Take costs out
Driverless cars and appliances that manage energy consumption are examples consumer IoT . But the significant component of IoT initiatives will occur in the business-to-business environment. 70% of IoT applications and value creation will be in the B to B space.
In business-to-business markets, there are three ways in which a supplier can deliver value to its customers. One way is to enable the customer to sell more product, either by capturing additional market share or by expanding the end market. A second way is to enable the customer to reach a higher price point due to the improvement done in the product. IoT has applications in both of these alaternatives.
But the larger opportunity involves the third route to value creation and capture, namely initiatives that take costs out from the current cost base.
Significant amounts are spent after a company buys the new equipment. The costs involve ongoing operating costs – energy use, preventive and corrective maintenance, replacement of consumables and operator time among them. Some are related to commissioning, calibration, inspections, start-and-stop operations and changeovers related to production or customization. Some are related to regulation and record-keeping requirements.
These cost areas can be reduced through use of IoT. Contributions that take costs out are to be focused by industrial engineers.
Smart equipment initiatives that are self-funded out of savings realized in the costs that are presently spent are going to become success stories for companies that focus their investments in that direction and bring those contributions to their customers.
Enterprises have to visualize the cost savings in the complex customer chains that exist in many business markets.
It often will be the case that the opportunity to take costs out will involve a participant several stages down the customer chain, rather than the supplier’s direct customer.
In one recent case, a corporation approached the challenge of identifying IoT initiatives that made business sense by asking the question, “What data would have a game-changing impact on our business?” A brain storming team was formed and engineers and sales people collaborated in an ideation session. One idea involved offering a remote monitoring service that could manage performance and detect problems on behalf of customers, many of whom operated the equipment at hundreds of sites. Capturing a database about what was going on with the equipment just prior to instances of failure had the potential to define the improvements that could avoid such failures. Enabling the company’s equipment to provide meaningful data to drive the enterprise’s decisions on new product investments had the potential to ensure that future product development initiatives would be rewarded in the market.
IoT Success stories will come in many flavors, but most of them will require a deliberate and thoughtful approach to generate a real understanding of how to translate new streams of data into value. Focusing on opportunities to take costs out of customers’ existing cost base, on opportunities to gain a competitive data-driven advantage in markets, and on opportunities to answer the previously unanswered questions that can enable your own enterprise to make sound decisions on investments are three routes through which you can build the foundation for IoT success stories.
Industrial engineers have an important role to play in taking costs out of the production system throug huse of IoT systems in the cost of their factories, cost of supply chain and customer chain.
You ain't seen nothing yet
IoT offers plentiful ways to add value in business-to-business markets
Industrial Engineer Engineering and Management Solutions at Work
April 2016 | Volume: 48 | Number: 4
The member magazine of the Institute of Industrial Engineers