"Internet of Things and industrial service supply chains" . Presentation of Jukka Hemilä at ISL2017

1. VTT TECHNICAL RESEARCH CENTRE OF FINLAND LTD
INTERNET OF THINGS AND
INDUSTRIAL SERVICE
SUPPLY CHAINS
ISL2017, Ljubljana, Slovenia
Jukka Hemilä

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INTRODUCTION
§ The merging of the virtual and the physical worlds through cyber-
physical systems and the resulting fusion of technical processes and
business processes are leading the way to a new industrial age.
§ This revolution has many names as Industrie 4.0, Smart factory
concept, Internet of Things (IoT) or Industrial Internet of Things (IIoT).
§ Digitalization has been recognized as one of the main trends shaping
the industrial economy.
§ Digitalization has potential to provide remarkably increased visibility
over the technology industry processes and over the whole lifecycle of
the products.
§ Logistics and supply chain management are as well the areas for the
development and improvement with the digitalization.

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DESIGN/METHODOLOGY/APPROACH
§ The aim of the paper is to discuss the effect of IoT in service supply
chains.
§ The findings in this paper are based on the review of selected
literature, which are enriched with the experiences from IoT
implementations and service business development cases in Finland
during the recent years.
§ Focus is on the investment products and related service supply chains
§ The importance of service business has been understood for a while,
but more systematic and integrated IoT research and development is
needed in the future.
§ The phenomenon of the IoT and digitalization is still quite a rare topic
for the research in service supply chain context.

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PRODUCT LIFECYCLE IN DIGITAL ERA
§ McFarlane and Sheffi (2003) argued 15 years ago how product
lifecycles are getting shorter, resulting in lack of historical data and
reducing organizations’ forecasting ability.
§ At the same time globalization trend was requiring longer and more
complicated supply lines, inventory systems and distribution networks
(McFarlane and Sheffi, 2003).
§ Today globalization trend is still valid. However, additive manufacturing
and usage of local resources are changing supply chain
characteristics.
§ Product lifecycles are today getting longer and longer, because of
sustainability concerns.

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PRODUCT LIFECYCLE IN DIGITAL ERA
§ The industry sectors providing complex customer tailored product-
service offerings, there are common market and product
characteristics:
§ System delivery cycles are long (1-2 years)
§ New system/subsystem delivery includes a lot of customer specific parts.
§ System lifecycles are long (up to 25 years).
§ Services are important part of the business (appr. 50% of the total
revenue).
§ Services must be tailorable for customer specific needs.
§ Tightly competed market, with long customer relationships.

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INTERNET OF THINGS IN SERVICE SUPPLY
CHAINS
§ Service supply chains are responsible typically for product deliveries,
installation, maintenance, and modernization (Hemilä and Vilko,
2015).
§ Auto ID tracking of material flows has been a trend by using RFID or
automated Barcode scanning methods
§ Newer asset tracking solutions offer much more vital and usable data,
especially when paired with other IoT technologies.
§ Physical products could be today equipped with specific technologies,
so-called automatic identification and data capture (AIDC)
technologies, such as radio frequency identification (RFID) tags,
telematics modules or sensor tags (Papert and Pflaum, 2017).

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INTERNET OF THINGS IN SERVICE SUPPLY
CHAINS
§ Today, one of the biggest IoT based trends in supply chain
management is actually live and continuous asset tracking
§ Delivery company DHL and tech giant Cisco estimated in 2015 that IoT
technologies such as asset tracking solutions could have an impact of
more than $1.9 trillion in the supply chain and logistics sector.
-> Clear evidence how IoT will effect on deliveries
§ From the product installation perspective, literature findings related to
IoT utilization in installation phase are scarce.
§ Installation is manual work, without any digital aspect.
§ However, configuring customer specific setup, testing in customer site and
other software related issues could be realized by using remote control
based on the IoT solution.

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INTERNET OF THINGS IN SERVICE SUPPLY
CHAINS
§ More value from IoT could be found during the operations, within the
maintenance and modernization phases.
§ In the IoT era, products can monitor and report on their own condition and
environment, helping to generate previously unavailable insights into their
performance and use (Porter and Heppelmann, 2014).
§ Smart and connected products create new production requirements and
opportunities, as they may even shift final assembly to the customer site,
where the last step is loading and configuring software (Porter and
Heppelmann, 2015).
§ The manufacturer, through access to product data and the ability to anticipate,
reduce, and repair failures, has an ability to affect product performance and
optimize service.
§ The advantages for the service supply chain management are then enormous
by optimizing service deliveries, maintenance and spare-part logistics.
§ At the end, service supply chain costs can be minimized but improved value for
customers.

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INTERNET OF THINGS IN SERVICE SUPPLY
CHAINS
(Hemilä, 2016)

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NEW BUSINESS MODELS FOR INTERNET OF
THINGS VALUE CHAINS
(Hemilä, 2016)

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NEW ORGANIZATIONAL STRUCTURE FOR
DIGITAL ERA
(Porter & Heppelmann, 2015)

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CONCLUSIONS
§ Key infrastructures that will affect the scale and performance of IoT
systems are still in an emergent state (Ehret and Wirtz, 2017).
§ Digitalization is a major opportunity and strategic investment that often
requires renewal of the business strategy.
§ Strategy creates the direction and framework for digitalization, following
the realization and understanding of future customer value and the
opportunities offered by digitalization.
§ The digitalization itself should not be the driver, but the opportunities
created by digitalization.
§ New organizational structures and business models are needed in
manufacturing industries

13. TECHNOLOGY FOR BUSINESS