IoT and SCM complexity: fighting technology with technology?
Internet of Things

IoT and SCM complexity: fighting technology with technology?

Digital customer engagement has made supply chain management a complex task. Is the Internet of Things the obvious next step to balance the consequences?

The ever increasing flow of information that calls for immediate action is a great challenge for supply chain managers and logistics experts. What the market indeed needs is flexibility without limits paired with the ability to react promptly when required. Well, and, of course, all that at minimal costs. To me, this sounds like an attempt to square the circle.

From complicated to complex

The strong growth of global merchandise trade created longer and longer supply chains over the past decades. This development really picked up in the 70s and since 2012, levels seem to remain at a steady high level. In the past 15-20 years, volatility was added to the equation. Managing long supply chains is a complicated task – adding volatility makes it a complex one as well.

But where does the volatility come from? On a granular level, the various reasons can be broken down into specific industry sectors and business models. On a higher level and in my humble opinion, the main reason can be found in the one key driver that affects all branches and organizations in the same way: the increasing level of digital engagements by customers over the past 20 years. And the required customer centricity it has enabled for backend processes in supply chains.

Every click shapes tomorrow’s production

These impacts of digital customer engagement apply to both B2B and B2C. More, however, to B2C. This illustration shows how customers became more and more digitally active with the emergence of the internet. And then suppliers started to leverage the development – initially limited to occasional, basic analyses of website traffic.

scm complexity
scm complexity

Today, it has evolved into a real-time monitoring process of online behavior to understand and learn from customers’ preferences and their reactions to customized offers. Improving technological options enabled suppliers to come up with new products and business models that are mass-customized to fulfill most popular customer wishes.

As a good option to make a difference in a competitive and transparent global marketplace, such large scale target group oriented products are released more and more often and in increasing varieties.

The root of the problem and the driver of opportunity

To summarize in short: long supply chains involve volumes of information and the digitization of communication is a root cause of supply chain challenges and a powerful enabler at the same time: for real-time reaction to market demands, short product life cycles, a high degree of product variety, and fast delivery expectations.

This is what paves the road to complexity. And what fundamentally drove another change in supply chains: the individual parties involved from procurement to fulfillment no longer create value independently but do so jointly in tightly integrated value networks that come with many interdependencies.

On a more granular level, specific aspects for industry sectors, product characteristics, company set-up, business models, or lean supply chain programs additionally influence the levels of complexity and volatility. These digitalization impacts are much more significant on, for example, a B2C fashion supply chain than on that of a plant manufacturer.

Every industry has its own cycle-speed. But I am sure you would agree that the speed has picked up for everyone across sectors in the past years. And that it is set to spin even faster in the future.

What is the real-life challenge?

It’s hardly possible to translate demand signals from within the supply chain quickly enough to incorporate them into real-life operations. This mainly stems from three facts:

  • There is a time gap between the flow of information and the flow of materials in the supply chain
  • Central information on the flow of materials often deviates from local reality
  • Logistics processes often lack scalability and flexibility to react and adapt fast enough – due to resource issues (staff and handling equipment), for example.

Why IoT could be the solution

The Internet of Things (IoT) is the extension of the internet into the physical world. Things that collect local information are connected to each other and to central systems. This way, they can deliver actual real-time data from “local realities” to global information systems.

The omnipresence of IT, or ubiquitous computing, increases the global level of intelligence and further empowers local real-time actions. This combined with higher levels of automation could make logistics significantly more scalable and flexible.

How realistic is this?

The outlook of IoT impacts is promising. But even if the technology will fulfill its promises, will the physical world be able to keep up? Will the IoT drive developments to make real-life operations as flexible as the virtual world?

There are actually quite a few more questions to discuss before we can answer this. To truly leverage the technology, collaborative planning by all stakeholders in the supply chain is required. Is such an extent of collaboration realistic? Haven’t we been talking about the need for more supply chain collaboration for a long time already?

When and where is it feasible and viable to create flexibility through automation? Even if handling material prices would drop further, for example, equipment costs are generally more fix than personnel cost equivalents. I do not think that “automation as a service” should be considered a silver bullet. Unless equipment is suitable for different sharing models and can be used by different parties, the total cost of ownership (TCO) will remain the same.

Get involved

What do these developments mean for your industry? What’s your view on combating demand-driven digitization impacts on supply chains through leveraging the IoT? Naturally, views will vary depending on the overall digitalization strategy of a company and the specific requirements of different industry sectors.

I am very interested in different angles and perspectives. And in your plans regarding this topic going forward. Please send me your quick feedback on LinkedIn. I look forward to hearing from you.

P.S. By the way – did you know that digitization, digitalization, and digital transformation are not the same thing? We had this discussion internally the other day and noticed there seems to be quite a bit of confusion about it in the various markets around the globe. The company i-SCOOP breaks it down quite well –  take a look.