Get Ready for IoT in Supply Chain Planning

Supply chain leaders must understand how the IoT will affect supply chain planning.

How would you like to order a pizza at the push of a button? Or laundry detergent or dog food? Internet of Things (IoT) devices give consumers these types of options every day. But how do retailers and their suppliers stay ready to answer these immediate requests without disrupting their supply chains?

During his session at Gartner Supply Chain Executive Conference in Phoenix, AZ, this week, Andrew Downard, research director at Gartner, said the constant alterations to customers, routes to market, suppliers, products, technologies and service partners are just part of the industry landscape. But even in this environment of continual change, the rate of growth of IoT devices capable of placing orders is exceptional.

Get Ready for IoT in Supply Chain Planning
Gartner analyst Andrew Downard explains how the IoT is impacting supply chains at the Gartner Supply Chain Executive Conference in Phoenix.

“Right now, leading manufacturers in this area are experimenting and seeing early benefits by partnering with retailers using IoT,” said Mr. Downard. “Why is the IoT component important? Because transactions made through devices skip the online shopping cart, making abandon rate no longer a factor. The path to purchase has been shortened and robbed of friction.”

Gartner predicts that by 2018, retailers engaged in IoT partnerships with major manufacturers will take significant market share from competitors due to direct connections with consumer lives. An example of this trend is the Amazon Dash button.

The Amazon Dash button is a specific example of a more general class: IoT order buttons. These are small devices with a single Wi-Fi-enabled button that enables customers to order a predetermined item from a retailer. With Amazon Dash, one button maps to one product, typically a branded consumable such as paper towels, sports drinks or garbage bags.

“The fusion of digital business and the IoT in the form of IoT order buttons is very quickly affecting consumer habits and changing the way products are purchased,” said Mr. Downard. “This behavior was born in the consumer retail space, but is quickly migrating to other industries.”

What this means for supply chain planning

When a company joins an IoT order button program, supply chain leaders have some design choices to make. In selecting certain supply chain pathways, companies should focus on using well-defined fulfillment methods that deliver reliably high service levels. For some companies, that means fulfilling product orders exclusively from their own internal warehouses, while for others it means relying solely on third-party distribution partners. Similarly, in selecting certain products, companies generally include high-volume items with stable supply and demand across a number of channels.

Supply chain leaders need to work with their planning teams and sales and operations planning (S&OP) process owners to make a conscious decision about which products and fulfillment methods will work best for IoT order button programs,” said Mr. Downward. “Often, that means choosing low-variability, high-volume products with well-defined fulfilment pathways.”

Sustained increases in demand may result from new products that embed IoT technology, which couldn’t exist outside the manufacturer-retail partnership.

Prepare for direct and indirect demand drivers across multiple channels

Just entering a product in an IoT button program will not necessarily directly result in significantly increased demand. However, various indirect effects of participation in a program, such as media coverage of the program or promotion of the company by the IoT button’s company, can drive temporary demand increases across multiple points of distribution. Sustained increases in demand may result from new products that embed IoT technology, which couldn’t exist outside the manufacturer-retail partnership.

“Supply chain leaders need to be aware of what promotional activity is planned in connection with IoT button launches and account for it in demand and supply plans,” said Mr. Downward. “This can be handled within standard S&OP discussions — the same as with the launch of products into any new channel — and used to inform planning and inventory management decisions.”

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