The Application of the Internet of Things in Managing Supply Chains

Introduction

Concept of supply chain management (SCM) was introduced in the early 1980s (Melnyk and Seftel, 2016), but its roots go back as far as business itself. Firms have been planning and scheduling production, procuring materials and services, and storing and transporting finished goods to customers for more than a century (Drake, 2012). They gradually began to recognize the interrelationships between these business functions in enabling the delivery of a product or service to satisfy customers’ requirements. SCM involves the coordination of these traditional business functions both within an organization and between upstream and downstream members of the system to serve the end consumer (Mentzer et al., 2001).

The timing of the introduction of the supply chain concept was largely dependent upon the concurrent development of business enterprise and communication information systems (Drake, 2012). This technology facilitates the sharing of information and provides the visibility that is required for geographically-dispersed supply chain partners to collaborate and to engage in joint planning and decision making (Fine, 1998). Webster (1992) describes the information resources and systems as part of the glue that holds extended supply chain networks together.

Supply chain technology continued to develop rapidly after the adoption of the SCM concept and practices, enabling firms to share information, understand demand, and track inventory to a degree few could imagine back in the early 1980s. Recent focus has been on implementing advanced technologies that fundamentally change the way supply chains operate through a process known as digital transformation (Gezgin, Huang, Samal, & Silva, 2017). The traditional linear view of the supply chain is no longer sufficient to satisfy customers compared to best-in-class competitors in the industry. Traditional supply chains often suffer from delays and demand amplification through the bullwhip effect. The digital supply chain, on the other hand, views the supply chain as an interconnected network of suppliers, manufacturers, and third-party service providers focused on satisfying the customers (Sherman and Chauhan, 2016).

Firms improved their supply chain performance in the 1980s and 1990s by capturing efficiencies from collaboration and technology applications, but incremental gains quickly became harder to realize and supply chain performance plateaued as opportunities for significant improvement dried up. The transformational, data-rich technologies developed in recent years and classified under the term Industry 4.0 enable firms to achieve breakthrough improvements in their supply chain performance. The success of a digital transformation incorporating Industry 4.0 technologies is dependent upon sufficient integration between the supply chain operations and technology applications as well as human resources and organizational structure that supports continuous improvement and innovation (Gezgin et al., 2017).

Industry 4.0 technologies represent a revolution in the way firms can use data and automation to manage their physical operations and make better decisions. Specific Industry 4.0 applications include additive manufacturing, blockchain, automated robotics, and artificial intelligence (Olsen and Tomlin, 2020). All these technologies and methods use data to control operations or share information between supply chain partners. The focus of this chapter, however, is on one specific Industry 4.0 technology that collects and transmits real-time data that provide information inputs to other applications and help managers to make better decisions—the Internet of Things (IoT)—and how it enables organizations to improve their supply chains.