Strategies for IoT in the Supply Chain

Strategies for IoT in the Supply Chain

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Let’s not lose focus on the fact that the primary intention of this MGMT503-Directed Study course is to address the possibilities related to Supply Chain Optimization with IoT. In fact, the primary goal of any supply chain manager is to streamline the supply chain process as much as possible. Today, effective supply chain management is achieved through the development of strategic relationships and partnerships with vendors. Gone are the days when vendors were treated aggressively as a primary means of cost cutting. Hopefully we know today that beating up on a vendor usually results in a loss of that vendor, an expensive quest to find other vendors, and likely an increase in total operating costs. While cost cutting remains an important goal of supply chain management, we try to achieve this today in a more sustainable and ethical manner. We achieve our goals by managing with more visibility and communication amongst our supply chain partners. It is foreseen that the deployment of more intelligent devices within our supply chains will play a crucial role in the enhancement of this vital communication. Imagine the possibility that your production cycle on your own shop floor could immediately adapt to an out of control process downstream or even upstream within your supply chain. This becomes possible with the Internet of Things. In fact, the deployment of intelligent devices that monitor key performance indicators (KPIs) within a supply chain process should turn tomorrow’s supply “chains” into true supply “streams”.


Simply put, a supply chain is a series of processes which convert raw materials to finished components, to finished assemblies, to finished products, which are ultimately conveyed to consumers. Within each step of this supply chain process, the outputs of one company become the inputs of another; and this business relationship is defined as a vendor. Historically, vendor operations have been very private and often relationships have been unstable. The corresponding unpredictability of vendor relationships led to the need to purchase a surplus of goods and to hold abundant inventories out of fear of stock-out on critical goods vital to our own shop floor productivity. Today, business managers look at inventories as a costly and inefficient use of resources. Today, we promote zero inventories, just-in-time delivery, and lean manufacturing within our business operations. So, today, business supply chain managers choose to build stronger working relationships and strategic partnerships with vendors to increase confidence in the timely and the efficient delivery of goods.

The next generation of supply chain transformation will take our strategic relationships to a new level. The performance of a vendor’s production process will no longer be private. In fact, the internet of things will make any single step in a supply chain process completely visible to all stakeholders. This visibility becomes possible as we can embed intelligent devices in just about anything including valves, switches, doors, motors, delivery vehicles, personnel, and much, much more. Imagine now the possibility that an open and visible supply chain transforms a supply chain from a linked series of processes into a homogenous single process. Optimization of the flow of goods from raw materials to consumer goods can be streamlined across traditional brick and mortar barriers. No longer will it be mandatory for a business to build a vertical business model to maintain this high level of visibility. With the internet of things, process visibility becomes possible.


Within my introductory writing entitled, “What is the Internet of Things?”, I gave credit to the importance of open-source software development to the growth of the Internet of Things. Open-source software platforms have become the norm today, and its success is due largely to the nature of the collaborative development of this software by internet-connected developers all around the world. Developers that simply want to advance their skill or to possibly develop a name for themselves have led to the successful development of Apache, MySQL, PHP, Python, C++, NodeJS, WordPress, Drupal and more. These platforms have become industry standards onto which Apple’s MAC and Google’s Chrome platforms have been deployed.

Unless you are an IT professional, it might be difficult to pay attention and to understand what is happening in the world of cloud computing. “Cloud Computing” is simply a successful marketing term for computing platforms which are accessible via the internet. This isn’t really anything new. Internet connected computers have been around now for decades. So, what is the hype? Cloud computers today are becoming more of a commodity. Businesses like Amazon, Microsoft, Google, and more are organizing today around concept of simplifying the set-up and access to advanced computing platforms, and cheaply. This concept is being marketed as Infrastructure-As-A-Service (IaaS). These same companies pre-load theses computing platforms with software solutions that satisfy personal and business productivity goals and these more intelligent platforms are coined Platform-As-A-Service (PaaS). These IaaS and PaaS systems can be configured today with the push of a few buttons and spun-up for temporary and semi-permanent solutions. The hosting costs for spinning up a small LINUX server today is only a few to tens of dollars per month. Even advanced computing platforms needed to support enterprise class solutions are available via the “cloud”.

It is important here to give credit where credit is due. The growth of the Internet of Things is going to be dependent on the availability of very low cost and very small computing hardware. Well, let’s introduce the Raspberry Pi. The Raspberry Pi Foundation is a charitable organization registered in the United Kingdom. The Raspberry Pi Foundation is championing another collaborative development effort around the world, and thus they are leading a new “maker movement”. More and more, people today are exploring the creation of intelligent devices with a computing platform called the Raspberry Pi. The Raspberry Pi today is a full LINUX computing server whose footprint is the size of a credit card and its cost is under $35. Don’t under estimate this “maker movement”. Increasingly, men, women, and their children are exploring all sorts of possibilities for connecting sensors, switches, buzzers, LEDs, and more to a computer and these computers are internet connected. This maker movement is going to contribute to the growth of the Internet of Things, and I personally think the Gartner estimate of 50 billion devices by 2020 is low.

Raspberry Pi right now might be my personal favorite, but I would be remiss if I didn’t at least briefly mention the availability of the Adafruit Arduino and the Espressif Systems ESP8266. Both of these platforms are micro-controllers capable of being programmed to complete simple tasks like monitoring a sensor or controlling a switch and they are WiFi enabled. The ESP8266 is now available at a cost less than $10.00. The ESP8266 isn’t much bigger than my thumb. These two platforms are perfect examples of just how inexpensive and accessible this hardware has become, a sign of what is still about to come.


Business supply chains are a very complex interconnecting network that need to be managed collaboratively and optimized globally. Our 21st century business environment is one that experiences rapid change both with consumer demand and intense global competition. We push to drive down costs with new and faster production techniques. And today, business managers put increasingly more value into operating in a manner which is more ethical with respect to its stakeholders and sustainable with regard to the earth’s available resources. “Supply chain requires that member companies have the means to assess the performance of the overall supply chain to meet the requirements of the end customer. In addition, it is necessary to be able to assess the relative contribution of individual member companies within the supply chain. This requires a performance measurement system that can not only operate at several different levels but can also link or integrate the efforts of these different levels to meet the objectives of the supply chain.”27

The workflow within a supply chain requires collaborative study, analysis, monitoring, and adjustment by the supply chain members. We accomplish this by identifying the KPIs, we collect data related to the performance of these KPIs, and we study this data to drive business decisions. Business decisions can be made at strategic, tactical, and operational levels with KPI analysis; and, today, we can embed internet-connected intelligent devices in just about anything so that we can monitor KPI performance against business metrics. There is an emerging trend in today’s business for 3rd parties to create standardized metrics against which benchmarking becomes possible. With IoT, these benchmarking services are going to become increasingly more effective at determining whether a specific production process is in control. New data analytic techniques are also making it possible for supply chain members to gain more predictive estimates about a future state of a process whereby members might learn that a current process that is “IN control” could as some time in the future run “out of control”.

Effective KPI measurement and analysis can yield tremendous benefit in many areas including the following:

  • Process Control in a Production Line
  • Failure Mitigation
  • Predictive Machine Maintenance
  • Workforce Tracking
  • Asset Management and Utilization
  • Customer Satisfaction
  • And more!

SUPPLY CHAIN METRICS offers a Supply Chain Operations Reference model (SCOR) as the world’s leading supply chain framework that links business processes, performance metrics, practices, and people skills into a unified structure. The SCOR framework is designed to help organizations increase the speed of system implementations, support organizational learning goals, and to improve inventory turns. There is a long list of important metrics which can be tracked within SCOR, including: 28

  • Perfect order fulfillment metric
  • Order fulfillment cycle time
  • Upside supply chain flexibility
  • Upside supply chain adaptability
  • Downside supply chain adaptability
  • Overall value at risk
  • Total cost to serve
  • Cash-to-cash cycle time
  • Return on supply chain fixed assets
  • Return on working capital

The Perfect Order Fulfillment metric is one of the most important metrics in supply chain management. “It is a discreet measurement defined as the percentage of orders delivered to the right place, with the right product, at the right time, in the right condition, in the right package, in the right quantity, with the right documentation, to the right customer, with the correct invoice. Failure to meet any of these conditions results in a less than perfect order.” 29


In 1984, the number of devices connected to the Internet was 1,000. Gartner claims that 6.4 billion devices are connected to the internet today in 2016. This means that 5.5 million devices are being connected every day at an accelerating pace. Gartner and other researchers are predicting that what we are now classifying “The Internet of Things (IoT)” could be as large as 21 billion devices by 2020 (some sources has this estimate even higher) and these devices will be capturing 50 trillion GBs of data.2

Through 2016, the growth of the Internet of Things has resulted largely from increased connectivity of our desktop computers both at home and in the workplace and also as a result of the huge popularity of our mobile devices including tablets and cellphones. Future growth will be driven by the increased connectivity of devices within our homes; but, more importantly, within our business operations including those of our strategic business partners up and down our supply chain.

Effective supply chain management involves the creation of strategic relationships with both vendors and customers to optimize the flow of materials and services along a critical supply chain path. Within a supply chain, raw materials are converted to finished components, which then become part of larger assemblies, until finally a finished product is completed and delivered to a consumer. Within each of these transformational steps, there is often a logistical transfer of the outputs of one business as they become the inputs of another. Critical paths of material flows can be identified along with key performance indicators or KPI’s within the supply chain. It then becomes vital to be able to monitor the performance of these KPI’s for early warning signals which could identify a supply chain problem. These KPI’s could also indicate an optimized state of a supply chain as well.
Traditional supply chain communication centers around electronic data interchange (EDI) of information contained within material resource planning (MRP) systems. MRP systems provide demand forecast information, and the communication of changes related to demand forecasts within the supply chain help facilitate early warning signals to suppliers that there is a demand change coming.

Today, the Internet of Things (IoT), allows for increased intelligence within a supply chain. KPI analysis could identify that the performance of a given machine or process is vital to the stability of a supply chain. Excessive or insufficient output of a single process could throw an entire system out of balance. Communication of the performance of a single process is not readily available within an MRP system; but, with IoT, communication about the stability of a single process and communication about an entire supply chain stream can be realized.

Helpful Video … How it Works: The Internet of Things


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