IoT for Transparent and Sustainable Smart Supply Chains

There may be no rest for global supply chains as different factors continue to influence or jeopardize processes, but enterprises can arm themselves against these factors for the long term.

Time and again, the effects of supply chain upsets are keenly felt: in daily life when supermarket shelves are empty and in industry when production grinds to a halt due to missing components. Supply chains and the companies involved continue to be under growing global pressure as a result of crises and challenges of various kinds that world affairs have faced for some time. Operating supply chains swiftly, reliably and cost-effectively is no longer enough. Aspects such as sustainability also play a part. So companies must react and prepare if they are to stay competitive in 2023 and beyond. Technologies like the Internet of Things (IoT) are valuable aids.

Everstream Analytics analysts currently see ESG (Environmental, Social and Governance) breaches as one of the major supply chain risk factors. Enterprises must both uphold human rights at production and other locations and reduce greenhouse gas emissions. Where the latter are concerned KPMG says it is increasingly important to overview and reduce Scope 3 emissions. The Greenhouse Gas Protocol defines as Scope 1 to Scope 3 areas in which companies are responsible for greenhouse gases.  Scope 1 covers direct emissions in production or by company vehicles, Scope 2 is indirect greenhouse gas emissions caused by purchased energy and Scope 3 is emissions caused indirectly in the remainder of the value chain by, for example, business partners.

So in the future companies must not only act ecologically themselves. They will also increasingly be required to provide comprehensible information about the sustainability of their supply chains due, for example, to new regulations like the EU’s Supply Chain Act or Germany’s Act on Corporate Due Diligence Obligations in Supply Chains (LkSG). Customer requirements are of relevance in this connection too. According to a Gartner survey a majority of customers would prefer in the future to do business only with firms that support social and ecological sustainability.

Transparent supply chains are essential for companies to prove that they actively do so, and this is an area in which digital technologies like the IoT can make an important contribution. Sensors at production facilities that record energy consumption or tracking solutions that locate vehicles in logistics and show whether trucks take the most resource-saving routes are applications providing data that makes sustainability visible – or reveals where ground still needs to be made good. Companies at one end of the supply chain do not have to rely on statements by their business partners at the other end. They can see the truth of statements in black and white. They can put the idea of a sustainable supply chain into practice and demonstrate it both to the lawmakers and to their customers.

Supply chain transparency remains one of the highest goods in 2023. According to KPMG two out of three leading global enterprises see a precise overview as decisive for staying sustainable, but retaining one is not always easy. Diversification is a keyword that has gained in importance in recent years. Rather than by depending on individual suppliers and risking complications such as production stops in the event of supply problems, companies can establish additional business relations with similar enterprises in different parts of the world. Multiple – rather than single – sourcing is the name of this principle.

It is an approach that reduces dependence and risks on the one hand. On the other, it increases complexity. The field of play almost inevitably becomes more complex when there are more players. That makes it all the more important to keep a close eye on key areas such as inventories at all times. The Internet of Things and suitable hard- and software enable incoming goods inspection and inventory management to be automated. The same applies to order processes if certain products or commodities become scarce. Solutions such as these make it easier for companies to establish and manage a minimum warehouse inventory. Even if there are no deliveries critical processes can be maintained at least for a while because the most important parts will always be in stock. In view of the (business) world’s continued high level of volatility this is a measure that could soon pay dividends.

This volatility is partly due to geopolitical tension. Comparable to phases of the pandemic when microchips from Asia became a rarity, companies in Germany last year suddenly waited in vain for steel products, wood and other business supplies. As a rule events of this kind are unpredictable and digital transformation cannot always fully compensate for their (economic) consequences. But the negative effects can be limited.

Collecting digital information along the supply chain with the aid of the Internet of Things and processing it by means of smart software solutions can assist companies, especially when combined with other technologies such as artificial intelligence (AI). Future scenarios can be modeled and necessary measures embarked upon faster. What happens if a component X cannot be supplied for a period Y? Can other suppliers offset the shortfall unproblematically? Must new business partners be sought and found and what additional costs might be incurred? In case of doubt how long would it be before the assembly lines ground to a halt? Thanks to digital solutions companies affected would not have to seek answers to such questions along the supply chain when it was actually too late. Instead, they could opt for a targeted response.