Internet of Things in Manufacturing

In the realm of manufacturing, the Internet of Things (IoT) is also known as the Industrial Internet. Smart factories, implementing an IoT system offer three different areas of benefits:

IoT may increase the product’s Customer Value by extending its capabilities or creating entirely new use cases. In this scenario, the product itself usually becomes as “Thing” in the Internet of Things.

IoT may reduce costs of manufacturing a product by automating certain processes along the supply chain or increase efficiency by monitoring and analyzing the use of resources across the entire business.

IoT may mitigate risks by tracking assets and personnel or predicting and preempting interruptions.

Customer Value

After the success of smartphones around the world, few would argue that existing products cannot be improved by outfitting them with internet connectivity.

Almost two-thirds of American adults owned a smartphone in 2015.1

This figure not only demonstrates the huge demand for smart devices themselves but also suggests that smartphones will be one of the most commonly used interfaces for other consumer-facing smart products. This makes it even more important for smart device manufacturers to offer ways to communicate with their products through the cloud.

Granted, smartphones may not become the primary interface for all applications. Most customers, for instance, will not find it convenient to dig for their phone in a dark room every time they need turn on a smart light bulb. Thus, implementations must strictly follow customer needs and have to be planned carefully in order to add value rather than complexity.

The Invisible Recall

A crucial feature, no IoT implementation should be missing, is the ability to provide over-the-air software updates. For most smartphone owners this aspect of smart things will have become a monthly ritual by now. The benefits of over-the-air updates, however, far exceed mere convenience gains for the customer.

In 2014 the car maker Tesla had to issue a recall on almost 30,000 of their vehicles. Instead of lengthy recall procedures, however, Tesla was able to deploy the fix as an over-the-air update. Not only did this save their customers much time and hassle but it also spared Tesla the cost of coordinating and executing a traditional automobile recall.

This example also demonstrates how IoT can reshape product release cycles. Internet-enabled “Things” can be released as minimum viable products (MVPs), thus reducing time to market and associated costs. Software updates then allow manufacturers to improve upon their MVP, from security patches to the rollout of entirely new features.

Message in a Bottle

Low-cost solutions for low-cost products

One implementation by whiskey manufacturer Johnnie Walker demonstrates that not only high priced goods like TVs or fridges can be turned into connected “Things“. Their connected whiskey bottle leverages passive RFID tags, which can be produced at a few cents per tag.

The tags can then be scanned using a smartphone or a dedicated reader. This enables the manufacturer to provide the consumer with additional information, such as recipes or special offers.

While this single benefit could have been realized using a simple barcode, the benefits of the RFID go much further. Since RFID readers can read great numbers of tags from several meters away, the technology lends itself perfectly to inventory and supply chain management applications. A product, enhanced by RFID, can thus be tracked in real-time from production to the retailer and finally the consumer, providing added value to every player along the supply chain.

Gaining Insights

Depending on the device in question, IoT devices can generate a lot of data. Making this data available to the customer in an easily comprehensible format can go a long way in improving a product’s value proposition. For some products, this data may even represent their main value proposition. Fitness trackers, for instance, compiling vast amounts of information, such as steps taken, heart rate and even sleep quality fall in this category. Other products serve a different primary function but make recorded data available to the user in order to augment the customer experience. Examples of the include smart light bulbs recording their energy consumption, smart fridges collecting nutritional information on their contents, etc.


One factor that contributed to the success of smartphones was the fact that they were designed from the start to support third party „Apps” and provided Application Programming Interfaces (APIs) that allowed third parties to add to the devices’ functionality. (APIs allow a manufacturer to expose certain information or functionality to third party programmers while still retaining control over their product.) Exposing such APIs (usually via the cloud) makes it possible to integrate the device into networks of other smart devices. Practical applications may, for instance, consist of a connected car notifying a connected home of its estimated time of arrival so the home may begin regulating the room temperature to a comfortable level.

Costs & Efficiency

In the context of cost and efficiency optimizations, we are concerned with transforming a traditional factory into a smart factory. Smart factories are capable of performing many tasks autonomously that previously required a human in the loop such as reacting to changing circumstances or managing inventory.

IoT implementations consist of numerous sensors (e.g. temperature sensor, tachometers inside complex machinery, RFID readers, etc.) and actuators (e.g. signal lights, complex machinery, door locks, etc.). These are connected via the Internet and, where desirable, via a local network. This network of devices allows manufacturers to create a virtual representation of their facilities in the cloud, which is fed by real-time data and has the ability to control its real-world counterpart.

This virtual representation of the factory has several benefits:

  • Real-time reports and statistics about the entire factory can be reviewed and analyzed
  • Automated actions and reactions to certain events can be defined
  • Inventory can be automatically kept and managed
  • Relevant information can easily be shared with partners across the supply chain

Knowledge is Power

Knowledge is the basis for any purposeful action. A vast network of sensors distributed across an entire smart factory can deliver many new insights and help uncover previously hidden connections and opportunities for optimization. It can, for example, help create dynamic maintenance schedules that address problems before they occur, thus reducing unplanned downtimes.

With all this potential data at your disposal, however, it is easy to get carried away and to start collecting data for its own sake, without any clear idea of the insights to be gained. This approach of simply warehousing the data to be analyzed at some unspecified future date for an unspecified purpose very often proves futile and very costly.

The guiding principle has to be that the implementation must follow the business needs. Only data that will be used for a specific purpose should be collected. Furthermore, because the raw data will cause more confusion than insights, a strategy for its analysis should be in place before the collection starts. Examples of guiding questions that should be answered beforehand include:

  • What specific, actionable piece of information are we looking for in the data?
  • Will we measure this information directly or will we use a proxy?
  • Are we already measuring data, which can be used as a proxy for this information?
  • Is the benefit worth the cost?
  • What trends are we trying to find in the data?
  • What other insights can be gained from this data?
  • How will outliers be determined?
  • Which correlations between data sets have to be taken into account?

From Insight to Action

Once the data has been collected, the traditional approach would be to keep a human in the loop in order to analyze the data, draw conclusions and take specific actions based on these conclusions. While IoT systems should still offer reporting functionality, the day-to-day activities are automatically being governed by the system itself. The cloud, as the brain of the operation, is able to control the actuators in the smart factory, based on the conclusions it draws from the collected data. Depending on their nature, these actions may or may not require the approval of a human.

Examples of such actions include:

  • Ordering additional supplies depending on inventory levels
  • Dispatching maintenance personnel to machinery exhibiting problems
  • Distributing workload between machines
  • Notifying departments or partners down the supply chain of delays

Risk Mitigation

In order to increase the robustness and maintainability of the system, control of the factory is divided into multiple layers. As outlined in our description of the human analogy, control is divided into a cognitive layer (the cloud) and a reflexive layer (local control).

In the realm of risk mitigation, situations may arise where immediate action needs to be taken and even a few second delay might have detrimental effects. In this type of situation, the reflexive component of an IoT system will come into play. Similar to how a human would withdraw their hand from a hot surface, some reactions are built into the IoT system before they even reach the cloud. In the event of a gas leak, for instance, the system would be able to shut off the gas supply instantly, before contemplating the best course of action and notifying maintenance personnel.