Now here’s a question. Assume that manufacturing supply chains are 100% reliable, and deliver to manufacturers exactly the raw materials and components that they require, when they require them. In such a scenario, how much raw material and component inventory would manufacturers need to hold?
In theory, pretty much zero. Because why would you hold inventory, if manufacturing supply chains could flexibly deliver to manufacturers precisely what they needed, when they needed it?
That’s certainly the guiding principle behind Just in Time and lean manufacturing, for sure.
Manufacturing supply chains hate uncertainty
If that all sounds a bit radical, consider why manufacturers actually hold raw material and component inventory.
Late delivery from suppliers, due to suppliers’ scheduling and capacity limitations, for instance. Transport delays, while shipped goods are en route between the supplier and the manufacturer. Various natural disasters or potential business interruptions—fire, earthquake, flooding, and so on. To all these things, manufacturing supply chains are vulnerable.
And that’s not all that’s uncertain, of course. Also uncertain is the level of demand that manufacturers place on their manufacturing supply chains for the raw materials and components that they need. Forecasting limitations, irregular ordering patterns, and spikes in demand caused by weather, seasonality, and other such impacts on manufacturing supply chains.
Roll it all together, and an inventory of raw materials and components acts as a buffer against such uncertainties, keeping factory floors productive.
Manufacturing supply chains and the Internet of Things
All of which sets the scene for what could well be the biggest impact on manufacturers’ approach to supply chain management since Just in Time and lean manufacturing—innovations in thinking, remember, that now go back 50 and 25 years respectively.
Namely, the Internet of Things, and the introduction into supply chains of millions—or billions—of Internet-connected intelligent devices where none now exist.
Analyst firm Gartner Group, for instance, has forecast a thirty-fold increase in such Internet-connected physical devices by 2020, predicting that this will “significantly alter how supply chains operate.”
The size of the Internet of Things, it observes, is likely to reach 26 billion installed units by 2020, up from 0.9 billion just five years ago—transforming both the amount of information available to supply chain managers, and how their individual manufacturing supply chains work—both upstream and downstream.
The upstream manufacturing supply chain
So how exactly will it all work? Let’s consider the upstream manufacturing supply chain first.
Fairly obviously, Internet-connected intelligent devices, located at strategic points within the manufacturing supply chain, can do an awful lot to eliminate the uncertainty that drives raw material and component inventories.
Communicating directly with stock replenishment systems and Vendor Managed Inventory systems, such devices can make complete real-time visibility into inventory levels and consumption rates a practical reality.
So too with transport links. Where exactly is our consignment? Not only is it possible for trucks, aircraft and ships to constantly transmit real-time location status and predicted time of arrival, but individual consignments—shipping containers and pallets, for instance—can also keep in touch, in real time.
Yet again, the result is to eliminate a lot of the uncertainty within manufacturing supply chains—and with it, a lot of the inventory buffers, too.
The downstream manufacturing supply chain
And that’s not all. Because one manufacturer’s upstream manufacturing supply chain is another manufacturer’s downstream manufacturing supply chain. Meaning that it’s not just manufacturers’ raw material and component inventories which benefit, but other manufacturers’ finished goods inventories, too.
And even better, that forthcoming explosion in internet-connected intelligent devices is already driving new business models, again helping manufacturers to cut the amount of inventory held within their manufacturing supply chains.
The concept of ‘servitization’, for instance, sees customers paying for equipment on a usage basis, rather than through outright capital purchase. Again, it’s those internet-connected intelligent devices that enable the equipment in question to ‘call home’, triggering invoices, and issuing alerts when consumables need topping-up or replacing.
Manufacturing supply chains: the future is here
So how far off is this brave new world? The answer: closer than you think.
Because those 26 billion Internet-connected intelligent devices don’t all arrive in 2020. Some are here now—and the pace of installation is picking up.
So whatever your manufacturing supply chain looks like today, the odds are good that it will look very, very different in five years’ time.