After several years of using COVID-19 to sell their digital transformation efforts, hardware and software companies focused on the industrial IoT are now pitching supply chain intelligence (with a dash of sustainability thrown in). I’m seeing many more pitches related to managing a supply chain in a post-pandemic world and using technology as a way to make operations more efficient and, at the same time, help with carbon reduction goals.
Prior to the pandemic, customers were letting vendors languish in “pilot purgatory” as both parties realized that selling massive technology infrastructure was complex and hard to scale. Worries about security didn’t help. However, when the pandemic struck and factories shut down, buyers jumpstarted their pilots as a way to remotely manage operations so fewer employees had to go in. But now, industrial IoT has a new problem to solve and it ties back to the supply chain.
After spending two years talking about a global chip shortage, Intel’s CEO warned last month that chips would continue to be scarce into 2024 because of a manufacturing equipment shortage. Meanwhile, the costs of goods and raw materials are steadily rising, although it’s unclear if that’s because of actual inflation or profit-making on the part of companies.
Ericsson just released a report on how IIoT can help with supply chain challenges in which it touts its 5G networks and other IoT network technology and services:
“[A]t Ericsson’s 5G smart factory in Lewisville, Texas, a digital asset tracking solution integrates with factory floor sensors to track critical assets’ location, condition and status, providing real-time visibility of finished goods into the production floor. The program has delivered a 2-5 percent cost avoidance on indirect spare purchase items — critical during the current supply chain shortage.”
I see variations on this theme in my inbox all the time. I also see examples of tracking assets as a way to save on costs, with those cost reductions also leading to the reduction of raw materials. Which is great for the environment!
Indeed, as supply chains get tighter, downtime becomes more costly, and the benefits of spending on an asset tracking product or predictive maintenance become easier to see, all of it makes sense. For example, if it takes four weeks to get a machined part as opposed to two days, figuring out when the part may break ahead of time or finding a spare part in a warehouse can save even more money. The stakes are simply higher.
But I’m wondering two things. One, is there a new innovation or capability driving the shift in sales? And two, why has the underlying shortage been happening across so many industries for so many years?
The answer to the first question is easy. There’s been no real shift in the tech solutions being offered. We’re simply seeing a repackaging of products designed for tracking getting pulled into more and more places because they are getting slightly cheaper or more robust, thanks to economies of scale in manufacturing and new forms of connectivity. Plus, the stakes are higher. Companies that have optimized their own supply chains are also pushing their suppliers to join the fun, so they can see issues coming from “further away,” as it were.
The answer to the second question, which focuses on why this is happening, isn’t as clear-cut. I’ve tended to blame short-term thinking for squeezing all of the slack out of the system with just-in-time manufacturing. But this essay over at The Prepared explains in much more detail. Go read it. Seriously, you’ll be the pedantic person at dinner parties who can halt the conversation about supply chain shortages with an irritating, “Well, actually…”
The author starts with the history of just-in-time manufacturing, starting with Toyota and its adoption of the manufacturing system in the 70s and 80s in America. He teases out the burdens this adoption places on smaller suppliers to act as inventory storehouses for their largest customers, then points out that, historically, governments were the source of stockpiled supplies. Canada, for example, has its maple syrup reserve. The U.S. has stores of oil and other necessities.
The problem is less about having stockpiles and more about moving the necessary items from different points in the supply chain. The author writes:
“The other factor is the distance between the stops on the supply chain. As labor has shifted to increasingly diffuse peripheries, the movement of materials has become more complicated. There are more chokepoints—more opportunities for the circumstances of geography to intrude on the flat world of the supply chain. Every border crossing, every port, provides an opportunity for friction, and the infrastructures for all sorts of specialized manufacturing are now worlds away from each other. And it is this geographic distribution–not just-in-time manufacturing–that is the biggest cause of pandemic-induced supply chain disruptions. It is, in other words, an inevitable consequence of global supply chains.”
He suggests that to help solve this problem, governments add to stockpiles and companies manufacture more things locally so the distance that a part has to travel shrinks.
But thanks to the ongoing pandemic and disruptions caused by climate change, he also thinks supply chain disruptions are here to stay.
So short of a U.S. Strategic Semiconductor or Bucatini Reserve, we should probably look at ways to create manufacturing locally, even if it’s for stopgap products that are 3-D printed while we wait for the final parts to come in. And sure, if you want, go ahead and track those assets using some form of IIoT product.