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Five best practices for using IoT in supply chain management

Implementing IoT technology in your supply chain can enable major improvements -- but it's not easy to do. Here are five ways to make sure you get it right.

With the power to enable greater visibility and control, the use of internet of things technology in the supply chain is a major trend that's gathering steam.

Yet, as with any technology, implementing internet of things (IoT) sensors, software, platforms and connected devices effectively is a tricky matter, and it requires forethought, strategy and work. You can't, for example, slap IoT sensors on boxes of products and expect that to be a solution that seamlessly tracks their movements. It's the hard truth that virtually all companies face: The supply chain is a multifaceted system with many literal and figurative moving parts, and adding IoT technology in an effective way won't be simple. So, it's important to learn and implement some best practices from the outset. Here are five.

1. Check your supply chain foundation

Arguably, the most important step here is the first if you expect to use IoT in supply chain management to gain a competitive edge. That's because integrating IoT into a flawed supply chain will only complicate things, said Gartner analyst Christian Titze.

A company should already have integrated into its supply chain the foundational technologies that manage ERP and master data management (MDM). And decisions about the supply chain should come from stakeholders whose responsibilities cross functions, he said. To be successful, IoT in supply chain management requires both aspects -- integrated technology and stakeholders who ditch a siloed view.

In a truly ideal scenario, Titze said, "A supply chain should have an end-to end-view. You can't have it function in silos."

IoT has the potential to capture real-time information end to end -- from production, all the way to transportation -- and any impediment will prevent that comprehensive view. A strong foundation is one in which ERP is integrated with the supply chain, master data is harmonized, and your company has strong, transparent relationships with its manufacturers, suppliers and delivery teams.

2. Assess supply chain issues

Don't rush into IoT technology if you're not sure how and where you will use it. Companies need to ask which areas of the supply chain they want to improve, and then learn which technologies will help them achieve those goals, said Bill McBeath, chief research officer at ChainLink Research.

"Evaluate IoT among other technologies to see if it is, indeed, the smartest way to solve a problem," he said. "Because it will change your enterprise."

Because the use of IoT in supply chain management is still new for many companies, be sure to study how companies that are successfully using it are doing so. Forrester analyst Michele Pelino recommended researching Zara. The Spanish clothing retailer integrated IoT sensors into its distribution center -- allowing for the sorting of as many as 60,000 articles of clothing per hour. That information is sent to the company's MDM technology, which shapes sales decisions in stores and in online channels.

"They've done more end-to-end processes in a more comprehensive way with IoT," she said.

Another company to learn from is the tool manufacturer Stanley, which has enhanced its plant production processes with IoT sensors, Pelino said. The sensors let Stanley track the many steps the factory floor machines take to create the company's tools. Plant supervisors, Pelino added, know "Where are we with that?" They make sure the supply chain is moving seamlessly and is labor-efficient, so that employees don't wait for a product on the line.

Ultimately, what matters most is how your company can use IoT in supply chain management. What issues can IoT best solve? For example, aside from tracking merchandise, companies should determine if IoT sensors are needed to control the integrity of perishable products, such as food or medicines, or if they will help monitor the wear and tear of manufacturing equipment. It's basic ROI research that shouldn't be avoided, McBeath said.

3. Get outside help

Companies might think they know how to handle an IoT sensor implementation, but, in reality, they don't, Pelino said. Don't wing it; lean on the knowledge and experience of a consultant or vendor. IoT sensors and technologies for supply management are platform-enabled, but they're not easy to integrate.

Companies might think they know how to handle an IoT sensor implementation, but, in reality, they don't.
Michele PelinoForrester analyst

"All these 'things' need interfaces and APIs to connect to legacy technology," Pelino said. "It's complicated."

Titze points to how there's no out-of-the-box IoT supply management solution that follows a certain standard and that can be plugged in and placed. The industry will eventually mature, but, for now, it's mostly small companies, including some startups, that are specializing in sensors. These need to be combined with an IoT platform and the supply management home components a business already has, such as ERP and MDM.

4. Secure supplier support

Before purchasing any technology, though, ensure that the players in your supply chain support your new embrace of IoT sensors, McBeath said. If they're already using or are about to use IoT, try to align your objectives and expectations with theirs.

Also, many major buyers are increasingly putting their IoT sensors in the factories of their contract manufacturers and suppliers that haven't yet moved in that direction.

"They want to get a real-time view of progress," McBeath said. "It's one example of a contract agreement: You're not just sending me things, but are also providing information. You need to tell me when you start making it and when it will arrive."

If a contractor balks, the buyer needs only to say it will implement its IoT sensors with another manufacturer or supplier, he added.

5. Create an IoT data analysis strategy

Done right, IoT sensors should not only boost supply management efficiencies, but all the data that sensors collect should also create new business models, Titze said.

As an example, aside from serving a manufacturer's initial purpose of monitoring the wear and tear of machines, IoT sensors can also provide insight on how those machines manufacture products, enabling the manufacturer to inform a client if its particular product needs to be redesigned so it can be made more efficiently.

But companies will need to read and analyze all that data, and that undertaking is often overlooked, either because of a lack of interest or because they don't have data scientists and the necessary technology, Pelino said. Companies need to step back and ask if they want or have data experts who can look for trends.

"Information is much more valuable when you can look at it across various levels," she said.

IoT data tends to not be fully realized, as companies ignore the new insights the data provides and, instead, focus only on how it applies to the use cases for which they want answers, Pelino said. But companies shouldn't hesitate to harness the full potential of the data. For example, because of their analytical proficiency, data experts can identify unseen trends that can get the supply chain working more efficiently.

McBeath, Pelino and Titze all recommend taking your time when implementing IoT sensors and technology. It's a process that shouldn't be rushed, and once the technology is implemented, Titze added, "test and test." Then, only use it initially on low-hanging fruit, so you can ensure that using IoT in supply chain management ultimately delivers the data that will change your business.

Next Steps

Process manufacturers among those to benefit from IoT

IoT speeds to the freight industry

An in-depth look at IoT and the supply chain

This was last published in May 2017

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