PAL value chains: how IoT transforms manufacturing and supply

PAL value chains: how IoT transforms manufacturing and supply

Sean Culey

Make way for the onshore revolution. Transformation expert Sean Culey joins our writing team and explains how the rise of the Personal, Automated, and Local (PAL) value chain uses AI, the IoT, and robotics to shift manufacturing and supply chains to where the customer is, rather than where labour is cheapest. 

Ever since the financial crash a decade ago, investment has increasingly moved from speculation in financial products to supporting technologies that transform the way we capture and supply against demand.

Until this shift took place, progress in these areas was linear and deceptive; now, as the money flows in, it is poised to become exponentially disruptive.

On the upswing

This upswing of the ‘S’ curve of digital disruption is happening because of a clustering together of a number of different technologies that will transform the supply chain; new approaches that improve efficiency, eliminate intermediaries, and reduce waste.

These include autonomous vehicles, collaborative robots (cobots), 3D printing, blockchain, artificial intelligence, chatbots, and smart home hubs.

But that’s just the familiar hype. While media chatter about these technologies has been growing louder, fully operational versions have already entered the workplace.

So what?

The smart machine

The key is not to look at these technologies as individual innovations, but to instead step back and view them as interconnected components of a smart machine.

Seen from this perspective, it becomes apparent that this combination of technologies enables the automation of an entire end-to-end supply chain.

This combination of intelligent machines, software, sensors, and AI, creates what I call the ‘PAL’ value chain: one that is Personalised, Automated, and Local to the end-consumer.

PAL is the next evolution of the way we market, produce, and deliver goods; leaving the industrial age of mass production/marketing of commodity products behind, and moving to a chain of value-added services.

Let’s look at each link in this chain and examine the implications.

Personalised

Goods are becoming increasingly customised to the needs of individual consumers, or to consumer niches. Three technology groups enable this personalisation:-

Artificial intelligence and the introduction of sensors throughout the supply chain

This is allowing companies to monitor systems and understand data at a granular level, resulting in the ability to manufacture products based on demand signals, rather than long-term forecasts.

This increase in our ‘sense and respond’ capability means that rather than produce large quantities of product in advance and push it to market en masse (a wasteful, slow, and monolithic approach), final production can be delayed until actual sales demand is received. This creates a more sensitive, pull-based model.

The shift from physical to digital products and sales platforms

Digital products have the benefit of having a marginal cost of almost zero, incurring virtually no production, storage, and distribution overheads – and no waste. This creates a seismic shift of power from the producer to the consumer.

The creation of electronic marketplaces has also enabled vendors to deploy machine learning algorithms that track and monitor viewing and buying habits, so that rather than creating a single shop for everyone, they can effectively create a personalised shopping experience for each customer.

New manufacturing techniques, such as 3D printing

These enable companies to produce new types of products, rethink the production process, avoid the pitfalls and expense of subtractive manufacturing, and make things on demand to unique specifications.

For example, footwear companies such as Adidas (see video below) and Nike are already able to make a single pair of trainers to a customer’s required colour and style, rather than mass-manufacture the shoes and ship them to retailers in their millions.

Adidas’ automated, cobot-staffed Speedfactories are opening throughout the world, moving production closer to local customers. (See below for more on localised services.)

The company is even planning to offer personalised orthotics that are 3D printed, based on digital photographs of customers’ feet.

Automated

Autonomous vehicles and smart robotics will increasingly replace the need for manual labour to carry out repetitive tasks, such as production, picking, packing, and shipping.

Meanwhile, blockchain, Robotic Process Automation (RPA), and chatbots can carry out and track repetitive information-processing tasks, such as the recording and administration of all physical and financial transactions, and resolving customer queries.

In the long run, each of these machines and algorithms will be managed not by human hands and brains, but by AI systems, using predictive and prescriptive analytics to determine demand and reschedule supply automatically.

Localised

All of this automation will enable manufacturers to produce goods where the consumers are, rather than where the cheap labour is.

Many manufacturers have long misunderstood the total cost of offshoring their production, focusing only on the unit cost of labour, without realising the additional transportation costs, lead times, storage requirements, and quality issues that arise – not to mention the environmental impact of slow, monolithic production.

The cost advantages of using robots to make products on demand, and in smaller quantities, is becoming more and more pervasive, and stands to create an ‘onshoring’ revolution. Manufacturing is coming home, but not in the guise of old-style factories.

To support localised production facilities, a micro-logistics network, using warehouse robotics and autonomous delivery methods (drones and delivery robots) is also being developed to satisfy consumer demand for same and next-day delivery.

Meet your new PAL

To witness the PAL value chain in action, one only needs to look to e-commerce behemoths such as Amazon and Ocado. But it’s important to look behind the headlines and see what’s really happening there.

The Amazon shopping experience is increasingly personalised to each customer’s needs, with artificial intelligence systems making a series of recommendations based on previous purchases – and those of other customers with similar buying patterns.

Amazon is also increasingly extending the number of ways it can engage with customers. Perhaps the most innovative of these is its Alexa-based Echo and Dot range.

While masquerading as a smart speaker, these products link Amazon’s retail, fulfilment, and Web services operations via a new domestic platform that enables customers to order anything from tiramisu and toilet paper to taxis and takeaways, simply by speaking.

Behind this platform and Amazon’s ecommerce site sits an increasingly automated end-to-end supply chain. The management of this supply chain, including the purchasing, placement, and picking of products, is increasingly carried out by machine-learning-based planning and scheduling systems.

Finally, in order to meet its Prime Now one-hour delivery promises, Amazon is developing a series of localised, micro-logistics hubs in urban areas, with Uber-style on-demand delivery drivers. But this is merely an interim solution until Amazon rolls out its new autonomous, electric delivery robots to compliment the orange Kiva bots and other systems that already operate in its fulfilment centres.

Amazon’s plans in this area include flying delivery drones, as well as ‘mothership’ concepts – autonomous vans loaded with smaller delivery robots that make the last-stage deliveries. There are even patents for airship fulfilment centres that hover over urban areas and despatch drones to customers’ houses.

However ambitious (and legislatively complex) some of these proposals may be, the underlying principle is simple. The PAL model represents a totally connected supply chain, with demand and supply signals passed automatically up and down the chain, with multiple points of value generation for consumers and corporations alike.

This is fantastic news from a sustainability perspective, especially as goods are increasingly made on demand, reducing excess production, transportation, storage, and waste.

However, it will also see a supply chain increasingly devoid of human labour; managing the fallout from this will be one of the major challenges of the next decade.

Internet of Business says

Seeing manufacturing and supply chains logistics as a single machine-like system, as Culey does, might seem like a futuristic concept, but many companies are already taking over entire markets using this strategy. The key is to be imaginative and bold: have the courage to consider dismantling a monolithic system and replacing it with something smarter, localised, and more efficient in each territory – a global grid of granular services, and one that your customers may prefer.

Which brings us to the human element. Amazon is automating faster than any other company, and yet it has created 100,000 new human jobs in recent years, while the US automotive sector is reported to have created 230,000 new jobs in 2016, the same year it purchased 60,000 robots. So it is not as simple as ‘one robot in, 15 people out’. The future is about niche expertise and transferrable skills – and about entirely new types of business that will create new human jobs. Creating valuable work for humans: that’s the real challenge.

Read more: Volvo to supply Uber with driverless car fleet

Read more: SAP bets on blockchain for digital supply chains

Coming soon: Our Internet of Supply Chain conference.


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