Connected Value Chain by Hillol Sarkar

Research Spotlight

The IoT Revolution and the Connected Value Chain From smartphones to smart cars and homes, the Internet of Things (IoT) is already making its way into consumers’ lives. However, an aspect of IoT less understood, but equally (if not more) important is its industrial application. The potential impact of connected devices across the value chain is massive, and quality management is no exception. For years, companies have been striving to take quality to new heights by moving toward a more connected, closed-loop environment. Today, some innovative leaders are starting to—or at least considering how they can—take closed-loop quality a step further by leveraging emerging IoT technology.

Innovative manufacturing leaders are starting to take closed-loop quality a step further by leveraging emerging Internet of Things technology.

According to Cisco, there will be 13.5 billion connected devices in the manufacturing environment by 2022. JP Morgan’s Global Equity Research team projects the manufacturing industry has the largest potential market in terms of IoT. It is clear that the IoT revolution is poised to have a considerable impact in manufacturing. This Research Spotlight inspects those impacts as they relate to improving communication and collaboration on key quality issues from ideation and design, all the way through manufacturing, distribution, and service. Specifically, it covers:    

Moving Beyond the Siloed Value Chain The Impact of IoT Technology on Closed-Loop Quality Benchmark Data on IoT Adoptions and Attitudes Actionable Recommendations

Moving Beyond the Siloed Value Chain Nearly all manufacturers have or at some point have had homegrown and manual/paperbased solutions for monitoring, assuring, and controlling quality. In many cases, these solutions were developed and deployed years ago for engineering, suppliers, operations, and service departments to solve a problem or set of problems. Unfortunately, this approach to quality management is almost always more beneficial locally than it is at the enterprise level. When organizations take an ad-hoc approach, it tends to create major disconnect down the road. In fact, LNS Research’s recent quality management survey of more than 500 industry executives revealed that in 2013, 78% of organizations were operating in a disconnected quality management environment. Despite nearly three in four executives reporting a disconnected quality management environment, many have been working to turn this challenge in their favor by investing in next-generation technology—specifically, Enterprise Quality Management Software September 2014 www.lnsresearch.com

Research Spotlight The IoT Revolution and the Connected Value Chain (EQMS). Architected to easily integrate with existing enterprise applications such as ERP, Product Lifecycle Management (PLM), Customer Relationship Management (CRM), Manufacturing Operations Management (MOM), and Environment, Health, and Safety (EHS), EQMS solutions typically come stacked with comprehensive suites of quality management processes, analytics and dashboards, and reporting modules. LNS Researchâ&#x20AC;&#x2122;s 2014 quality management research data revealed that 34% of companies were in the planning stages of an EQMS investment and 21% had already deployed a solution. This technology has been the major driver behind the move away from the siloed quality management environemnt toward a more integrated, holistic one.

The Impact of IoT Technology on Closed-Loop Quality Shown below, closed-loop quality is dependent on the transfer of key quality data and the coordination of workflows across functional units. EQMS can certainly facilitate these connections and interactions, but the IoT is poised to take distributed intelligence and the levels of data significantly deeper. Connected, smarter machines across the value chain will generate real-time information that quality leaders and data scientists alike could only have dreamed about a few years ago. With IoT technologies, individual machines will have the intelligence to detect local quality and throughput performance issues, and then proactively communicate these issues to other affected machines as well as alerting operations personnel. Alternate machines and equipment may be automatically invoked with machine-to-machine negotiations. And thanks to the use of high-bandwidth, standard Ethernet networking, both wired and wireless communications will enable faster and higher volumes of operating and peformance information from across multiple machines that can be analyzed and correlated to uncover new quality, cause and effect, and performance insights.

Closed-loop quality is dependent on the transfer of key quality data between functional units. EQMS can certainly facilitate these connections and interactions, but the IoT is poised to take distributed intelligence and the levels of data significantly deeper.

The most widely cited use case for IoT technology in the realm of quality management today is the opportunity for real-time performance monitoring services to be provided by equipment suppliers. Intelligent sensors and software connected to machines and equipment are delivering a new wave of predictive performance data. This is coming at a time when

September 2014 www.lnsresearch.com

Research Spotlight The IoT Revolution and the Connected Value Chain many organizations are shifting business models away from offering products, toward a more services-based approach. For instance, Rolls-Royce is migrating toward a new business model of selling flight hours for jet engines to companies such as Boeing, instead of selling them outright, with the responsibility for maintenance remaining with Rolls-Royce. With IoT technology, the level of maintenance oversight is dramatically more in-depth than simply sending a technician to look over the engine. Rather, the connected engine is monitored in real time by experts in remote locations. This level of visibility and anlytical capability can increasingly be found in the operations of many industrial equipment providers today. The Rolls-Royce example is but one of many when it comes to intelligent sensors and connected devices. While it is clear that this approach can deliver maintenance benefits, this level of data has the potential for vastly improving closed-loop quality management. For example, quality performance information in the field could be streamlined to engineering to validate or even better predict failure modes of parts or components. In the past, accessing that type of data was generally only possible when the engine or piece of equipment was brought in for servicing, but the IoT is opening up new avenues for realtime information. As the technology matures, it is likely that more companies will leverage EQMS to facilitate the closed-loop connections between people, processes, and data sources.

42% of manufacturing leaders are interested in how the IoT can impact their operation.

Benchmark Data on IoT Adoptions and Attitudes Although IoT technology is still comparatively nascent in the manufacturing environment, a recent survey of 250 executives conducted by LNS Research revealed that many companies are considering ways in which they can take advantage. Interestingly, 43% said they did not understand the IoT, which is common for new technology. However, a combined 42% are interested in how it can impact their operation.

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Research Spotlight The IoT Revolution and the Connected Value Chain Looking at data from another question in the same survey, similar sentiments were shared between executives who understood the IoT and those who were planning an investment in the future. Forty-six percent did not expect an investment in the foreseeable future, while 13% have already made an investment and an additional 23% are planning an investment within the next 12 months.

From the data above it is clear there is still a considerable amount of education required around the IoT, and likely more when it comes to quality management. LNS Research expects to see these numbers quickly shift in favor of the IoT in the coming years. Fortunately, a number of new organizations are helping expedite this shift. These include Industrial IP Advantage and the Industrial Internet Consortium (IIC), which involve large players like Cisco, Panduit, Rockwell Automation, AT&T, Cisco, GE, IBM, and Intel. These organizations are working on the development of new standards and semantic models to facilitate communication between intelligent devices and support intelligent systems. It is important for quality to have the right processes and data analytics in place to leverage the impending data influx as it continues to come online at a faster and faster pace over the coming years.

Actionable Recommendations Executives need to understand and even project the evolution of quality management technology and solutions. Decades ago, the manufacturing envrionment was replete with manual processes and today the disconnected set of resources many companies are left with is quickly being phased out by EQMS. Organizations are searching for ways to close the loop on quality maangement and it is clear that the IoT should be on the executive

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Research Spotlight The IoT Revolution and the Connected Value Chain radar. Below are several recommendations forward-looking executives should consider when it comes to quality and the IoT: 

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Companies are already investing in closed-loop quality: IoT aside, companies are already investing in closed-loop quality management—22% have closed-loop quality processes established and 40% plan to have them established within a year. The IoT is simply poised to take closed-loop quality management a step deeper. EQMS will act as a critical foundation for turning IoT data into intelligence: The onslaught of quality process data and content poised to enter the manufacturing environment with the IoT is overhwelming for many senior leaders to even think about. EQMS solutions have advanced quality analytics and data visualization capabilities that will be crucial for consuming, rationalizing, and then routing intelligence to particular functional units across the value chain. Education around the IoT will be key: Forty-three percent of executives stated they did not understand the IoT, which was virtually identical to the percent of executives who said they were not using nor planning to use IoT technology in their operation. Education on such an emerging and potentially significant technology will be key for executives—especially today as new standards and capabilities are in process. Maintaining a competitive edge requires at least knowing about and understanding what is on the cutting edge. It is possible to participate in these new business models today: There are many applications for the IoT available today, from the smart and connected factory to real-time performance monitoring of assets or services. Many more are exepcted to be released in the coming months and years. Executives can experiment with simple applications or even explore use cases with new servicesbased business models.

Maintaining a competitive edge requires at least knowing about and understanding what is on the cutting edge.

LNS Research provides advisory and benchmarking services to help Line-of-Business, IT, and Industrial Automation executives make critical business and operational decisions. LNS research focuses on providing insights into the key business processes, metrics, and technologies adopted in industrial operations. Authors: Matthew Littlefield, President and Principal Analyst, matthew.littlefield@lnsresearch.com Mike Roberts, Marketing Analyst, mike.roberts@lnsresearch.com

September 2014 www.lnsresearch.com