A technological transformation is taking place in supply chains across the globe today.

As businesses work to build more agile, digitally enabled supply chains, their biggest challenge is determining which tools will drive real business value.

Logistics technology investments are on the rise, with organizations projected to spend nearly $88bn on supply chain tech by 2022. Of those investments, $2.63bn will include so-called “disruptive” technologies, as businesses embrace the latest innovations in an effort to sharpen their competitive edge. Emerging technologies such as artificial intelligence, machine learning and blockchain promise to improve automation and visibility across the supply chain, leaving businesses with a dizzying array of options to consider as they build their supply-chain tech stacks.

The internet of things (IoT) is among the buzziest of these technologies, with billions of connected devices worldwide poised to deliver real-time, highly nuanced insights. But while IoT holds real potential for optimizing supply chain operations, businesses must balance this potential with the costs and risks of implementation. For many organizations, the question remains: Should IoT have a future in my supply chain, and if so, to what extent?

Understanding IoT

The number of devices connected to the internet has proliferated in recent years, with an estimated 8.4 billion in 2017, and growing to a staggering 20.4 billion by 2020, according to Gartner. These smart devices include everything from security cameras to electric meters, with industry-specific applications predicted to represent 3.2 billion devices by 2020.

For supply chain managers, sensor-based logistics offers clear advantages to improve visibility and control, including:

• Real-time updates on every shipment. Location tracking is only the beginning, with IoT devices engineered to detect subtle changes in humidity, temperature and other factors. Armed with such information, organizations can carefully monitor perishable shipments or fragile goods, such as electronics, to minimize the chances of damage or spoilage.
• More powerful predictive analysis. Connected devices produce a tremendous amount of information that, when harnessed correctly, can enhance business decision-making. By establishing a centralized technology platform that collects and analyzes all relevant supply chain data, businesses can gain insights about carrier performance, average lead times and other key business indicators.

The benefits of IoT could add up to big value for businesses, with Cisco predicting a $1.9tn boost to supply-chain and logistics operations by 2025 through increased revenues as well as reduced costs. Among businesses already implementing IoT in logistics, 74 percent report a related rise in revenue, according to Deloitte.

The truth, however, is that many businesses simply aren’t there yet. One 2018 survey found that 95 percent of business leaders aren’t fully capitalizing on digital technologies in their supply chains, with only 54 percent reporting plans to implement IoT in the future. And in a 2018 study, Gartner noted that the majority of IoT supply chain tech will be proof of concept well into 2021.

Should You Get Connected?

In a historically low-margin, cost-driven environment like logistics, the advantages of enabling containers or shipments with IoT devices must outweigh the costs. High-value electronics, hazardous shipments or cold-chain goods are prime candidates for this type of tracking, to minimize the risks of theft, spoilage, delays and other disruptions.

On the other hand, even a $10 sensor for a container may be a hard sell to a big-box retailer who must rein in transportation costs to keep prices competitive for customers. The growing “anywhere, anytime” customer expectation is changing the nature of today’s supply chains, with costs skyrocketing as businesses rely on expensive airfreight and more last-mile deliveries. With barcoding already prevalent on containers, shippers that need little more than location tracking are unlikely to find the ROI they need in IoT implementation just yet.

Instead, many businesses might first experience an IoT-enabled supply chain through downstream use by their carriers. For companies operating large fleets of assets, enhanced data on location, productivity and other factors can deliver significant value to their businesses and, ultimately, to shippers. For example, equipping chassis with sensors could help ocean freight carriers resolve the perennial problem of locating enough chassis to move containers efficiently, reducing delays in turn for their own customers.

As for shippers, the potential to drive measurable value should be the litmus test for adopting any new supply chain technology. Key factors to consider before implementing IoT include:

• How to leverage the data. The sheer volume of information these devices produce must be converted into understandable, actionable insights. A supply-chain platform is essential for collecting and managing data in a way that improves supply-chain visibility and control.
• How to measure ROI. When you’re moving goods through a complex, multipart supply chain, things can — and often do — go wrong. Your technology investments should aim to eliminate those failures wherever possible, through improved visibility, responsiveness and predictability. Consider your most impactful KPIs, from reducing spoilage to minimizing transit-related delays, to measure the value of IoT to your business’s bottom line.
• How to ensure security. Protecting the integrity of your existing supply chain is paramount when making any new investments. An experienced supply-chain partner can help you implement new tools in a way that minimizes operational risks.
• How it fits into my overall supply chain. True supply-chain optimization requires understanding how your tools, processes and people can work together efficiently. The right partner should take a holistic view of your entire supply chain, helping you to implement the technologies that will meet your unique business goals and requirements.

While IoT holds tremendous promise for the logistics industry, investing in sensor-based logistics and other emerging technologies remains a strategic and complex decision. By considering how each investment fits into the big picture, organizations can build modern, digital supply chains that put them ahead of the competition.

Jon Slangerup is chairman and CEO of American Global Logistics, an international supply-chain and logistics services provider.