cumulative GDP of more than 120 countries on the. 2015 ranked GDP ... of cost, enabled by IoT and reinvested in producti
FROM
MUNDANE TO
PROFOUND Here’s how the Internet of Things is reshaping supply networks. By Alex Blanter
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verybody loves a prediction. Whether it is about tomorrow’s weather, the next sporting event, an upcoming election or a new technology, we all want to know what the future holds and how things are going to play out. Every day, we log in to our bookmarked websites, tune in to our preprogrammed radio stations, and some of us even turn to our favorite newspapers to find the most recent forecasts. Let me start with a forecast here: Our analysis indicates that by 2020, the Internet of Things (IoT) is going to impact 6 percent of the global US$100 trillion economy. Is that a lot or a little? To put it in perspective, that $6 trillion is greater than the current cumulative GDP of more than 120 countries on the 2015 ranked GDP list. This impact will manifest itself in several critical ways. Although everyone is talking about new revenues that can be generated by IoT, our modeling indicates that the vast majority of the IoT impact — about 80 percent — will come from improvements in productivity and redistribution of revenues among existing and new players. We estimate that productivity — defined as direct increase in output per unit of cost, enabled by IoT and reinvested in productive assets and activities — will constitute more than 25
percent of the total impact, and redistribution of revenues will account for more than 50 percent.
Uniqueness of IoT While the numbers and percentages are interesting and telling in themselves, and may even prove to be accurate, the real question is not as much about the size of the opportunity, but what to do at a more substantive, operational level. To begin with, let’s be clear on what IoT actually is. We define IoT as “a seamless combination of embedded intelligence, ubiquitous connectivity and deep analytical insights that creates unique and disruptive value for companies, individuals and societies.” For the first time in human history, we have an ability to uniquely identify individual physical objects, sense their condition and behavior, transmit and collect that data over short and long distances and in real time, and analyze and act on that information (see Figure 1 on next page). By its very nature, IoT, which is a closed-loop system that goes from the physical to the digital and back to the physical, is changing how we operate our companies and even live our lives. Whether implemented in a B2C, B2B or a public
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sector environment, each IoT solution will require sensors, connectivity platforms, applications and services — and each IoT solution will be unique. In fact, I believe that there is no single Internet of Things — instead, there is a multitude of specific solutions, each generating value in its own unique ways. Underlying all those solutions, and driving corresponding opportunities, are new technical capabilities that make IoT different from everything that came before it.
What Makes IoT Unprecedented From my perspective, there are four key differences: No. 1: Proliferation of data types. From the tried and true RFID, GPS and other similar sensors, the sensor world is rapidly expanding to offer a vast variety of sensor types and corresponding data types. Temperature, humidity, stress levels, visual and other types of information are becoming easily available at a fraction of historical costs. No. 2: Radical increase in data granularity and frequency. The world is rapidly moving from somewhat aggregate and static data collected at periodic intervals to very granular data collected in real time. According to International Data Corporation, the world’s data generation will increase tenfold from
2013 to 2020, with the volume of business data doubling annually. No. 3: Parity of data production and data processing. Growth in data-processing capabilities over the past couple of decades has been astonishing: Network bandwidth price and performance has improved by a factor of 60 million, processing speed performance increased by a factor of 800,000, and memory price and performance increased by a factor of 500 million. This growth shows no sign of slowing. In fact, all forecasts indicate that data-processing capabilities, broadly defined, are going to increase exponentially, with proliferation of new communication technologies, growth in artificial-intelligence solutions and introduction of quantum computing (though this is five years out). No. 4: Real-time physical response. None of the above would have mattered much if not for the ever-increasing ability to make real-time decisions and take actions that change operational and business outcomes. Whether the actions are driven by humans, intelligent algorithms, semi-autonomous controllers or self-sufficient autonomous systems, they close the physical-digital-physical loop that makes IoT what it is.
IoT’s Opportunities Figure 1
Things
Industries
Act
Sense
Enterprise Consumer Public Sector
Connect
Analyze
Policies & Standards
Identify
Collect
Value and Impact Source: A.T. Kearney The IoT enables users to identify physical objects, sense their condition, and analyze and act on that information in real time.
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Given that these four IoT capabilities are at the core of any and all IoT solutions, what opportunities do they create within and across modern global supply networks? I believe there are four areas in every company’s supply and customer network where these opportunities exist — within four walls, in transit, at the point of sale and post-sale. There also are two types of opportunities — internal operational improvements and new products and services. Within four walls. IoT-driven opportunities within an organization’s four walls are endless and are currently being actively pursued by many large and medium-size enterprises, both in industrial and office environments. Here are a few examples: Energy efficiency: Cisco, a leader in development and deployment of IoT solutions, is applying its IoT know-how to its own operations by installing thousands of sensors to monitor energy consumption at its plants in Asia. By combining information from multiple types of sensors and deploying such a system across its worldwide production sites, the company expects to reduce energy consumption by up to 30 percent. Opportunities for energy consumption also exist on a smaller scale. Consider an industrial warehouse. A simple solution to automate a warehouse door
© Institute for Supply Management ®. All rights reserved. Reprinted with permission from the publisher, the Institute for Supply Management®.
and install control software to optimize door-open times can lead to significant energy savings, among other such potential benefits as increased safety. Production optimization: The production floor offers numerous opportunities for profitably deploying IoT solutions. GM’s Plant Floor Controls Network, for example, connects a multitude of humidity sensors installed at GM manufacturing plants and uses collected information to adjust production and assembly lines so that cars are not painted in overly humid conditions. Consider a more general scenario where an IoT-enabled operation combines environmental and equipment performance data to modify the process parameters and production workflow in real time. Safety improvement: Combining worker location information with equipment status and movement of physical goods provides an opportunity to increase workers’ safety by both providing employees with more accurate real-time work environment information and by automatically making adjustments to that environment to eliminate anticipated safety hazards. Pro c u re m e n t a u t o m a t i o n : Equipment instrumented with sensors to measure operating conditions, use of consumables, parts wear and other operational parameters is one step away from eliminating manual procurement, and transition in that direction is already underway. For example, many modern enterprise printers are now capable of detecting toner levels and placing an order once that level falls below a predefined minimum level. In transit. Outside of one’s four walls IoT presents even more opportunities, because distances and times become longer and the value of real-time, granular, actionable information increases. Take as an example the shipment of medical specimens or perishable produce.
In both cases, specific environmental conditions to which the shipped item is exposed have real material effect on product shelf life, product safety and, ultimately, product usability. The ability to measure in-transit environment and achieve real in-transit visibility becomes a true business necessity. The same need exists on a broader scale, and the shipping industry has started to pay attention. Maersk Line, for instance, has instrumented close to 300,000 of its refrigerated containers. The overall number of active tracking devices deployed in various types of cargo containers is expected to reach close to 6 million by 2019. Point of sale. The ability to instrument and connect assets at point of sale introduces opportunities for both cost reduction and revenue uplift. For example, major global apparel enterprise Inditex SA, the parent of the Zara chain, is in the process of rolling out an integrated security and tracking solution based on RFID technology. In its initial deployment, Zara has measured a nearly-10-times efficiency improvement in single-store inventory-taking. When the program is completed, the company is expected to instrument more than 50 percent of its stores and procure 500 million sensor units for that task. Similar IoT principles of sensing, communicating and acting are also being implemented by the vending machine industry, where a single instrumented vending machine can measure levels of inventory, track consumption patterns and automatically place orders based on expected inventory needs. Post-sale. IoT-enabled monitoring of products post-sale is only now becoming technically viable. However, it has a clear value proposition across a variety of use cases, including: • Monitoring of product use to assess its health and operating conditions • Running remote diagnostics and repairs or ordering preventive service and maintenance • Increasing uptime and improving
customer services • Combining product-use information with product performance to anticipate end of life based on specific customer use patterns • Collecting customer-use patterns and feature-use information to feed back into product design cycles (for example, the oil and gas industry) • More efficiently managing product recalls through greater visibility to product location and conditions of use (for example, the food industry). The commonality in all of these cases is the ability for the product to continue to generate, collect, and provide information post-sale and throughout its useful life.
Evolution of IoT
AUTHOR Alex Blanter is a partner with management consulting company A.T. Kearney in San Francisco.
The scenarios discussed above are only a subset of what IoT is starting to deliver to suppliers, customers and everyone in between. But each of those opportunities is really two opportunities in one: an opportunity to improve internal operations, become more efficient, cut costs and increase one’s overall competitiveness, and an opportunity to develop and deliver new products and services in one’s supply and customer network. In fact, an internal efficiency opportunity for one company is a new revenue opportunity for another. IoT is still immature and will continue to evolve rapidly in the near future. New opportunities will come and go, and the old ones will morph and develop in novel ways. Taking advantage of this evolving landscape will require a different type of thinking and a new set of capabilities. Specifically, the winners will think solutions rather than products. They will reach upstream into their customer value chains to offer value-add IoT-enabled services, and will make innovation a true core competency of the enterprise. The rest will just muddle through. ISM ISM July 2016
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