Reducing logistics costs by enabling a pull-based, vertically integrated supply chain through IoT

3 mins read

Neil Hamilton, VP of Business Development, Thingstream gives his view on a pull-based supply chain of the future and how IoT will play a crucial part in 2019 and beyond.

Excerpt from Supply Chain Digital:

The traditional supply chain model often used in retail distribution is outdated and broken. Customers want more and they want it now but businesses’ inability to step up to the mark can leave customers waiting for product or worse - not waiting and going elsewhere. To match modern customer expectations, business needs to adopt modern methods. Changes of this type are far from easy, however, IoT could hold the key to unlocking the supply chain of the future.

Thanks to the rise in on-demand services and almost anything you want being just a click away, consumers are becoming more and more demanding. In sympathy with this, commerce and industry are responding by doing everything they can to improve the customer experience and get an edge on the competition.

In the best case scenario, the customer will wait for the goods to become available and purchase anyway; in other cases, the customer will shop elsewhere or even give up on the purchase altogether. It’s all too familiar a story and it’s as old as the concept of commerce itself. However, it doesn’t have to be the case. With a combination of IoT (Internet of Things) technology and vertical integration of the order process, businesses can achieve a leaner supply chain and ultimately say goodbye to the phrase, “out of stock”.

The supply chain as we know it

In a traditional supply chain model, the process typically begins with the manufacture of a product. For this to happen, the manufacturer will need to create a bill of materials for the product and order enough raw materials from their suppliers to make enough of the product to meet consumer demand. For this to happen, the raw materials suppliers need to have enough stock themselves to fulfil the order. If this doesn’t happen, production could be delayed which could lead to a lack of stock at the retailers.

Assuming the manufacturer receives and stores everything they need to make the product, production can begin in line with forecasts. The manufacturer will need to build and ship enough to allow wholesalers to hold enough stock to meet customer demand. The manufacturer will also have to hold extra inventory to ensure that stock doesn’t run out.

Completely separate from the manufacturing process, the retailer will place an order with their wholesaler for enough of the product to meet projected customer demand. The wholesaler will then ship the product to the retailer where it will be shipped until sold.

And finally, assuming the retailer has stock, the customer places an order with the retailer. The retailer then takes the item from stock and ships to the customer.

The traditional process is highly-fragmented, has long lead times and relies on overstocking to make sure that there is always enough product to meet demand. When the process fails, as it often does, retailers are left without stock and the customer doesn’t buy the product.

The supply chain of the future

While it’s safe to say that the traditional supply chain works most of the time, it rarely works “well” from beginning to end in a consumer, retailer, distributor, manufacturer situation. Throughout the process, there are several steps where stock can pile up or run out. The problem is that production levels and stock levels are dictated by attempting to predict the future. That’s fine for anyone with a crystal ball but for anyone else, this can be problematic.

To solve this problem, the supply chain needs to be flipped on its head with the end consumer triggering the whole process at the point of order, with each stage of the process pulling from its respective supplier. A pull-based system of this kind can easily solve the problems of understocking and overstocking by ensuring that only what is needed is built and shipped and, of course, only when that thing is requested by the consumer.

It’s a simple enough idea, however, implementation might not be so easy. Before tackling the technicalities of vertical integration, every part of the supply chain has to be on board. This simply will not happen unless it can be proven to be worth the time, effort and cost of changing processes. For every part of the chain (except the consumer), this means a lot of data collection, flow mapping and analysis. An arduous task for humans. A piece of cake for a computer - or a network of intelligent devices.

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