Getting to Revenue with IoT in Manufacturing Logistics

Posted by Joe Mariani

It’s not just for consumers and smart gadgets. Whether you call it the Internet of Things (IoT), Industry 4.0, Machine 2 Machine communication or any of the other names by which it goes, the connectivity of devices was among the most talked about technologies of 2015.i While many manufacturers and logistics providers have jumped on board and are using IoT to improve inventory visibility or flows through the production floor, there are still some hurdles to adoption. As we discussed in a recent article, the vast majority of IoT applications right now serve only to cut costs or increase efficiency. While the costs of sensors and computing have dropped in recent years, using IoT solely for cost cutting still may not be enough to justify the initial investment required.

The good news is that IoT can do so much more than just cut costs. In fact, even if you have already invested in IoT or M2M for that purpose, there may be a number of other ways you can use the data generated from those old sensors for new uses. So before narrowing or limiting your focus on IoT to small cost savings, it may be worth a few minutes to step back and see what else can be accomplished with that data. You may be closer to new revenue than you think.

To begin to think about how to achieve this, we can start by thinking about all the different ways a company can deliver value to new or existing customers. Three common ways are depicted in the graphic below and begin to suggest how even simple data can provide new insights about the needs and wants of customers–insights that can lead to product or service improvements that customers value and are willing to pay for.

Existing interactions with customers

Stretching back to technical trials in 2012, German rail carrier Deutsche Bahn has worked to create a widespread monitoring system that links data from track, locomotives, and rail cars with planned customer orders and billing information. Aggregating this diverse set of data enabled the company to create dynamic cost-to-serve pricing models.ii In contrast to traditional cost-plus pricing, Deutsche Bahn was able to examine traffic patterns, network usage, freight type, destination, and a customer’s desired timetable to generate a price specific to that customer and its needs. This allowed Deutsche Bahn to better determine customer needs—and the cost of fulfilling those needs. In doing so, the company is able to capture a larger portion of the value generated by moving passengers and freight.iii iv v

New interactions with existing customers

Companies can also take advantage of the information generated by IoT to offer that information to their existing customers as an additional service. For example, DHL added IoT-enabled sensors to its delivery fleet so that it could more efficiently deploy trucks to make deliveries.vi The company’s sensors illuminated volumes of data about traffic jams, road closures, weather events, and other non-shipping events. By adding other publically available data such as postal strikes, DHL was able to create a full end-to-end picture of the risks to a commercial customer’s supply chain and offer it to customers as a service.vii Called DHL Resilience360, the tool is designed to identify and predict risks to delivery of key supplies, and help users to re-route shipments to avoid blockages so that needed goods arrive on time despite disruptions. As this has a high value to customers, DHL is able to charge for this service, potentially creating a long term subscription-style relationship with their shipping customers, which can generate new revenue.

New interactions with new customers

The shipping example can also be used to point out ways in which IoT can facilitate new interactions with new customers. Even with the most efficient delivery routes, shippers still face one seemingly inevitable source of inefficiency: customers are ultimately responsible for going to the shipper, bringing their packages to an office or drop off location. This not only creates uneven flow of packages into the system as customers drop them off, but also acts as a barrier keeping some customers away because they just cannot get down to the drop off. I have a bottle of hot sauce that I have been meaning to send to a friend for three weeks, but just can’t seem to make it to the drop off location during business hours.

A mobile shipping app and service, Shyp has identified a new way to create revenue using IOT technology. Using Shyp, consumers or businesses in a few US cities can alert couriers that they have an item that they want to ship. The app uses their location to pair them with a courier nearby which will come and pick-up the item, package it, and deliver it to a parcel delivery company. By removing a key hurdle to shipping, Shyp may be able to convert potential customers into actual customers, using IoT to generate new revenue.viii

These are just a few examples in a galaxy of possible uses of IoT. So rather than settling for only cost savings from IoT, why not look for a few additional uses of the data that may just generate some new revenue? For a more in depth look at some of these ideas, check out our research article on IoT in Supply Chains.

If 2015 was the year of “hype” for IoT, maybe 2016 can be its year of revenue.


i Gartner http://www.gartner.com/newsroom/id/3114217
ii “OptaSense announces contract with Europe’s biggest rail provider—Deutsche Bahn Netz AG,” OptaSense press release, Jan. 20, 2014, www.optasense.com/2014/01/optasense-announces-contract-with-europes-biggest-rail-provider-deutsche-bahn-netz-ag/, accessed April 14, 2015.
iii Peter Bonsall et al., “Responses to Complex Pricing Signals: Theory, Evidence and Implications for Road Pricing,” Transportation Research Vol. 41, Issue 7, August 2007, pp. 672–683.
iv “DB Zugradar (train radar) App,” Deutsche Bahn website, www.bahn.com/i/view/GBR/en/prices/mobile/train-radar.shtml, accessed April 14, 2015.
v Peter Bonsall et al., “Responses to Complex Pricing Signals: Theory, Evidence and Implications for Road Pricing,” Transportation Research Vol. 41, Issue 7, August 2007, pp. 672–683.
vi SenseAware, “How It Works,” www.senseaware.com/how-it-works/, accessed April 14, 2015.
viiInternet of Things in Logistics – A collaborative report by DHL and Cisco on implications and use cases for the logistics industry. 2015. Available online http://www.dhl.com/content/dam/Local_Images /g0/New_aboutus/innovation/DHLTrendReport_Internet_of_things.pdf
viii Alba, Davey. “Shyp Thinks It’s Solved the Problem of Push-Button Shipping.” WIRED. April 21, 2015. Available online http://www.wired.com/2015/04/shyp/ Accessed June 22, 2015.

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