Technology continues to introduce new disruptions to the supply chain. Jim Barnes, ISM Services managing director, recently spoke with MDM about the potential these disruptive technologies have for fundamentally changing how the supply chain operates.
As the industry is poised on the edge of the fourth industrial revolution, also known as Industry 4.0, technology continues to drive innovation and change throughout distribution and manufacturing. From online sales to 3D printers and more, Industry 4.0 is focused on tying these technologies together and using better data to create a more efficient and flexible supply chain model.
At its core, the question really is “How are we really leveraging the Internet and the data that’s out there?” says Jim Barnes, ISM Services managing director.
The Internet of Things
The idea of Industry 4.0 was first broadly introduced in 2012, and while there is wide recognition that technology and innovation have a key role to play in the future of the supply chain, in many ways the industry is still at the beginning stage of adoption for launching the next revolution.
For example, take the idea of the Internet of Things. More devices than ever are connected to the Internet, transferring more data between different points with less need for human interaction. The applications are countless at this point, but the industry is still at the early stages of understanding how to fully utilize its capabilities.
One area where the Internet of Things is starting to be adapted is with sensors, Barnes says. He recently worked with a large manufacturer of agricultural equipment that is exploring the use of sensors to improve production time of its equipment.
“They see a lot of opportunity to increase the uptime of machinery through smart sensors that let you know when something’s about to go bad,” which allows for better maintenance planning, he says. “That makes their products more valuable, more durable.
“And it gives them the opportunity to sell maintenance equipment around it, as well,” he says.
It has also seen early adoption in expanding the capabilities of RFID beyond just sending a signal to notify a picker of where a product is located. Product information, related products, etc., can all be accessed through that signal.
The Internet of Things enables a quicker transfer of information to people about the products they are researching and buying, “information that helps them make better decisions,” Barnes says.
A Strategy of Change
Beyond the better, quicker access to information, other technology developments are driving the industry to significant change. Adoption of automation in more areas of business – from picking to procure-to-pay – is changing the role of procurement from a transactional role to a more strategic one.
“A professor speaking at a recent conference said 47 percent of current procurement people who are doing tactical work are going to be out of a job within five years” as businesses upscale to become more strategic, Barnes says.
In combination with lean processes, a strategic approach to procurement can have a significant effect on the top line for a distributor, he says. For example, one company Barnes works with has several locations operating with different procurement strategies. One uses a material requirements planning (MRP) process for procurement, with tactical people placing POs and generating MRP orders. “They have their hands full just dealing with the MRP,” Barnes says.
A second, similar plant employs more Kanban and lean techniques to fulfill orders. “They’re doing it with half the people of the first plant, and they’ve actually got larger sales,” Barnes says.
Half of the procurement people at the second plant have a more strategic rather than
tactical role, meaning they’re doing more than just placing and fulfilling standard orders. They’re working on new product introductions with engineers and interfacing with suppliers on new product innovations.
Approaching procurement strategically rather than tactically also allows for building stronger relationships with suppliers. They can become partners in innovation, developing products and processes that benefit everyone along the supply chain.
“There’s a real challenge with strategic relationships between buyers and suppliers still,” Barnes says. There’s still too much of a focus on immediate returns and not the long term benefits of working together to bring something truly new to the market.
“Think about it. What’s driving the innovation? Is a customer willing to pay for it? Otherwise, why are you doing it?” Barnes says. “The most advanced supply chains are consumer insight driven. It’s not just the customer, it’s the consumer and the value to that consumer. If you’re not providing value to the customer, why are you doing it?”
If it’s something that is truly of value to the customer, they’ll be willing to pay a premium for it, which, if the relationship is strong, will benefit all parties involved in creating the innovative process or product. While technology may appear to be taking people out of more of the supply chain and lessening the role of relationships, the reality is that it is changing the role of relationships and in some ways making them all the more important.
“All of these buzzwords – Industry 4.0, Internet of Things, big data – they aren’t progressing at the pace everyone thought they would,” Barnes said. But you can’t discount them. “Over time they will make a difference – it can already be seen.” But the industry is just at the very beginning of uncovering where all the opportunities are.