IoT underpins the Supply Chain 4.0 concept. Six years of in-the-trenches work in this arena has taught us which facets of SC 4.0 matter and which don’t. When it comes to supply chain technology, businesses should experiment aggressively but implement cautiously.

Supply Chain 4.0? You mean 5.0, don’t you? Sir, this is 2024.

Supply Chain 5.0 and Industry 5.0 aim to re-involve humans in the planning, manufacturing, warehousing, and transport of goods. Supply Chain 4.0 thinking revolved around technology, starring automation, on-demand value, and globalized trade as the revolutionary replacement for human involvement. Supply Chain 5.0 visioneers portend a world of cobots, AI, and sustainable practices servicing each nation’s autarkic industrial policies. 5.0 may be a likelier future than 4.0 ever was, but the world’s not there yet.

Supply Chain 4.0 is 2010s jargon for a hypothetical industrial transformation wherein many technologies coalesce into a single technoutopian, demand-meeting, fully-autonomous supply machine. SAP Insights conveniently lists the 9 pillars of Supply Chain 4.0:

1. Additive manufacturing
2. Augmented reality
3. Autonomous robots
4. Big Data and analytics
5. Cloud connectivity
6. Cybersecurity
7. Horizontal and vertical system integration
8. The Internet of Things (IoT)
9. Simulation and digital twins

Note that most of these are interdependent, not independent. For example, many autonomous robot systems require established IoT, cybersecurity, cloud connectivity, simulation/digital-twin, and analytics prerequisites to function.

The “whole hog” nature of Supply Chain 4.0’s promise was its first and most obvious barrier. Why do it? GEP concisely outlines Supply Chain 4.0’s expected benefits:

1. Increased visibility: real-time visibility allows them to make better decisions, optimize processes, and reduce costs.
2. Improved decision making: turn data into insights to respond to changes in the market.
3. Automation: by automating manual tasks, companies can reduce costs and increase efficiency.
4. Increased efficiency: streamline supply chain operations to reduce costs and increase profits.
5. Improved customer experience: data-driven personalization builds customer loyalty and increases sales.

Those of you reading with post-pandemic hindsight will note that none of those benefits are particularly specific. You’ll also note the yawning gap between any specified technology and any given declared benefit would be bridged by each organization’s specific implementation leading to erm…variable outcomes. You’re right, but Supply Chain 4.0 wasn’t all smoke.

Broad, pan-industry technical definitions tend to muddy domain-specific conversations, so let’s clarify some technical meaning in the supply chain realm.

In supply chain discussions, “IoT” tends to mean:

• Condition monitoring: present disposition, data visualization, sample collection, and behavior capture.
• Location tracking: present location, stage in process, traceability
• Remote or machine control: artificial intelligence, machine learning, smart home, captured/automated worker wisdom
• Trust: authenticity/verification, objective measurement

“Tracking” could mean:

• Batch: usually the freight level (pallets, sometimes trucks), often valuable enough to track actively with GPS or similar
• Unit: SKU-level monitoring, which may necessitate active, real-time tracking, but usually requires a more passive approach, like RFID
• Component: a serialized unit's digital twin could contain component information, such as subassembly vendor(s), test information, configuration data, or similar

“Data” tends to mean:

• Assets: production equipment, inventory, vehicles
• People: patients, workers, consumers
• Context: temperature, humidity, battery level, triggers/thresholds, metainformation

“Digital twin” tends to mean:

• Equipment: digital representations of factory or warehouse equipment, often showing live sensor data
• Sites: digital representations of entire buildings and their equipment
• Simulation: models based on the systems above that allow a user to change a variable and simulate the result (unsurprisingly difficult to get right)

When viewed from this lens, a healthcare IoT condition monitoring solution and an industrial IoT condition monitoring solution could be the exact same thing except one tracks people “units”, the other tracks asset units.

Over one 18-month span, we at Next Mile guided nine supply chain 4.0 projects with seven clients. The top five most prominent reasons they pursued Supply Chain 4.0 solutions were, in order:

1. Field inventory tracking: lost assets, scrap/SOGL, location vs. parameters
2. Secondary effect mitigation: control or limit the impact of costly disruptive events like delays, recalls, returns, and re-work
3. End-to-end visibility: disposition and location from manufacturing→distribution→job site or field inventory
4. Digital twin: track or record a manufactured item's components, configuration, service history, etc.
5. Critical item tracking: know an object's precise (~10cm) location in a building or process

Our clients also mentioned the following as reasons, but did not rank them as critical:

• Serialization: usually a first step in a supply chain 4.0 solution
• Integration for other purposes: send supply chain data to another user experience
• Collect planning inputs: especially for demand planning
• SKU counts increasing: McKinsey calls this "granularity" and views individualization as the future, but we've seen SKU count increases driven by regulatory compliance and private labeling requirements
• Robotic inventory handling: can be a huge benefit but also a huge pain
• Real-time information: some specifics matter for immediate decision-making
• Compliance risk management: medical devices especially can go out of compliance on a whim
• Eliminate cycle counting: often the people doing the counting aren't reliable or even that willing (sales)

If we refer back to the 9 pillars above, our clients only required #s 5–9 to achieve their top 5 objectives.

Or not yet real. Our customers seemed to view these talked-about needs as either overhyped or simply not valuable enough to invest in:

• Faster delivery: less relevant for most B2B scenarios, really a B2C thing
• Predictive shipping: most applicable to retail, best when the stakes are relatively low
• Autonomy: the self-driving future normal people envision is much farther away than it seems
• AI: big data fixes small problems and humans are better at spotting large or new problems through inspection once the data’s visible
• Supply chain cloud: these applications are built around use cases you may or may not have
• "Superflexibility"
: lots of hype language casts modern business as something unaware managers should instantly react to, but people are smart, and there's always a reason the current system exists as it does
• Localized production as an alternative to distribution: 3D printing and related technologies aren't that efficient, maybe someday
• Head-mounted displays: great in aircraft, but only sometimes applicable in supply chain work, and over time these use cases are slowly getting clearer
• Continuous replanning: hyped but simply not always desirable—nothing's less efficient than perpetual artificial crisis
• Incremental efficiency: we've heard variants of "if all this gets me is 5% more efficient, I'm not interested" multiple times
• Data as a panacea: turns out the scientific method was created for a reason—unless an experiment was purposefully designed and the resulting data properly sampled, data will be useless at best and misleading at worst

Again looking at the 9 pillars, the first four (additive manufacturing, augmented reality, autonomous robots, big data and analytics) may have been intriguing but not worth the squeeze to businesses implementing practical Supply Chain 4.0 solutions.

Most industries producing physical goods are implementing pieces of Supply Chain 4.0—the pieces that matter to them. While not an exhaustive list by any means, many of our case studies revolve around or near a supply chain initiative:

• Medical device: very large scrap problem, interested in field inventory and end-to-end visibility—even a small change would make a large bottom line impact
• Railroad equipment: interested in digital twins of crossing and safety equipment to provide engineers and regulators with service history and aid in remote configuration
• Repair center: needs an item's precise location to mitigate stoppages, lost items (insurance claims/angry customers), and receiving issues
• Animal testing: implant and lab asset status, asset location tracking, study planning, ordering
• Car wash: in-field asset management and customer remote control
• Municipal water management: chemical dosing monitoring for tighter inventory control and less wasteful chemical shipping, stronger contract management
• Construction: track structural steel from factory to construction site (can't stage an entire skyscraper's worth of steel in one go)

The beauty of Supply Chain 4.0 is that goods businesses of all kinds have been able to pluck the parts that matter from the formerly all-encompassing vision.

Start by addressing three fundamentals. First, understand that there's only your journey, not the journey, and understand that the Supply Chain 4.0 system you produce will be unique to you and becomes an integral component of your business's unique value going forward.

Second, measure yourself three ways:

1. Maturity. Rate your supply chain practices' modernness/maturity against what you believe is actually needed. Use McKinsey's grid as a good starting point, but don't fall for the "immature=bad" thing. Sometimes simple/low-tech is the best answer.
2. Realization capacity. Acknowledge your teams' ability to identify, qualify, and quantify the benefits from addressing or capturing pains and gains from a hypothetical change.
3. True appetite. Honestly answer whether your organization has sufficient appetite for change and especially cross-department or -business unit collaboration.

Third, and most difficult, understand if there's leadership and support enough to drive a large, transformative, multi-year effort forward.

What does the path forward really look like?

We've initiated Supply Chain 4.0 programs with these four steps:

1. Core focus. Find a core pain or improvement to address—there must be an attainable goal.
2. Explore with everyone affected. Probably in a workshop of some kind. Build buy-in (or at least consent) here and now.
3. Pains and gains. Identify, qualify, and quantify potential pains and gains from that hypothetical improvement, then use that information to build or reinforce a solid business case.
4. Know the destination. Articulate a concrete vision, something transformative that becomes possible once you achieve the initial goal.

From there, actual implementation takes several forms, but we usually recommend attacking questions that gate the initiative's progress through further investigation, testing, and even quick technical proofs of concept in some cases. Experiment before you scale anything.

How do we get there?

Two paths, neither easy:

1. All-in. Go all-in and go after the whole problem. Maintain full buy-in from people with "day jobs", assign full-timers, and proceed for however long it takes.
2. Componentize. Focus change and attention on a specific part of the supply chain.

Unless the organization is small, we prefer the second path. In both cases, take care not to violate these golden rules:

1. Everyone affected by a change must benefit from it or you're dead.
2. Demonstrate useful results 60 days after any rollout or you're even more dead.

Governing an initiative like this and maintaining progress is the hardest part, which is why supply chain technology became a focus at Next Mile. Contact us anytime if you need an expert guide through your Supply Chain 4.0 technology challenge.