Internet of Things in Supply Chain Management

Group 15:
Aravind Badrinath – PGPM1114 - 021
Anshumali Roy Choudhury – PGPM1114 - 018
Vijay Kartick Prem Kumar– PGPM1114 - 069
 Internet of Things in Supply Chain Management

Table of Contents
1. Abstract ........................................................................................................................................... 3
2. Introduction to Supply Chain Management ................................................................................... 3
2.1 History & Evolution ................................................................................................................. 4
3. Introduction to Internet of Things .................................................................................................. 5
3.1 History ..................................................................................................................................... 5
3.2 IOT Architecture ...................................................................................................................... 5
3.3 Applications of IOT .................................................................................................................. 7
4. Power Plant Construction ............................................................................................................... 8
4.1 Plant Layout: ........................................................................................................................... 8
5. Existing process flow ....................................................................................................................... 9
6. New SCM Process using IOT:......................................................................................................... 12
7. Benefits ......................................................................................................................................... 13
8. Further Scope ................................................................................................................................ 16
9. Conclusion ..................................................................................................................................... 16
10. References ................................................................................................................................ 16

Table of Illustrations
Exhibit 1: A Typical IoT Architecture ...................................................................................................... 6
Exhibit 2: IoT Devices .............................................................................................................................. 7
Exhibit 3: IoT Protocols ........................................................................................................................... 7
Exhibit 4: An Example power plant layout .............................................................................................. 8
Exhibit 5 Existing Process 1/2 ................................................................................................................. 9
Exhibit 6: Existing Process 2/2 .............................................................................................................. 10
Exhibit 7: Proposed Process 1/2 ........................................................................................................... 12
Exhibit 8: Current Process ..................................................................................................................... 14
Exhibit 9: Proposed process .................................................................................................................. 15

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1. Abstract

Today internet is much evolved from being just a tool to lookup information. It has become
an interactive network featuring shopping, entertainment, news, blogging, social platform
and so on. Communication over internet is no longer initiated by humans only. Smart objects
like mobile phones, tablets, wearables are also communicating over internet. Internet is now
becoming a necessity as opposed to a luxury. Internet of Things has gone a step further to
facilitate interactions between consumer devices like refrigerators, washing machines, and
smart meters to mobile phones. IoT has also evolved from being an academic concept to
practical applications. The amalgamation of IoT with other traditional devices and systems
are creating new business models and opportunities to manage the risks effectively and
reduce cost.
Supply chain management is becoming de-facto standard across industries. The current
supply chain processes used in power plant constructions suffers from poor information flow
among all the stakeholders of the project. This leads to inefficient use of resources resulting
in delays and penalties for the project. Besides, the quantity of information flow is so huge
that it requires a proper coordination among all vendors and project managers and cannot be
handled without automation. Most of the material management process are archaic and still
use manual labour for recording receipts and dispatches. These inefficiencies can be fully
eliminated through Internet of Things. The smart devices are very cheap compared to the cost
and importance of the equipment and the benefit these devices provide through automated
data transfer makes much of the coordination and decision making easier.
In this paper we have analysed the existing materials management process in the power plant
industry and have proposed a new process which we believe can reduce the time spent on
materials handling by more than 55%.
Keywords: Internet of Things, Supply Chain Management, Power Plant Construction.

2. Introduction to Supply Chain Management

Supply chain management (SCM) is an area that has evolved continuously over the years and
encompasses older domains like physical distribution management, logistics management,
integrated logistics management, etc. It is defined by Mentzer as, “The systematic strategic
coordination of traditional business functions and the tactics across these business functions
within a particular company and across businesses within the supply chain, for the purposes
of improving the long term performance of the individual companies and the supply chain as
a whole”. Another definition says “it is the streamlining of business’ supply-side activities to
maximize customer value and gain competitive advantage in the marketplace”.

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There are many success stories of organizations that have adopted new supply chain
strategies to ramp up their operational profits or revolutionize the business industry like the
direct customer relationship model of Dell or the highly efficient IT-based model of Walmart.

Some of the common benefits of present day SCM practices that are part of every successful
company’s strategy include the following:

Reduced defects, uncertainty, delays and losses

Optimisation of processes and practices to have lesser replication
Operations that are not producing value to customers are reduced or removed
Improved efficiency and productivity leading to reduced costs
Other benefits like optimal stock size, shorter response time and better demand
triggering mechanisms
Adoption of technologies like RFID and e-commerce leading to simplified operations
and faster sharing of information

2.1 History & Evolution

The term Supply Chain Management emerged only in the early 1980s. However, the field has
its roots way back in the early 1900s. Till the early part of the 20 th century distribution was
unplanned and not a responsibility of the manufacturers. Evolution of SCM in manufacturing
can be attributed to the developments in the early 1920s. Two major developments being
the Ford’s revolutionary manufacturing process and the value stream management model at
General Motors. However these concepts were only in budding stages and SCM didn’t have
much impact on management of distribution and logistics until the World War II. During the
war, the need for mobilizing huge amount of supplies resulted in the advent of logistics as a
new field.

Logistics got more recognition during the recession period of 1950-60. During this period
manufacturers focused on reducing cost for distribution as well as reduction in total

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inventory. The major forces at play were changes in customer demand, economic pressures,
advancement in technology and the military expertise.

However, since the 1980s there has been more rapid changes in terms of professionalism of
distribution channels, streamlining the operations at different levels of the value chain and
focus on quicker delivery to customer by sharing information. With all these changes taking
place the term ‘Supply Chain Management’ gained more precedence over logistics addressing
all aspects of the value chain system.

The increased focus on use of information in order to improve the efficiency of the supply
chain has resulted in radical changes in the way things are done now vis-à-vis how it was done
a decade back. Use of ERP-driven management systems and RFID-based tracking of materials
has speeded up the SCM process considerably. New technologies continue to gain interest
among top management of companies who are always looking to deliver cheaper products
faster. Another new technology, Internet of Things, is expected to revolutionize the supply
chain in the coming decade.

3. Introduction to Internet of Things

The term Internet of Things (IoT) generally refers to all things, especially everyday objects,
which can read, locate and communicate with each other through internet. Everyday objects
not only includes electronic devices alone, but also it could even be trees, vehicle, equipment,
clothing etc. This leads to a place where billions and billions of objects can sense and share
information through public or private Internet Protocol (IP) networks. These things of the real
world would seamlessly integrate with the virtual world. With so many objects inter-
connected to each other the impact of IoT would be all pervasive.

3.1 History
The term “IoT” became popular in 1999 where a research was conducted at Massachusetts
institute of Technology (MIT) Auto-ID centre. The research was based on the Radio Frequency
Identification, where all objects were expected to have a self-tracking codes which the
computers can use for identification. In this case the computer would be able to inventory &
maintain all such objects. Besides RFID the objects could be tagged using Near Field
Communications, Bar codes, water markers etc.

3.2 IOT Architecture

A typical IoT architecture consists of sensors, actuators, embedded devices and backend and
cloud services.

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Exhibit 1: A Typical IoT Architecture

Sensors & Actuators:

Sensors measure the characteristics from the environment. The following are some of the
types of sensors:

Temperature sensor– Detects the changes or presence of heat.

Proximity or motion sensors – Detects the movement outside the component but
within the range of the sensors.
Force / pressure sensor – Detect the force or pressure being applied.
Optical sensor– Detects the amount or change of light.
Current & Voltage sensor– Detect changes in flow of electricity.
Position measuring sensors – These could deduct the angular position in a linear
position device.
Magnetic devices – Detects the change or presence of a magnetic field.

The actuators on the other hand would control the device based changes in input. For
example, a change in current flow can induce a mechanical, optical or thermal change or
affect the environment. Actuators are used to control the device, while the sensors read the
status of the environment or device and provide data.

Embedded Devices:

Embedded devices provides the intelligence to the object. These are microcontrollers which
connects the sensors and actuators. These process the input signal and take action
accordingly. There are many types of device which suit different purposes. One needs to
consider the performance, price and power consumption of these devices for the target
application.

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Exhibit 2: IoT Devices

Connectivity & Network:

The smart devices are connected to the internet and communicate to other devices. There
are various protocols through which these devices can connect with internet. Sensors would
connect with the gateway which can be in the form of LAN such as Ethernet and WiFi
connections or in the form of Mesh Network such ZigBee. All these devices would generate
massive amount of data. Hence a robust high performance wired or wireless transportation
medium is required. These network could be private or public or hybrid model depending on
the requirement.

Exhibit 3: IoT Protocols

Backend & Cloud:

Once these devices generate the data and transmit over the network, we need to have
Managed Service Applications which could process this data and generate meaningful results.
The result could be a set of command to be sent back to the device to affect the target
environment or a data to be sent to backend for further analysis. Data can be used for the
used in the backend or cloud depending on the requirement. For example: In a weather report
system the data is the temperature and humidity which are processed to find whether the
environment is adversely affecting the crops.

3.3 Applications of IOT

Internet of things has a wide variety of applications and is used in several industries. Some of
its uses could include: Machine to Machine communication, remote monitoring & controlling,
process automation. More and more IT companies are providing IOT based solutions for
cutting costs & increasing productivity. Some of the industries which use IoT are Automotive,

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logistics & Supply Chain management, transportation, smart grid & smart meters, healthcare
etc.

4. Power Plant Construction

Power plant construction like thermal, nuclear or hydroelectric is a long running multi-year
high cost project. A typical project takes 3-5 years from start till commissioning. Setting up
involves elaborate planning, design, procurement, installation, test run, commissioning etc.
There are multiple vendors involved in the overall process and involves good co-ordination
among various stakeholders for a timely & cost effective implementation.

Material Management is one of the major activity. Typically materials arrive from hundreds
of vendors at different point in time. The project management team is burdened with
monitoring & following up closely with all these vendors. Experience indicates that in many
cases the materials management process is currently sub-optimal, resulting in loss of time &
money. In some of the cases the overall process is managed manually. How can we improve
the overall process?

With the advent of IoT technologies we could leverage IOT devices for effective Supply Chain
Management. This would also help in improved material management and effective project
management within the site.

4.1 Plant Layout:

Exhibit 4: An Example power plant layout

The plant layout of a typical power plant is provided above. The plant site majorly consists of:

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Construction Site – where Boilers, turbines, cooling towers & other plants will be
constructed.
Office –Administration offices.
Material Storage – This comprises of closed sheds, semi-closed sheds & open yards
where the erectable products are placed.

When the plant receives the materials (raw material and / or finished goods), they are
typically placed in the yards. During the actual construction the material is moved from
yards to the assembly area. Placement of appropriate goods in the right yard would help
in reducing the time to move material from places.

5. Existing process flow

The plant construction project goes through different phases of development. First, the
requirements for the plant are chalked up. Second, the plant layout is designed as per
requirement of the power company. Then orders are placed on numerous individual
equipment manufacturers. The project management team deployed at the plant site receives
the material from various vendors and takes care of the plant construction.

Typically the materials and equipment are required in a particular order for construction.
However due to lack of proper information flow between vendors and projects team the
materials arrive ahead or behind schedule leading to wastage of money, time and resources.

Exhibit 5 Existing Process 1/2

The flow of events in the procurement and material management process of a power plant is
as follows:

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1. The orders for machinery and equipment are sent to different manufacturers or
vendors as per the design specification prepared by engineering team.
2. Different manufacturers produce the materials and equipment as per the delivery
timelines which are shared several years prior to the actual material requirement.
3. The equipment once produced goes through quality checks at the manufacturer’s end.
The project management team is not updated about this status.
4. The equipment are loaded in trucks and sent to the plant location without updating
the project management team about its dispatch.
5. Once the trucks arrive at the plant location the plant security personnel update the
materials management team of its arrival.
6. The materials manager is not prepared with the unloading cranes that are required
for unloading such heavy machinery. Due to unplanned schedule of trucks the
manager then takes time to unload the trucks. Sometimes the trucks have to wait in
front of plant for days before the materials are fully offloaded.

Exhibit 6: Existing Process 2/2

7. Along with the unloading process the verification of materials is also carried out
against the order that was made. This also a long drawn and tedious process that is
carried out manually or totally ignored due to time constraints.
8. The vendor sometimes charges penalty due to delays in offloading. Also the road
authorities can charge penalty for parking on the road for long duration.
9. The materials are unloaded to nearby yard by the cranes. The manager does not have
any plan of where the specific materials should be unloaded so that they can easily
fetched at the time of construction.
10. The description of materials unloaded and the location is noted manually in a register.

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11. The project engineer is not aware of the arrival of new materials. He himself has to go
through the register regularly to check for newly arrived materials.
12. If while construction some material is required the engineer goes through the register
to locate it and asks the contractor to take it from respective yards.
13. If the project engineer is not able to find some material he has to go through the list
of pending orders and call up the respective vendors to check on the expected arrival
date. The project gets delayed due to such issues and the project cost increases.
14. Some of the materials are sent long before they are actually used for construction at
the site. These materials get rusted by the time they are put to use in the plant. The
degradation in quality of the materials means they will be useful for shorter lifespan
in the plant.

There are quite a few inefficiencies that are observed in the plant management process.The
causes for these inefficiencies can be listed as

Lack of communication between the different manufacturers / vendors and the

individual plant managers about delivery of equipment leads to delays in offloading of
materials.
The manual entry and tracking of equipment in the plant yard using materials register
is cumbersome.
Most of the materials procurement is not in sync with the project needs and hence
the materials arrive either too early or too late. This leads to issues like degradation in
material quality and delays in construction

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6. New SCM Process using IOT:

Exhibit 7: Proposed Process 1/2

We intend to use IOT devices in the critical or major components so as to track the
components and also use it during our preventive maintenance. We assume that the
necessary infrastructure for effective use of IOT devices is set up or made available. These
include the network infrastructure for the IOT device to communicate to outside world and
the back end systems to process these information from IOT devices. The back end system
should have ability to send out alert messages and or process the messages as necessary.

The equipment supplier during manufacturing sets up an IOT device in his final product. This
would help the plant installation firm to monitor the vendor’s product, as it moves along the
various stages of supply like quality control, packaging and transportation. The sourcing firm
can now receive real-time material movement from vendor location to its site. The project
manager and vendors exchange information seamlessly and plan the dispatch and
requirement efficiently. Before the product arrives at the site the project manager can ensure
that the necessary cranes and infrastructure is ready for unloading. This reduces any
unnecessary delay at the site during unloading. The project manager would also be now able
to precisely predict the most appropriate yard where the goods could be unloaded based on
algorithms which optimize storage based on dimension and type of equipment. This process
is done when actual product arrives at the site location and IOT would aid in this decision
making process. This helps the vendors as well, who could unload the material at the earliest
possible time without much delay.

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When the material arrives at the gate of the site, with the help of sensors we automatically
update the database on the list of materials that has arrived. The project manager would
receive an alert as well. The materials have smart sensors which can measure the weather
conditions and alert the project manager for preventive maintenance. By timely flow of
information between all the stakeholders of the project the client is not only delighted
because of timely completion of project but also delighted because of the high quality of the
equipment being erected. When compared to the equipment which gets deteriorated due to
prolonged storage in the yard the just in time storage and construction helps in preserving
the quality of equipment and gives a hassle free maintenance for the client.

7. Benefits
The benefits derived from Implementing IOT for materials management can be categorized
into time and cost. The below exhibit shows the time taken in the existing process

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Exhibit 8: Current Process

In the existing process after the product gets manufactured it waits in the factory for quality
testing. The testing team and the client who is required for testing gets informed after the
product is finished. The testing team and clients didn’t have any prior accurate information
on the status of the product and hence take a day to arrive at the scene and setup the kits.
One more day is taken for the actual quality testing. The material after passing the QC is send
for packaging where it gets packaged and awaits transportation. The transporter gets
informed only on the day the material arrives for packaging and shipping floor. The
transporter takes a day to reorganize his fleet for the new order. The material gets loaded the
next day only and gets dispatched for the respective location. The transportation usually takes
around 11 days as the transporter takes unnecessary breaks and drives at suboptimal speeds.

The transporter on arrival waits for at least 2 days for the unloading crane to get freed for
unloading his load. There is a time lag of 2 days between when the material gets received in
the site and when the project engineer gets to know of the materials arrival due to slow
manual process. The material gets unloaded in a yard wherever the crane is as it takes time
and cost to move a heavy crane. Hence there is inefficient storage of materials and in the yard
which results in additional searching time of 1 day. After finding the material it takes another
2 days to retrieve the material as it gets scattered throughout the yard or other materials are
inefficiently stacked on it due to improper material storage. Since the materials usually arrive
several months prior to requirement they deteriorate and degrade. It takes at least 5 days to
replace or restore the material to a minimum quality required. In case of electrical panels it
may take even more time to get the proper insulation resistance of bus bars.

On the whole the process take about 28 days. There is no proper information flow to any of
the stakeholders of the project. The processes followed are inefficient and time consuming
and require heavy manual processing. All the above process can be automated as explained

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previously.

Exhibit 9: Proposed process

In the proposed process since the IOT is able to send prior information of the status of the
manufactured product to the stakeholders, the testing team and clients plan are available to
test the product immediately after it gets finished and 1 day is saved in the process. While the
material is being checked for quality the transporter gets informed that the product may be
ready for shipping in a day if it passes QC. He organizes his fleet according and sends a truck
for transporting the material immediately after it gets ready for shipping. Thereby we save 1
more day. The truck is tracked and traced constantly through GPS which helps both the
vendor and the supplier to keep track of unnecessary time wastages during transit. We
believe that at least 2 days will be saved in this process. The materials manager has planned
his crane movement according to the transportation information and keeps the unloading
crane ready at the required yard for immediate unloading which takes only half a day. While
the material is getting unloaded the project engineer who received the information on its
receipt sends the contractor to collect it if required immediately. The whole process of where
and how the materials have to be stacked and stored is automated by the IOT solution which
saves the need to search for material and helps in easy retrieval. Through constant
communication we can plan to receive the material only few days prior to requirement which
will help in preserving the quality of the material as sent from the factory. Hence we save the
time for restoration and keep the customer happy at the same time.

28 days required in the prior process can be shrunk to a 12 day work through Internet of
Things implementation. This 55% reduction in materials management time is for a single
material. If the total time savings is calculated for thousands of material received in the site
it’ll considerably reduce the project time

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The cost of embedding an IOT device is far small compared to the actual cost of the product
and the cost savings it can deliver. The penalties levied by transporter for delayed unloading
is reduced. Penalties on project delays are nil. The money value of time is equivalent to 55%
cost savings in materials management expenditure.

8. Further Scope
The paper analyses the existing process in the power plant construction industry. We have
also looked at the potential time savings with the new the process & IOT. As an extension,
one could look to perform cost-benefit analysis of the proposed solution. One could perform
a complete budget estimation for the proposed solution with detailed implementation plans.
The existing study was mostly done using the industry knowledge. One can propose the
solution to industry, collect real time industry data and apply the solutions. These extensions
could get a complete solution driven from academia.

9. Conclusion

We have performed a comprehensive analysis of the existing supply chain process for power
plant construction industry. We have proposed a new process using IOT to improve the overall
supply chain process. The automated data transfer process is estimated to give 55% reduction
in materials management for a single equipment. If the total time savings is calculated for
thousands of material received in the site it will considerably reduce the project time. The
smart devices usage can be extended to track the progress of project completion. The entire
project monitoring and controlling process can be automated with the help of smart devices
which will lead to even better coordination and data flow among all stakeholders leading to
a considerably shorter project life spans in the future.

10. References

1. Roadmap for Internet of things by Mark Fell, Managing Director, Carré & Strauss
with a foreword by Hanne Melin, Director Global Public Policy, eBay Inc.
2. Atos white paper on Internet Of Things by Dr Albrecht Becker, Grégoire Sénéclauze,
Purshottam Purswani and Sudharma Karekar.
3. Evolution of Supply Chain Management: Developments in Academia and Industry -
Gunjan Soni and Rambabu Kodali
4. Reference architecture of IOT from MSDN.

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