In a recent McKinsey Quarterly article, Thomas Siebel writes, “The Internet of Things isn’t simply a matter of competitive advantage; it is existential.”[1]
IoT will radically change the scope of traditional industries and reshape the boundaries of competition.[2] Porter & Heppelmann write that, for many industries, the transition to IoT will be “unsettling and destabilizing.”[3] John Chambers, the now-retired CEO of Cisco Systems, predicts that 40% of today’s businesses will not survive the transition; Chambers reportedly said, “If I am not making you sweat, I should be.”[4]
To remain in the game, every business will need to adopt a digital transformation strategy. Both the elements of your digital strategy and its potential benefits will vary by industry. In this post, we will review the potential impact to discrete manufacturing and process industries. We will follow up with the IoT possibilities for utilities.
Discrete manufacturing
Porter & Heppelmann expect IoT will force many discrete manufacturing companies to transition from transactional selling to a product-as-a-service model, with associated product design and instrumentation changes.[5] The authors cite, as an example, Xerox’s move from making and selling copiers to charging for copier use and supplies [e.g., toner, paper] by the document.[6]
For others, IoT’s marrying of hardware and software will transform the traditionally hardware-focused companies into software companies and streamline their product offerings. John Deere has already greatly reduced the types and sizes of engines it manufactures, using on-board software to tune performance to the needs of different applications.[7] For some industries, IoT’s change in their delivery model will forever alter the company’s purpose — such as Trane’s shift from manufacturing HVAC equipment to delivering end-to-end building comfort solutions.[8]
On the factory floor, IoT connects machines together to create smart manufacturing systems. The smart factory uses sensors on the machines to identify and eliminate bottlenecks. Sensors also track machine settings against production, ensuring end-to-end part traceability. Combining enterprise systems containing maintenance work orders, feedstock lots, and more, promises better insight into what causes defects and new methods to improve quality & reduce waste: a Harvard Business Review case study shows that these IoT-enabled analyses doubled one plant’s output of defect-free parts,[9] while SAP reports their IoT-connected manufacturing execution system at Harley-Davidson turns out 25% more bikes with 30% fewer workers.[10]
Additionally, connecting floor machines with enterprise systems takes just-in-time concepts to a new level: imagine balancing real-time inventory stock, utilization rates, part costs, and supplier delivery timelines to optimize your inventory around minimizing carrying costs. Finally, IoT-enabled predictive maintenance will eliminate ineffective PMs, minimize maintenance costs, and increase equipment reliability & availability — unlocking additional capacity while lowering the cost of production.
Process industries
Process industries will receive many of the same types of benefits as their discrete manufacturing peers, with some significant differences. For process industries, avoiding shutdowns is paramount. In the oil & gas industry alone, shutdowns cost refineries 5% of their total global production, equivalent to $20 billion annually.[11] Deloitte estimates IoT will help eliminate half of unplanned outages, and for oil & gas, boost well & refinery output by up to 10%.[12] Therefore, for oil & gas, pulp & paper, food & beverage, chemicals, plastics, and other process-manufacturing industries, IoT’s benefits come from real-time supply-chain management, end-to-end product lifecycle management, real-time process analytics & controls, and predictive maintenance.
First, IoT-enabled supply chain management helps process industries avoid potential supply and transit hiccups that affect production. For example, chemicals manufacturers can use IoT to monitor supplies for specialty products in real time throughout the supply chain — ensuring those supplies manufactured in remote places adhere to strict temperature and environmental controls and confirming that shippers adhere with strict shipping & handling care instructions — so there’s no surprises when supplies arrive on-site.[13]
Second, IoT also enables improved product management for process industries. For example, when a chemicals or food & beverage manufacturer ships their product, IoT provides visibility into what happens to their products in transit, on store shelves, and in customers’ warehouses — making it easier to find out-of-date and recalled products, delivering better quality, and thus, improving customer experiences.[14]
Third, similar to their discrete manufacturing peers, real-time updates on process performance and productivity help process industries improve quality, optimize performance, and manage energy expenses. Particularly in the chemicals, oil & gas, and pulp & paper industries, changes in temperature, humidity, and other environmental factors directly affect product processing and quality. IoT enables these industries to proactively respond to variations, saving batches that might otherwise be scrapped and boosting output.[15]
IoT-connected data can also help process manufacturers identify best practices. For example, Phillips 66 correlated IoT-connected temperature, pressure, and flow sensors on their crude distillation units with production and environmental data, then compared unit performance across facilities.[16] These analytics helped the refiner define criteria for spotting fouling of the units’ preheat exchangers and quantify the energy savings associated with cleaning the exchangers.[17] Integrating these analytics enabled Phillips 66 to predict & schedule when the exchangers need maintenance — improving plant performance company-wide and saving more than $55,000 in energy costs per exchanger.[18]
Finally, predictive maintenance will provide process industries with many of the same operational efficiencies their discrete manufacturing peers will receive, such as mitigating the risk of shutdowns — while also improving safety and lowering environmental impacts. For example, using IoT-connected sensors to detect and repair faulty valves controlling gas flows to flare stacks helped one refinery to reduce hydrocarbon losses and improve regulatory compliance, saving $3 million annually and recouping the sensors’ cost in less than five months.[19]
How will IoT benefit your organization? For more practical ways to use IoT to make smarter asset management decisions, email us at info@motorsatwork.com.
[1] T.M. Siebel, “Why digital transformation is now on the CEO’s shoulders,” McKinsey Quarterly (December 2017).
[2] M.E. Porter & J.E. Heppelmann, “How smart, connected products are transforming competition,” Harvard Business Review (November 2014).
[3] M.E. Porter & J.E. Heppelmann, “How smart, connected products are transforming companies,” Harvard Business Review (October 2015).
[4] T.M. Siebel, “Why digital transformation is now on the CEO’s shoulders,” McKinsey Quarterly (December 2017).
[5] M.E. Porter & J.E. Heppelmann, “How smart, connected products are transforming companies,” Harvard Business Review (October 2015).
[6] M.E. Porter & J.E. Heppelmann, “How smart, connected products are transforming companies,” Harvard Business Review (October 2015).
[7] M.E. Porter & J.E. Heppelmann, “How smart, connected products are transforming competition,” Harvard Business Review (November 2014).
[8] M.E. Porter & J.E. Heppelmann, “How smart, connected products are transforming competition,” Harvard Business Review (November 2014).
[9] M.E. Porter & J.E. Heppelmann, “How smart, connected products are transforming companies,” Harvard Business Review (October 2015).
[10] A. Scott, “Eight ways the Internet of Things will change the way we live and work,” The Globe & Mail (accessed March 2018).
[11] Hydrocarbon Publishing, “Refinery power outage mitigations,” 2014.
[12] Deloitte Center for Energy Solutions, “Connected barrels: Transforming oil & gas strategies with the Internet of Things,” Deloitte University Press (2015).
[13] Frost & Sullivan, “Data-driven outcomes: How the Internet of Things is driving digital transformation in the chemicals industry,” 2016.
[14] Frost & Sullivan, “Data-driven outcomes: How the Internet of Things is driving digital transformation in the chemicals industry,” 2016.
[15] Frost & Sullivan, “Data-driven outcomes: How the Internet of Things is driving digital transformation in the chemicals industry,” 2016.
[16] Deloitte Center for Energy Solutions, “Connected barrels: Transforming oil & gas strategies with the Internet of Things,” Deloitte University Press (2015).
[17] Deloitte Center for Energy Solutions, “Connected barrels: Transforming oil & gas strategies with the Internet of Things,” Deloitte University Press (2015).
[18] Deloitte Center for Energy Solutions, “Connected barrels: Transforming oil & gas strategies with the Internet of Things,” Deloitte University Press (2015).
[19] B. Karschnia, “Industrial Internet of Things (IIoT) benefits, examples,” Control Engineering, 3 June 2015.