Recent advances in the information technology (IT) industry have evolved into what is now known as the Internet-of-Things (IoT), an ecosystem in which information is shared and communicated through a network of computers (Rejeb et al., 2020). The distinctive features of the IoT technology have found their application in supply chain operations in many areas and industries, contributing to business entities’ ability to optimise planning, procurement, and sourcing strategies (Witkowski, 2017). This essay critically assesses the role of IoT in supply chain digitisation and performance. Potential barriers and challenges to the digital supply chain are also considered.
The Concept of IoT
The IoT concept was first introduced by Kevin Ashton, a British entrepreneur and start-up founder, in 1999 to describe a system where the physical world communicates with the virtual world through computers (Zhou et al., 2015). However, the true birth of IoT was registered almost a decade later, in 2008, when the number of computers and other devices connected to the Internet exceeded the number of people inhabiting our globe (Manavalan and Jayakrishna, 2019). The three distinguishing features of IoT technology are optimisation, context, and omnipresence. The context feature illustrates the possibility of advanced objects interacting with an existing environment, as well as its immediate response to change (Ushakov et al., 2022). In turn, the omnipresence feature means that objects represent much more than mere connections to user networks of human operators. Today, objects in the virtual environment can communicate with each other on a relatively large scale, which is expected to continuously expand. Finally, optimisation is the expression of every object’s functionality. It is forecasted that by the end of 2025, there will be around 25 billion active IoT connections globally (Jovanovic, 2022).
The IoT technology has recently become widely popular with business entities willing to operate more efficiently, deliver enhanced customer service, get a better understanding of their customers’ needs and expectations, and improve the quality and effectiveness of the decision-making process (Zhao and Yi, 2022). This popularity is explained by numerous advantages that IoT provides, including minimised human effort and error due to task automation, resulting in higher quality levels throughout the organisation. IoT also makes data collection, storage, and access much quicker and easier, reducing the time and financial costs of business operations (He et al., 2020). At the same time, the implementation of the IoT technology inevitably leads to higher system complexity, making it more vulnerable to various threats. For example, if there is a bug in the system, there is a strong possibility that the entire system will get corrupted, leading to compromised security (Omitola and Wills, 2018).
IoT Applications in the Supply Chain
The role of IoT in supply chain digitisation is hard to overestimate because it has created a virtual environment for the physical business ecosystem and made it a smart and advanced entity. From the conceptual standpoint, the primary goal of IoT is to connect any ‘thing’ independent of motion, time, and place through error-free networks (Verdouw et al., 2016). As a result of this connection, more agile operations and efficient collaboration among supply chain partners and other organisational stakeholders could be established. Still, this deep technology proliferation and penetration into business activities and operations make supply chains highly dependent on the Internet, which can be associated with certain challenges and threats. For example, a high degree of reliance on IoT technology can hamper the effective functioning of a company’s supply chain when there is no access to the Internet (Witkowski, 2017).
According to the existing literature, IoT technology has widely been used in the supply chain across fields, industries, and sectors, including manufacturing, logistics, smart homes, and e-health systems (Babu et al., 2022). Radio frequency identification (RFID) is one of the most widely cited applications of IoT technology in the area of the supply chain. RFID allows for reading and writing relevant data through radio signals, without the need for optical or mechanical contact between the system and specific targets (Manavalan and Jayakrishna, 2019). Amazon, for instance, has actively been using this technology for tracking goods in its warehouses and making the process of shopping in its brick-and-mortar stores easier and more convenient for customers (Wingfield, 2018).
The impact of RFID on inventory inaccuracies, replenishment strategy, and the bullwhip effect has widely been acknowledged as positive. Previous studies in this field have proposed that RFID can significantly decrease the probability of inventory inaccuracy triggered by inventory losses, transaction and supply errors, and inventory misplacement (Zhao and Yi, 2022). The bullwhip effect describes how small fluctuations in demand at the retail level travel upstream in the supply chain, causing larger fluctuations at the distributor, raw material supplier, and wholesale levels (Accorsi et al., 2017). There is a general consensus that the information lag and inaccuracy is the main reason behind this effect, which explains why the implementation of RFID can help in dealing with the bullwhip effect (Ushakov et al., 2022). Specifically, an RFID-enabled supply chain eliminates the aforementioned lag by achieving faster and more efficient information sharing, reducing information distortion, and transmitting information in real-time. With that being stated, the contribution of RFID to supply chain performance is limited because it only serves the simplest function of data collection and transmission. It significantly lags behind Machine-to-Machine (M2M) and Human-to-Machine (H2M) interactions, making it impossible to realise complex supply chain scenarios and functions (He et al., 2020).
Although RFID allows for making logistics and other supply chain operations much more efficient through automation, it is not the only application of IoT technology when it comes to supply chain management. The supply chain is a dynamic entity that generates a large amount of data, which, in turn, must be processed and analysed to make sure the company makes adequate strategic decisions and takes corrective supply chain actions when needed (Witkowski, 2017). With the recent globalisation processes, the complexity of supply chain structure and operations has increased dramatically, resulting in the emergence of so-called Big Data, an extremely large data set that cannot be intercepted, processed, or organised into human-readable information in a reasonable time (Zhou et al., 2015). Therefore, there is a need for a method that would enable business entities to adequately process this high-speed and large-scale information asset and promote stronger decision-making capabilities.
The emergence of Big Data has revolutionised the way companies acquire, store, and process consumer- and business-related data and information. Consequently, academia has developed a great interest in how the application of this IoT technology affects business operation decisions and supply chain management (Verdouw et al., 2016). For example, Jaouadi (2022) argued that Big Data analytics determined supply chain innovativeness, leading to more sustainable supply chain performance. Similar outcomes were demonstrated by Bag et al. (2022) who discovered a positive relationship between the use of Big Data analytics and supply chain resilience. Although the researchers’ study is limited to the South African mining industry, it could be argued that IoT applications such as Big Data analytics can reduce the negative effects of the external environment. By making their supply chains more resilient, business entities can faster respond to changes and unforeseen events such as the coronavirus pandemic (Chatterjee et al., 2022). However, the use of Big Data analytics does not guarantee that the insights obtained from the analysis of such data are highly reliable. Moreover, not all organisations have enough resources to develop the capability of using Big Data analytics instruments for supply chain management (Babu et al., 2022).
Future Challenges for the IoT Supply Chain
Even though the IoT technology is widely believed to produce a strong impact on the global supply chain platform in the nearest future, its further digitisation and optimisation are cloudy due to multiple barriers (Zhao and Yi, 2022). The lack of government regulations can be viewed as one of these potential barriers. The point is that the massive development and expansion of IoT in supply chain management must be supported by evolved legal information systems capable of ensuring security standards and regulating its operations (Zhou et al., 2015). However, since the application of IoT solutions goes beyond borders, there is a need for standardisation on a global scale. Although some progress has been made in this domain, there is still a lack of global standards in the areas of communication, security, and identification, which hampers the successful implementation of the IoT technology in the supply chain (Kamble et al., 2019).
IoT is a relatively new technology, meaning the implementation of IoT solutions is associated with significant financial costs and expenditures on the creation of a high-end technical infrastructure (Manavalan and Jayakrishna, 2019). Since operating and adoption costs are high, there is a technological risk related to financial loss, as well as the irreversibility of investments. As a result, the IoT implementation is available only to relatively large business entities that have enough resources to take this risk as opposed to smaller organisations (Ushakov et al., 2022). Moreover, given that the implementation of IoT involves a vast range of devices and sensors, the cost of investment increases significantly. Consequently, the return on investment is likely to take a longer time than expected, leading to an increased payback period (Accorsi et al., 2017). That said, in the future, the costs of IoT implementation and maintenance will go down, making this technology more affordable to a wider range of companies.
Poor Internet infrastructure and connectivity can also be attributed to future challenges and barriers to the IoT supply chain. As the world is becoming more connected and globalised, so is the supply chain (Babu et al., 2022). However, to ensure its effectiveness, all supply chain partners must have access to the same Internet infrastructure with the aim to ensure a real-time flow of information. For many manufacturing and food companies, for example, this could become a serious issue because they tend to source raw materials from individuals and organisations located in areas with low Internet penetration (Kamble et al., 2019). Issues with continuous electricity supply and a lack of human skill availability could also hamper the implementation of IoT technology in the supply chain. IoT systems require highly trained and skilled professionals who are capable of developing and implementing practical applications (Omitola and Wills, 2018). However, access to these professionals could be seriously limited in rural areas and small towns.
The role of external factors in the creation of the IoT supply chain should also be considered. For example, the recent COVID-19 pandemic has seriously damaged the global supply chain, resulting in a logistics crisis, as well as disrupted manufacturing and service delivery, all around the globe (Chatterjee et al., 2022). The snowball effect of this unforeseen event on IoT implementation is getting bigger as there are significant shortages of semiconductors and microchips used in IoT devices (BBC, 2022). The ongoing war in Ukraine is another event that adds to supply chain disruptions in numerous sectors, including the semiconductor industry (Alper, 2022).
The emergence of IoT technology has revolutionised the way the supply chain functions and operates. As of today, many vital supply chain operations and processes have been digitised and automated due to IoT solutions, including Big Data analytics, RFID, and cloud computing (Zhao and Yi, 2022). The positive relationship between IoT and supply chain performance has also been observed and confirmed by many previous researchers (Witkowski, 2017; Accorsi et al., 2017). At the same time, the future of IoT remains uncertain because of multiple factors that exist in the external environment. As this essay has demonstrated, further development and implementation of the IoT technology are hampered by the lack of governmental regulations and standardisation, poorly developed Internet infrastructure in many countries and areas, the need for massive investment, and poor connectivity (Zhao and Yi, 2022). The recent COVID-19 pandemic and the ongoing war in Ukraine have also massively disrupted the global supply chain and triggered a semiconductor crisis, putting a serious threat to the manufacturing of microchips used in IoT devices (Chatterjee et al., 2022).
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