Smart Supply Chains: Implications for supply chains

>> Smart supply chains: The role of IoT

IoT and the COVID-19 pandemic

HSBC expects the COVID-19 pandemic to catalyse businesses adoption of, and investment in, IoT technologies as a means to ensure operational continuity in the event of a future external shock. IoT could help businesses cut costs, and improve efficiency and flexibility all through the supply chain – from manufacturing in smart factories through to logistics and to after sales services.

Adopting IoT solutions can provide businesses with greater visibility of their supply chain and enable producers to make business decisions quickly via the rapid exchange of information in real-time.

Indeed, the COVID-19 pandemic has highlighted just how important having access to such data is. Knowing where inventory is located, when components might run out, or where particular shipments are in the world at any precise time could enable businesses to have better oversight of their supply chains and to be more agile in responding to future production or trade disruptions.

A recent survey by Inmarsat found that over half of respondents said that challenges related to COVID-19 have underlined the importance of IoT, while 47% have accelerated the deployment of IoT projects in response to the pandemic.

And businesses are already looking to digitise in the wake of the pandemic. Expenditure on enterprise IoT solutions grew by 12% in 2020 to nearly USD130bn according to IoT Analytics, with this set to rise to USD412bn by 2025. Although many hardware installations were postponed due to the pandemic, businesses looked to spend more on IoT cloud and infrastructure services such as remote asset monitoring solutions.

A separate survey by Gartner found that 47% of businesses plan to increase their investment in IoT technologies to reduce costs going forward, with Gartner estimating that by 2023 one-third of mid to large size companies that implemented IoT will have implemented at least one ‘digital twin’ motivated by COVID-19.

For example, Unilever has created virtual models of its factories, with IoT sensors that feed real-time performance data (e.g. on temperature and motor speed) to the enterprise cloud. The company uses advanced analytics and machine learning to simulate various scenarios to identify the best operational conditions to improve efficiency. In one instance, Unilever’s digital twin used data on how long it takes to produce one batch of liquid (e.g. shampoo or detergent) to predict the correct order of processes to get the most efficient batch time – enhancing the production capacity of the plant.

In the sections below, we outline examples of how IoT can be used through the supply chain for: manufacturing, predictive maintenance, logistics and post-sales.

Manufacturing and predictive maintenance

Predictive maintenance is a key use case for IoT. IoT sensors can assist with predictive maintenance of factory equipment by helping to reduce machine downtime and ultimately minimising costs for businesses. For example, Senseye estimates that Fortune 500 companies could collectively lose around 3.3m hours each year to unplanned downtime at a cost of around USD864bn or 8% of their annual revenues.

KUKA – a German producer of intelligent automation solutions – built an IoT-enabled factory for Jeep in the US that automated the production of unpainted vehicle bodies.

By way of example, KUKA – a German producer of intelligent automation solutions – built an IoT-enabled factory for Jeep in the US that automated the production of unpainted vehicle bodies. To do so, it linked the plant’s 259 robots and 60,000 other devices with powerful backend monitoring and data management systems. The system controls the entire production process from receiving the materials to the actual production and dispatch of goods, and can identify bottlenecks and optimise capacity utilisation. This allows products to be manufactured around the clock and enables the factory to easily produce vehicle bodies for different Jeep models. Today, a vehicle body comes off the production line every 77 seconds.

IoT solutions can also be used to collect data on product defects, while IoT wearables and other devices could help to alert workers to potential hazards within a smart factory, and assist with training and maintenance. For example, Bosch’s augmented reality (AR) solutions can help auto repair technicians see where hidden components are located in vehicles, along with instructions on how to fix an issue and any special tools required to do so. Bosch estimates that such AR applications in car service workshops could lead to time savings of 15% on average per step taken (even on common vehicles and less complex repair tasks).

Logistics and warehousing

IoT technologies can also be deployed to monitor and adjust climate conditions for temperaturesensitive goods during production, transport or storage. For example, Maersk’s Remote Container Management (RCM) system enables customers to remotely track the location and conditions (e.g. temperature and humidity) of refrigerated containers in real-time. The conditions can also be adjusted remotely if they deviate from certain thresholds, reducing the number of perishable goods that get spoiled during the journey, as well as time spent on container inspection upon arrival.

Around 94% of Maersk’s more than 380,000 refrigerated containers are supported by the RCM technology.

According to the shipping line, which transports around 27% of the world’s refrigerated containers, around 350m tonnes of food are lost every year due to inadequate storage and delays during transportation. Today, around 94% of Maersk’s more than 380,000 refrigerated containers are supported by the RCM technology.

Being able to remotely monitor and control the temperature of products during transportation matters for other industries too such as pharmaceuticals. According to Carogsense, around 25% of vaccines are degraded when they reach their destination due to incorrect shipping conditions, while the IQVIA Institute found that the biopharma industry loses around USD35bn each year due to temperature failures in logistics. However, this number could be even higher in the wake of the pandemic and the global rollout of COVID-19 vaccines.

Using IoT sensors could help pharma manufacturers proactively identify weak points along the supply chain where temperatures tend to change, and ensure that products such as vaccines remain safe in cold storage. For example, according to the International Air Transport Association (IATA), more than 50% of the temperature excursions occur during airline and airport handling.

Monitoring cargo remotely and in real-time could also help to speed up the movement and processing of goods at ports. This is particularly pertinent in the wake of the pandemic, as strong demand for goods combined with movement restrictions led to significant congestion at major ports around the world and lengthy delays in clearing cargo.

IoT sensors could also be used to ensure that returnable packaging such as boxes, pallets and roll cages do not go missing during transport. These products are key for facilitating goods trade flows but various case studies suggest that about 10-30% of these items go missing each year, which could increase costs for businesses that need to replace these.

In warehouses, IoT technologies can be used in automated guided vehicles (AGVs) to calculate the shortest route in aisles and restock inventory without human supervision, manage stock, and even fulfil orders. For example, Cainiao – Alibaba’s logistics unit – has nearly 700 AGVs that are aided by IoT to pick up and deliver parcels to other parts of the warehouse. The AGVs are also self-charging and are estimated to have significantly reduced the number of steps staff walk in a day, leading to a 30% improvement in personnel efficiency.

Especially, IoT can also be used for predictive maintenance post-sales, which could help to reduce the costs associated with returned goods as customers might be less likely to return a product if it is fixed quickly. For example, Caterpillar uses IoT in its machines to automatically detect faults. A notification is sent to Caterpillar field staff when a part is developing a fault, enabling them to send the affected businesses a replacement before the machine stops working completely. The data can also be used by companies to enhance future products and to fine tune their design.