Today, the so-called Internet of Things (IoT) is more hype than reality. But even if predictions are wildly off — they range from 20 billion to 50 billion connected devices by 2020 — this second wave of connectivity, focused on connecting things rather than people, has the potential to revolutionize the supply chain. Or, it could create utter chaos.
IDC estimates the installed base of the IoT will reach 30 billion units worldwide by 2020, with revenue expected to reach $8.9 trillion. Cisco predicts some 25 billion devices will be connected by 2015, and 50 billion by 2020. Gartner's forecast for Internet-connected devices is 26 billion units by 2020, up from 900 million just five years ago — a 30-fold increase. Whatever the final number, these “things” will impact the supply chain in significant ways.
“It's important to put IoT maturity into perspective, because of the fast pace at which it is emerging, so supply chain strategists need to be looking at its potential now,” says Michael Burkett, managing vice president at Gartner, in a press release about the report. “Some IoT devices are more mature, such as commercial telematics now used in trucking fleets to improve logistics efficiency. Some, such as smart fabrics that use sensors within clothing and industrial fabrics to monitor human health or manufacturing processes, are just emerging.”
As Burkett notes, the IoT will affect different industries in different ways, and at different paces. The supply chain for consumer goods will likely be an early adopter. Sensors on pallets, or even in individual products, could automatically report inventory levels back to the supply chain. TVs on Best Buy's shelves, for example, would know when inventory is low and tell Sony to build more TVs. That data that could flow back in the supply chain, alerting everyone from the contract manufacturer to the chip vendor. With self-diagnostics built in, such TVs might even monitor and report back problems after the sale, such as a component that is failing frequently.
However, the supply chain will be overwhelmed rather than fine-tuned unless there are ways to bring all this information together and analyze it. First, the industry needs standards, protocols, and common IT architectures to link the digital and physical worlds so that various systems can communicate among various suppliers. Organizations such as the Industrial Internet Consortium, launched by Intel, Cisco, IBM, GE, and AT&T in March, are trying to tackle this.
Second, there needs to be a central repository that stores the data, keeps it up to date, and provides a way for various supply-chain players to analyze it. That means using the cloud. Vendors are already preparing for this scenario. PTC, a company that sells product and service lifecycle management systems, has acquired two IoT-related companies in the last seven months. ThingWorx, which it bought in December, has an IoT applications platform that can be deployed via cloud, on-premises systems, or a hybrid of the two. Axeda, acquired in July, has a cloud-based platform for connectivity across a range of machines, sensors, and devices.
Most important, however, is the fact that this scenario requires a level of trust among supply chain partners that has historically been hard to achieve. Who wants their shipment data and inventory levels floating around in the cloud? What component vendor wants defect levels of its parts flowing all the way through the supply chain?
Will the potential benefits of IoT to the supply chain materialize? Not to the extent being hyped by many vendors, and not any time soon. This dreamed-of revolution would require the entire reconfiguration of the supply chain, not to mention the cooperation and trust of many links along that chain. Implementations will range in their levels of success, of course. And vertically integrated companies will have an advantage. But we're likely to see a lot more chaos and anarchy before we see any kind of IoT-based supply chain revolution.