The Internet of Things and How It Could Affect the Supply Chain

"Every industry is ripe for digital disruption and the supply chain industry is no exception," writes Margaret O'Donnell, a Program Manager at Rutgers Business School Executive Education. "For example, we're moving from more than 18 billion connected things in 2015 to nearly 50 billion connected devices and systems in 2020. Innovation and technology is at the core of every business revolution and so it must be with your Supply Chain."[1] I'm not sure I would separate "the supply chain industry" from other industries. The supply chain is integral to every business in every industry and each supply chain is unique. I do agree, however, that the Internet of Things (IoT) is going to have a profound effect on supply chains. Gina Roos (@Gina_Roos) points out, however, that the marriage of the Internet of Things and the supply chain still faces some challenges.[2] She explains:

"Most of us would agree there are several real-world benefits of connected devices that will enable supply chains to run more efficiently across product development and into lifecycle management processes. That’s the good news. The bad news is figuring out security risk, and the ugly news is the impact of new players and start-ups in the Internet of Things (IoT) space."

I'll use Roos' good, bad, and ugly framework to discuss the future of the Internet of Things and the supply chain.

The Good

As Roos points out, the good news associated with Internet of Things implementation in the supply chain mostly has to do with generating efficiencies. Maha Muzumdar, Vice President of Oracle's Supply Chain, Products Business Group, and Margie Steele, a Principal Consultant at Oracle, explain, "The Internet of Things is enabling more and faster information across the supply chains for better decisions, planning and execution."[3] They add, "New market opportunities are available to companies in almost every industry from the data that IoT delivers." John Westerveld (@johnwesterveld), a demo architect for Kinaxis, provides a few examples of the good news.[4] They include:

Manufacturing monitoring – "Devices measure ambient temperature, humidity, air pressure, etc. and either prevent operations or re-route if the ambient conditions fall outside specified parameters. One example of this would be painting where applying paint in a too humid environment can cause the paint to not cure properly. ... Other examples might be real-time utilization data on a machine or bottleneck tracking based on queue sizes."

Inventory Tracking – "Despite all the efforts manufacturers put into inventory accuracy it still happens. You think you have X units of Product n, but you really have Y units … where Y units is less than what is needed for the next order of the product. Imagine if your inventory itself could tell you how much there is. It could be as simple as an RFID device on each item or case that responded to sensors around the factory giving real-time information on what inventory was on-hand."

Shipment Tracking – "What about outside the four walls? One of the things I love about ordering things on-line is tracking the shipment as it wends its way from wherever it originates to my front door. That capability has existed for years and is typically accomplished via a bar-code scan as the package moves from stage to stage. In the internet of things model, that tracking information can be augmented by sensors in the container that can measure ambient variables such as temperature, humidity, air-pressure and even light levels. This way, logistics can monitor sensitive shipments to ensure the product will not have been damaged in transit before it arrives."

Re-ordering – "One of my favorite examples of what could be with the internet of things was the connected fridge. Imagine if the fridge (and your pantry for that matter) was able to keep track of what was put in and what was taken out. If your milk, for example, fell below a certain level, milk would automatically be added to your grocery list. ... The same logic could be applied to supply chain. If the assembly shop takes a widget out of the bin and now the weight of widgets in that bin falls below the re-order threshold, a replenishment order is generated. Note that ERP inventory accuracy no longer is a constraint on when re-ordering happens."

In addition to the examples cited by Westerveld, Muzumdar and Steele add: Accelerated innovation & product support; improved alignment & collaboration; and sustainability & quality. They conclude, "The demands on supply chain managers to rapidly respond to change and increase profitability are greater than ever. The good news is that IoT can provide significant opportunities for companies to deliver value and improve performance through better predictability, adaptability, innovation, alignment and sustainability across the value chain."

The Bad

Hannah Augur agrees that there is a lot of potentially good news when it comes to IoT implementation; but, she also warns, "All of these changes don’t just mean cost-cutting and heightened visibility; they mean unparalleled complexity."[5] She adds, "The integration of the IoT into the supply chain will no doubt lead to many interesting stories, raising the question of who will adapt, and who will fall behind." Roos points out that much of the bad news about the IoT focuses on security. Karen Field (@karenfield), Executive Director for Content for Penton Media's Internet of Things Initiative, reports, "Aging control systems, increasing levels of connectivity, and software updates are the culprits behind a spike in cybersecurity vulnerabilities and a corresponding number of malware attacks."[6] Companies are not the only entities that need to be concerned with security issues. Consumers are also finding out that some of their "smart devices" are vulnerable to hacking as well. Another bit of bad news is that clear Internet of Things standards have yet to be adopted. Without such standards, cross-chatter between connected devices could be seriously impaired. Consumers are already frustrated that many of the devices they own require different apps to control them.

The Ugly

Roos claims the ugly news about Internet of Things implementation is mostly about how disruptive it could be. Jeff Kaplan (@thinkstrategies), founder and managing director of THINKstrategies Inc., agrees that disruption (both within companies and within industries) is going to be a challenge.[7] He explains:

"Any bold, new idea that promises to transform the way organizations operate is bound to come with as many potential challenges and risks as opportunities and benefits. The impact of IoT on a company’s business operations goes far beyond previous technology innovations. Unlike past shifts in computing that primarily affected the way software and systems were deployed to support internal business functions, IoT calls on every department within an organization to rethink how they design, develop, sell and support products and services being delivered to their customers. This raises a myriad of technical, operational and ethical questions about security, privacy, data governance, monetization and other critical issues."

Conclusions

Although the news about the Internet of Things is mixed, on the whole benefits outweigh the concerns (and most of the concerns can be addressed). Muzumdar and Steele insist, "There is a clear call to action for supply chain professionals to explore, understand and exploit IoT for enhanced supply chain performance." Companies should embark on IoT adoption with their eyes wide open to the challenges and disruptive potential of these new technologies.

Footnotes
[1] Margaret O'Donnell, "The Internet of Things is Profoundly Reshaping the Supply Chain," Supply Chain Matters, 26 October 2015.
[2] Gina Roos, "The Good, the Bad, and the Ugly of IoT in the Supply Chain," Verical Connect, 19 October 2015.
[3] Maha Muzumdar and Margie Steele, "The Internet of Things (IoT): Opportunities for Smarter Supply Chains," IndustryWeek, 3 June 2015.
[4] John Westerveld, "The internet of (supply chain) things," 21st Century Supply Chain Blog, 20 June 2016.
[5] Hannah Augur, "Internet of Things and the Supply Chain: The Complexity of Staying Connected," Supply Chain 24/7, 8 December 2015.
[6] Karen Field, "The Urgent Need to Improve Industrial Internet Security," Internet of Things Institute, 21 June 2016.
[7] Jeff Kaplan, "Applying the Long-Tail to the Internet of Things," The Wall Street Journal, 5 January 2016.

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