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For manufacturers pressed to reduce costs, increase agility and provide disruptive innovation, the digital supply chain revolution holds great promise, and great challenges.
The Industrial Internet of Things (Industrial IoT, or IIoT) is connecting formerly discrete technologies — sensors, robotics, AI, the cloud, data capture and analytics — with people and places along the supply chain. But, vital as the connections are among a manufacturer’s people and assets, the true benefit lies in how effectively the company integrates its newly-digital operations with its entire ecosystem.
“We should see IIoT as not just an efficiency initiative, but as the new, digital engine of an enterprise,” says Charlie Covert, Vice President of UPS Customer Solutions for industrial and high-tech customers. Covert points to his own company’s accelerated investment in its smart logistics network, which, when fully implemented, is expected to achieve between $300 and $400 million dollars in annual cost savings and cost avoidance.
“We know that for every five percentage points of volume that’s processed by our highly-automated facilities, we generate about $30 million in annual savings and cost avoidance,” according to Covert. “So, making the IIoT investment pay-out requires more than knowing when a CNC machine is about to fail. It is about that,” he says, “but we need to think bigger.”
Covert shares a scenario whereby data collected from devices throughout an ecosystem, and then analyzed, might prove that it would be more efficient to 3-D Print 20% of a product portfolio. “That would result in fewer lathes to maintain and to depreciate, less on-hand inventory and less dead stock to write off. Could that money and time be channeled into R&D?”
Covert also suggests bringing in outside perspectives at the earliest point in IoT discussions. “New perspectives can help us break out of patterns of problem-solving that build over time, and that can prevent disruptive thinking.”
The era of manufacturers owning or managing every step of their value chains is nearing an end. The complexity of modern manufacturing has already drained the pool of skilled workers. And no one fully knows the skills that will be needed to evolve from IIoT as a strategy to IIoT as a way of life.
“It’s difficult and expensive for a manufacturer to build digital capabilities exclusively in-house,” according to Charlie Chung, UPS Senior Marketing Manager for industrial manufacturing customers. “Vendors, suppliers, logistics providers – you need to get more digitally connected to everyone along your value chain, so you can support each other with data and insights that benefit you both.”
Chung points to a recent UPS survey of industrial manufacturers designed to gauge their progress in digitally-connected operations. “We found that about half of those surveyed are digital ‘thrivers,’ meaning that they are much more likely to have a long-term plan that guides the connection of their products and assets. And they’re more connected to the buy- and sell-sides of their organization, so they’re integrating supplier and customer data into their supply chain decision-making.”
A paper from Harvard Business Review and Deloitte asks, “Is Collaboration the New Innovation?” and defines “industrial mash-ups” as alliances where “a company shares an asset or capability with one or more partners in a way that creates new possibilities for all.” One of the benefits of such alliances is that they can come together faster and less expensively than M&A. For midsize and larger companies, alliances can help them keep pace with fast-moving upstarts. And for the upstarts, they often get a much-needed cash infusion, and the benefits of vertical industry experience and business connections.
Alan Amling, Vice President of UPS Corporate strategy, points to some of the “mash-ups” underway between the logistics giant and several emerging tech companies. He refers to collaborations with UPS, Fast Radius and SAP to create a distributed 3-D Printing network, and with Cy-Phy Works to test drone deliveries of humanitarian and consumer shipments.
“You might ask how these alliances relate to our core business of global logistics,” he says. “The exciting part is that not everything does. But these technologies are important to the future, and important to our customers, so they’re important to our future, as well.”
Companies with installed industrial bases are well aware the dreaded ROI factor in pitching capital investment. Even a pilot IIoT investment needs solid planning and a bankable business case. But how do you quantify a movement that’s unfolding by the minute?
Few know better than UPS’s Jack Levis the value of building use-cases to convey the transformative nature of something like IIoT. Levis is one of the pioneers of the ORION optimization system that analyzes millions of data points per second to guide UPS drivers on the most efficient routes. ORION stands for on-road integrated optimization and navigation, and is being used by over 50,000 drivers daily.
Says Levis, “UPS has always been an innovator in supply chain efficiency. But we saw an opportunity to draw on what, at the time, was the budding field of data analytics. But we needed proof it would pay off.”
Levis relates stories of the algorithm’s limited initial rollout, and the skepticism of drivers with decades of experience on their routes. “ORION makes decisions based on the entire day, and all the factors in between, like traffic, weather, terrain, the number of stops, and so on. So it may tell a driver to go past three stops and come back later. Drivers certainly thought we were out of our minds.”
Levis notes, however, that ORION proves itself right time and again. Today, the algorithm is credited with eliminating 100 million driver miles a year, which is in addition to the 85 million miles previously reduced by UPS® Package Flow Technology.
“We built a business case, and then we built a prototype and tested that in real time. I use the ORION example because of the parallels with the Industrial Internet of Things, in that you don’t need to, as they say, ‘boil the ocean,’ when starting your journey. Identify a problem, figure out what tactics and data you need to solve the problem. Test, learn and keep proving its worth, and you’re on your way.”
Winston Churchill said, “A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty.” That same caution applies to manufacturers who might be overwhelmed by the first step into IIoT; or to those who hope to learn from their peers’ missteps first.
According to UPS’s Covert, the door is closing to manufacturers who fail to use the new wave of technologies to their advantage. “The pace of tech innovation and adoption makes it dangerous to think you can be successful any more as a fast-follower,” he says. “Many see IoT as something that’s a few years down the road, but it’s more like a few months down the road.”
Covert suggests that the first step is as simple as getting a conversation going, and that the tactics will flow from there.
TALK – Gather all the stakeholders. It’s a broader group than you might imagine: sales, marketing, IT, customer service, suppliers, and logistics providers all have a stake. Covert adds, “Involve UPS at the earliest point in the process, so your business strategy and supply chain are in sync.”
THINK – Think through the brainstorming session. Set a strategy. Create task forces, test scenarios and milestones. Says UPS’s Levis, “Start small. Test, learn, improve and expand. And don’t hesitate to consult with outside parties, or to bring in specialized expertise.
TRANSFORM – Over time, often imperceptibly, trial-and-error will lead to more confident strategies and transformative thinking. What that ultimately looks like might be different for every manufacturer, but one thing is certain – now, today, is the time to start the journey.
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