Editor’s note: This is the second in a series of 10 articles about advanced technologies and what they mean to procurement. Articles run on the second and fourth Tuesdays of the month in Inside Supply Management® Weekly, Institute for Supply Management®’s (ISM®) e-newsletter.
The Internet of Things (IoT) has rapidly emerged as a disruptive force across industries and procurement processes.
By connecting physical devices to the internet and enabling them to exchange data, IoT technology provides unprecedented opportunities to optimize inventory management, enable predictive maintenance and enhance supplier relationships.
Inventory management is a critical aspect of procurement — and a hot topic of late. During the coronavirus pandemic, organizations struggled to get adequate supply and now are working to pare the higher-than-normal levels of inventory they accumulated.
IoT technology can revolutionize the way organizations monitor, control and optimize their inventory levels. By equipping products, shelves and warehouses with IoT sensors, real-time data on inventory levels, storage conditions and movement can be captured and transmitted to a central system.
This enables organizations to gain accurate visibility into stock levels, anticipate demand fluctuations and optimize replenishment processes. With IoT-enabled inventory management, organizations can minimize stockouts and reduce excess inventory while achieving cost savings through streamlined procurement and improved order fulfillment.
Sensors Connect to Supply Chain Data
Enabling predictive maintenance is another IoT benefit. Connected sensors embedded in machinery, equipment and vehicles can continuously monitor performance, collect operational data and detect anomalies or potential failures.
This real-time data can be analyzed using advanced analytics and machine learning algorithms to predict maintenance needs, schedule proactive repairs and optimize maintenance activities. By moving from reactive to predictive maintenance strategies, organizations can (1) reduce equipment downtime and improve operational efficiency and (2) minimize the impact of unexpected failures on procurement processes.
IoT technology also offers valuable insights and opportunities for organizations to strengthen their supplier relationships. By integrating IoT sensors into the supply chain, organizations can collect real-time data on supplier performance, product quality and delivery timelines. This data can be used to assess supplier compliance with service level agreements (SLAs) and track adherence to quality standards while identifying opportunities for improvement.
With this visibility, organizations can proactively engage with suppliers, address potential issues before they escalate and collaborate on joint improvement initiatives. IoT-enabled supplier relationships foster transparency, accountability and trust, leading to such benefits as enhanced collaboration, better supplier selection and improved overall procurement efficiency.
IoT technology plays a crucial role in ensuring supply chain traceability and compliance, particularly in industries with strict regulatory requirements. By embedding IoT sensors in products or packaging, organizations can capture and record critical information such as origin, temperature, humidity and handling conditions throughout the supply chain.
This data provides a verifiable and tamper-proof audit trail, ensuring compliance with regulations, quality standards, and ethical sourcing practices. IoT-enabled traceability enhances transparency, reduces the risk of counterfeit or non-compliant products, and strengthens brand reputation.
Challenges and Considerations
While the benefits of IoT in procurement are substantial, organizations much consider such challenges and considerations as (1) data security and privacy concerns, (2) interoperability of IoT devices and platforms, (3) integration with existing systems, (4) data analytics capabilities and (5) the need for robust IoT infrastructure.
Organizations must also carefully evaluate the cost-effectiveness and scalability of IoT solutions and ensure they have the necessary skills and expertise to manage and analyze the vast amount of data generated by IoT devices.
The Internet of Things has opened up new horizons in procurement by providing real-time data from connected devices. By leveraging IoT technology, organizations can optimize inventory management as well as enable predictive maintenance, enhance supplier relationships and ensure supply chain traceability and compliance.
Embracing IoT in procurement processes empowers organizations to make data-driven decisions, achieve operational efficiencies, and gain a competitive edge in an increasingly complex and interconnected business landscape. As IoT continues to evolve, its potential to revolutionize procurement processes will drive innovation and transform the way organizations manage their supply chains.