly granular in its ability to sense and respond, but decision making won’t be part of the story.
The centre of the IoT-enabled supply chain will eventually look like a great control tower where value judgements about money, credibility and accountability can be weighed with total visibility to what customers want, what supply can deliver and what’s really happening now.
This is still a job for human beings.
