Fighting fire with fire: IoT against digitisation complexity?

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Modern supply chains deliver an ever-increasing flow of information.

It’s a great challenge for supply chain managers and logistics experts to manage volumes of data that require attention and – in many cases – follow-up actions. What they actually need is unlimited flexibility paired with the ability to respond promptly when required. Why exactly is that and what is the solution? Is there one?

Developments of global trade in goods over the past decades have generated longer supply chains spanning across the globe. Managing such long supply chains is a complicated task that becomes a complex one, once volatility comes into play. While this volatility has many aspects and its roots vary by specific business models and industry sectors, there is one factor that has the same significant impact on all businesses: the increasing degrees of digital engagement by customers over the past 20 years. 

This impact of digital customer engagement over time affects both B2B and B2C – but particularly B2C. From the consumer perspective, these are great developments that enable a real-time response to market demands, short product lifecycles, diversified portfolios, and faster deliveries. But they also amplify the challenges for supply chain managers and logistics experts to meet market demand faster than ever before.

On a more granular level, certain aspects of industry sectors, product attributes, company structures, business models, and lean supply chain programmes also influence a supply chain’s levels of complexity and volatility. Take the example of a B2C fashion supply chain, which is affected by this kind of digitisation much more significantly than, for example, a plant manufacturer. Every industry has its own cycle speed. But the overall speed has picked up for everyone in all sectors in recent years, and is set to accelerate even more. 

It’s difficult to translate demand signals from within the supply chain quickly enough to incorporate them into real-life operations. That’s mainly due to the time gap between the flow of information and the flow of materials in the supply chain, the fact that central information about the flow of materials often deviates from local reality, and the lack of flexibility of logistics processes. Herein lies the greatest challenge.

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 throughout international supply chains significantly more scalable and flexible to respond and adapt fast enough to market expectations. 

To truly leverage the technology, however, collaborative planning by all stakeholders in the supply chain is required. This is possible, of course, but considering the challenges business partners face to just integrate systems for establishing supply chain visibility, for example, such collaborative planning definitely presents a challenging hurdle to tackle. It would also require a thorough analysis of when and where it would be feasible and viable to create more flexibility through automation.

Costs are an important aspect to consider, too – and impacts on short-term, mid-term, and long-term balance sheets. Even if handling material prices would drop further, for example, equipment costs are generally more fixed than personnel cost equivalents.

At this point, “automation as a service” cannot 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. And it very much depends on the individual business model and applicable market specifics to determine the best strategy for a company to manage digitisation – both as enabler and root cause of challenges – to its advantage. 

Darren Travers

Darren Travers is a Senior Account Manager at AEB, responsible for key accounts in the domestic and international markets.

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