At the beginning of 2017, IDC published its forecast for worldwide spending on the Internet of Things (IoT). It came up with the figure of $737 billion for spending on IoT in 2016 to cover organizational investments “in the hardware, software, services, and connectivity” it requires. That amount would continue to grow based at “a compound annual growth rate (CAGR) of 15.6% over the 2015-2020 forecast period, reaching $1.29 trillion in 2020,” the firm projected.
A huge chunk of that is to come from industry. In fact, IDC’s estimates allocate the lion’s share of IoT investments in 2016 to that sector and found that it involved several large investment amounts. For the 2016, investment in IoT for manufacturing operations would have amounted to $102.5 billion. It also involved a chunk of investment in logistics, specifically freight monitoring to the tune of $55.9 billion.
The motivation for such hefty investment at this time, according to IoT World’s report Manufacturing IoT & Supply Chain Transformation in 2017 (registration required) “is simple: a compelling ROI through increased efficiency, productivity, reliability and safety.”
Indeed, that fits “the formula for the Industrial Internet” that GE set forth in its 2015 Industrial Internet Report. It described the IoT for industry “as a source of both operational efficiency and innovation that is the outcome of a compelling recipe of technology developments,” which are composed of the following parts.
- Data: both from the standard forms of Big Data and the additional streams coming through the sensors that track “equipment, products, factories, supply chains.”
- Analytics that can assess the status of the connected things.
- The definitive core of the business that defines the desired outcomes
The value proposition of the whole is greater than the sum of the parts individually, as it represents, the essential “integration of the physical and digital worlds.”
Business executives are aware of the great potential IoT holds for their businesses. IoT World’s report cites an SAP survey of business executives in which the primary advantage of IOT is identified as increased productivity (78% of respondents), closely followed by process automation (72%) and optimization of the value chain (64%).
The report also highlights the benefits IoT offers on the logistical end. It refers to an estimate that spending in that area will increase nearly 300 percent by the year 2020. At that point, it is anticipated that “90% of commercial vehicles will be equipped with connected fleet-management systems.”
Some businesses expect that number to hit 100% at some point. Among them is Globe Tracker, which provides supply chain and logistical tracking solutions. It explains that the ROI on the technology is so obvious that it wouldn’t make sense not to implement it. “In a Just-In-Time (JIT) global market economy, the pace and precision at which raw materials and finished goods move through the supply chain directly impacts cost, not only of the landed material costs or the shipping itself, but also the secondary and tertiary cost effects of these delays and inaccuracies can have down the line. “
Globe Tracker refers to researchers’ estimates of “improvements in logistics and cost savings from real-time cargo monitoring” that project “an average savings of anywhere from $300 to $1,000 per container trip when using advanced supply chain digitization.” Consequently, it asserts, it’s possible to realize ROI within just a single year.
It also points out that “where competition is stiff and margins are slim, reducing overhead costs, such as insurance, spoilage, and theft, and increasing the speed at which cargo moves becomes an attractive method of increasing profitability.” The visibility enabled by IoT allows a business to identify which causes lead to which results and from there analyze what changes can be made for better outcomes.
The IoT report quotes Sabby Gill, executive vice president of Epicor Software International, on the ramifications of implementing IoT that extend to contextualized data updated in real-time that can help identify problems before they lead to harmful effect – both to address them in the moment and to strategize more effectively for the future with “predictive modeling.” The way he puts it is: “The value-add is aggregating data quickly to make meaningful decisions today that manufacturers couldn't make yesterday.”
That’s the type of change we’re starting to see in the supply chain in 2017 resulting from the increased investment in the technology in 2016.