In Lora Cecere’s Supply Chain 2020 study, the Internet of Things (IoT) was considered one of two disruptive technologies with the greatest potential impact on supply chain effectiveness, above technologies such as 3D printing and robotics. The other disruptor was advanced analytics, which was viewed as offering the greatest shorter term potential. IoT was considered to offer the greatest longer term potential.
By now there have been enough successful IoT use cases that McKinsey has been able to undertake a study to better understand what differentiates successful initiatives from struggling ones. They recently published their findings in a paper called What it takes to get an edge in the Internet of Things .
McKinsey surveyed IoT executives at companies that have moved beyond experiments and scaled up IoT. They included 300 executives in 11 industries in Canada, China, Germany, and the United States. From the study, they defined three “habits” that maximize the likelihood of successfully gaining traction with IoT.
Habit 1: Begin with what you already do, make, or sell
McKinsey says that the most successful companies often play to their strengths rather than bet on new or unfamiliar markets or new products. They found that companies that got the most economic benefit from IoT were nearly three times more likely than the laggards to add connectivity to existing products.
For example, UK-based coffee retailer Costa started from its successful coffee business and looked at how they could expand into kiosks that served areas such as train platforms where a full scale coffee bar wasn’t practical. They took a product that they already excelled at – barista quality coffee – and identified an opportunity to dramatically expand their business.
The key technology enabler was an IoT-based supply chain planning system that used POS data, telemetry and rapid re-planning to enable an entirely new approach to logistics and replenishment. Costa now has more than 7000 kiosks located in multiple countries, far exceeding initial expectations and transforming a portion of their business. They have redefined the ability to deliver premium coffee in thousands of venues that were not previously practical.
Habit 2: Climb the learning curve with multiple use cases
McKinsey says that IoT usage forces a cultural shift and stokes organizational energy behind its benefits. They say that “there is a clear learning curve that companies climb as they add use cases—and one that has a powerful impact.”
While Costa opted for more of a “big bang” approach, another UK-based organization, the National Health Service (known as the NHS) employed a more gradual rollout (although focusing on a single use case, rather than multiple use cases) in implementing a new supply chain planning system to manage the United Kingdom’s blood supply. They started in Bristol and rolled out one distribution facility at a time, building their learning curve as they added locations and gained experience.
As a result, the NHS was able to transition from a push approach to a demand-driven pull approach for a network that includes around the clock demand, blood components of all kinds, and hundreds of hospitals. The system employs electronic signals that communicate real-time demand from hospitals, which is then translated into a pull signal back through distribution, manufacturing, collection and supply, in a comprehensive and scalable “vein-to vein” system. Because the system is highly automated, it has relieved hospitals of the time-consuming effort to order, manage and replenish blood supplies.
Habit 3: Embrace opportunities for business-process change
Third, McKinsey found that “deriving real business gains from IoT efforts requires changes to a business process—the hard job of modifying the way a company does things.”
We saw this in both the Costa and NHS implementations, but at Costa it was more dramatic, where the role of the “brand guardian” was redefined. Because there was no system in place to consolidate and analyze data, they initially relied on manual spreadsheet-based estimates based on current stock holding and average cup sales. Now the unmanned coffee stations transmit POS data every 15 minutes to help forecast demand, optimize inventory, and generate replenishment proposals for distribution and procurement; SCP software calculates the refill order requirements nightly for frequent, low-volume deliveries.
For those exploring IoT, we would suggest looking for areas of your supply chain where acquiring data could dramatically improve operations. In many cases, the data is available, but the tools are needed to acquire and leverage it. Those tools are increasingly available and the habits needed to achieve success are more broadly understood.
Click below to see a 4 minute video on the NHS’s IoT-based supply chain planning.