The Internet of Things is poised to dramatically reshape supply chain management. The phenomenon, which represents the addition of Internet connectivity to previously unconnected electronics, has been heralded as a means to create "smart" versions of objects, from toothbrushes to buildings, by turning them into data-capturing devices.
The IoT's supporters say that it will make machine operations more visible and thus easier and cost-effective to control. Its detractors voice concerns about data management, security and business continuity. However, its rapid ascension is not in doubt; organizations will have to find a way to retain their competitive advantage in the IoT environment. As one of the areas of business operation with the most potential to be transformed by the IoT, the supply chain will become either a catalyst or hindrance for IoT investment.
The rise of the IoT
Machine-to-machine connections of data-capturing devices is not a new concept. Analysts have considered formative versions of this theory since the early 1990s, and the term was first proposed in 1999. While Cisco and other vendors and analysts pushed the future of the IoT, missing was a means of wireless connectivity that could enable electronics to embedded with identifying devices in a cost-effective and useful way. Parallel computing, as well as a variety of physical space and system complexity issues, also had to be considered. Wireless technologies and IT systems have satisfied many of the issues impeding acceleration.
While still in its fledgling state, the IoT is projected to have a meteoric rise over the next several years. Gartner predicted that the number of installed IoT devices (which excludes conventional computing hardware such as PCs and smartphones) will rise to 26 billion units by 2020, up from 900 million in 2009. ABI Research offered an even higher projection, predicting that more than 30 billion devices will be connected to the IoT by 2020.
Even in its nascent deployment, the IoT has already proven its advantages. According to a 2013 survey by the American Society for Quality, 82 percent of manufacturers that had made partial IoT deployments became more efficient, 49 percent found fewer product defects and 45 percent said that customer satisfaction increased.
The connected devices will be used in nearly every industry, but a large number will be concentrated in manufacturing, logistics and machine operation. Their increasing presence will drive a shift in supply chain management strategies.
Changes ahead for supply chain management
Another recent report by Gartner asserted that the IoT will "significantly alter" supply chain operation. Numerous potential benefits for supply chain functionality stem from a networked ecosystem of physical assets engaged in real-time communication of their status. This newfound system visibility will help supply chains become more responsive and deliver an expanded scope of customer services more efficiently. More mature IoT devices, such as trucking fleet trackers, will combine with emerging technologies such as smart fabrics to drive improvements in the supply chain.
"It's important to put IoT maturity into perspective, because of the fast pace at which it is emerging, so supply chain strategists need to be looking at its potential now," stated Michael Burkett, managing vice president at Gartner. "A future supply chain will meet those expectations by converging people, business and things in a digital value network, and incorporating fast-emerging capabilities such as IoT and smart machines into this design strategy."
Hybrid digital-physical software-embedded products will be the game-changing force in supply chains, according to Gartner's projections. Devices such as 3D printers using digital product models could be installed to only manufacture items in response to real-time demand, rather than according to projections. This could help eliminate excess inventory and fine-tune logistics planning. In turn, companies could save money on warehousing, order management and product development lifecycles.
Challenges for supply chain management
The IoT is certainly not without its potential consequences. The effort to integrate the IoT will require a revaluation of critical infrastructure in order to avoid any security threats, management issues and untenable costs.
Security threats: More networked devices means more potential entry points for hackers. Cybersecurity researchers are concerned about hackers taking command of connected devices such as wireless sensors, global positioning system trackers and industrial controls, The Guardian reported. A hacker could leverage a distributed denial of service attack through a backdoor vulnerability and wreak real-world havoc. By taking over connected GPS trackers in trucks, for example, a cybercriminal could potentially reroute or halt an entire fleet.
"Anything with an IP address is a commodity in the underground economy, to be bought or bartered for if there is a way to make money from it," security researchers Steve Santorelli told The Guardian.
It will depend on supply chain personnel to ensure that all connected devices receive adequate updates, security flaw patches and cryptographic protection. The potential of supply chain-based hacks similar to the one that recently compromised the consumer records of retailer Target will be exacerbated by more connected devices. Preventative protection will be key to avoid the rapidly escalating costs of a network infiltration or data breach. All supply chain stakeholders need to be on the same page, and employees need to be aware of the particular complications the IoT can have on the supply chain.
Management concerns: The information that M2M connections provide is only valuable if companies can turn it into useful insights. The process of making the organization "smarter" extends to the workforce. There are many upfront hardware acquisition and software development costs that must be considered, and a company likely needs to hire a dedicated data analytics team that can make sense of captured information and use it to drive efficiency.
Companies need to start small and spend time fine-tuning their IoT planning in order to succeed, according to SmartData Collective contributor Mark van Rijmenam. Figuring out where the biggest challenges lie can help companies invest in supply chain management software that can function interoperably with data-capturing and analysis applications. These programs already offer more information-based oversight of supply chains and enable smarter control of inventory, order processing and customer fulfillment. Integrating them with M2M can help the enterprise develop an overarching platform for the intelligent management of all the tools and processes that contribute to supply chain performance.
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