The outsourcing of manufacturing that made Southeast Asia the world’s factory for decades is evolving to nearshore manufacturing as factories crop up across Mexico in response to demand from U.S. manufacturers. This tactical shift, however, does nothing to solve the longstanding challenge that manufacturers have grappled with: how to gain visibility into the supply chain once production is handed off to the contract manufacturer.
Contract manufacturing is like a black box. The order goes in, and the only cue the manufacturer has that the order has been fulfilled is when the goods are received at its dock, or at its customers’ dock. If anything goes wrong at the plant—asset failures, scheduling delays, departures from best practices—the costs of outsourcing can add up. These include higher production costs, penalty payments for missed delivery deadlines, and low customer satisfaction that could lead to a loss of future business.
Decoding the black box with data
The missing link in the supply chain visibility is the availability of data, and the Internet of Things (IoT) can unlock this data. Currently, most contract manufacturing plants don’t capture data at the level of assets and material. Even when they do, without infrastructure in place to move data from the plant to the cloud securely, the data that is captured remains sequestered on the premises. The advent of the IoT presents new opportunities to lift the lid on the contract manufacturing black box. Businesses are poised to leverage IoT to solve their supply chain and logistics challenges as various forecasts suggest.
According to Gartner, Internet of Things endpoints will grow at a 32% CAGR from 2016 through 2021, reaching an installed base of 25.1 billion units. Total spending on endpoints and services will reach $3.9 trillion in 20211. As manufacturing becomes increasingly networked, companies must devise strategies for data acquisition, processing, and analytics that extend to their contract manufacturers.
How the IoT will enable supply chain visibility
To maintain the benefits of outsourcing without incurring high costs, companies should work with contract manufacturers that are willing to equip their plants with IoT infrastructure. Technologies such as wired and wireless sensors, secure internet gateways, data staging and processing servers, and edge computing can provide visibility at all the following levels:
- Asset: Asset breakdown and variance have a major impact on production schedule and consequently on the entire supply chain. Equipping important assets with sensors to measure attributes like temperature, humidity, vibration, acceleration, optical light enables condition-based monitoring (CBM) and assessment to help determine overall equipment effectiveness (OEE).
- Material: A stoppage in the movement of materials through a plant due to unavailability of another raw material, lack of sufficient personnel, or asset breakdown also creates problems for the production schedule. Smart sensors can track material as it moves through the plant and signal the completion of a pre-defined step in the manufacturing execution system (MES).
- Plant: Once tracking is enabled for important assets and material movement, the entire plant becomes easier to visualize. This transparency allows companies to consider any issue that arises in the context of its impact on the entire plant and to calculate weighted plant OEE.
- Warehouse: By putting sensors in the warehouse, companies can monitor the shipment of goods to the customer. A company can track any container up to the customer’s dock by generating a geo-fence around the dock. Similarly, mobile gateway and sensors providing real time GPS coordinates can track in-transit finished products.
- End-to-end supply chain: Once the contract manufacturer’s assets, material, plant, and warehouse visibility have been integrated with manufacturer’s enterprise resource planning (ERP) system that generated the order, the manufacturer can monitor the entire order through fulfillment.