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How the Internet of Things Can Boost ERP

March 24, 2017
Don’t overlook the significant effect the Internet of Things will have on your enterprise resource planning systems and the business processes they support.

The Internet of Things holds great promise for manufacturers, from within the four walls of the factory all the way through the supply chain. But amid the excitement around the increased connectivity of industrial products, it’s important that manufacturers do not overlook the significant impact the Internet of Things will have on their enterprise resource planning systems and the business processes they support.

The core goal of an ERP system is to provide actionable data and information to company leaders. But collecting accurate data is an ongoing and vexing challenge. The Internet of Things has the potential to massively expand data availability and improve accuracy. This has significant implications for customer service, forecasting, inventory management and business intelligence.

To take full advantage of the business potential of the Internet of Things, manufacturers need to fully embrace it within their manufacturing operations by equipping their products with the sensors and tools necessary. They also need to capitalize on the full potential of modern ERP systems, which offer easy access to new applications and enhanced functionality via the cloud.

The proactive manufacturers that run full speed toward an Internet of Things-enabled world and seek to maximize the value of their ERP systems will enjoy competitive advantages.

Improved Customer and Field Service

A persistent challenge for manufacturers who produce complex, long-lasting industrial products is the ongoing service and maintenance required. Manufacturers generally lose sight of the product after shipping it to the customer and are forced to rely on field visits and customer service calls to assess its performance.

The Internet of Things is already changing this equation. If the product is connected to the internet, the manufacturer can access information about use, behavior, and wear and tear. In some cases, the product can even order its own service or replacement parts (or print these parts on a 3-D printer) based on detected wear and tear or operational hours. It is also possible that a potential problem could be solved remotely via the internet. If not, engineers could receive a real-time distress call and plan a visit.

Further, thanks to the Internet of Things, direct connection with end users now has become a key feature of an ERP system. Traditionally, the ERP system’s service module was updated with customer information for each serial number, either at the time of shipment or after. When a manufacturer sells directly to a customer, the end user is visible in the ERP system from the very beginning. But when products are sold through dealers, obtaining end-user data has been a challenge.

By enabling the product to communicate with the manufacturer from the moment it begins operation, the Internet of Things resolves this problem, giving manufacturers additional flexibility in their sales model and providing them with a treasure chest of information for service operations as well as engineering.

The End of Forecasting?

For manufacturers, forecasting is a necessary evil. Relying on sophisticated mathematical models, manufacturers seek to extrapolate historical sales data and detect trends and patterns and project these into the future. But even the most advanced forecasting processes remain imperfect.

The Internet of Things has the potential to almost completely — if not entirely — eliminate this complex and challenging forecasting process by allowing point-of-sale inventory levels to be transmitted directly to the factory. And for configured products, critical information about the popularity of certain configurations could be available. With this information on-hand, a manufacturer could switch to a more profitable “make-to-order” model instead of the forecast-driven “make-to-stock” model and only produce the products that are actually in demand. The same would apply to the replenishment of inventory stored by dealers and managed by vendors.

In the 1990s, ERP systems began offering portals to vendors and customers to improve and speed up communication. This was a great improvement that enabled vendors and customers to directly access the ERP system to confirm and update orders and enter any issues. In an Internet of Things-enabled world in which products communicate directly with the ERP system, this connection between ERP systems and customers and suppliers is becoming closer. This results in reduced waste and errors, a more profitable business partnership, and a leaner overall supply chain.

The ability to have products communicate directly with the ERP system and update on-hand values can also eliminate the tedious effort and time spent on inventory management. Real-time updates and accuracy can produce a sea change for the entire ERP system that renders geographic distance irrelevant, opening the door to allowing manufacturers to manage consigned inventory or inventory located in third-party logistics warehouses. Instead of being dependent on a clerk in that warehouse to report inventory levels, manufacturers would have consistently accurate insights.

Real-Time Business Intelligence and Monitoring

The business intelligence metrics that typically accompany ERP systems out of the box present data from the past, such as a summary of past transactions. With the Industrial Internet of Things, we can expect to see metrics that show the present reality and enable true, actionable business intelligence.

Granted, machine maintenance software that provides real-time monitoring has been around for a long time, especially in the process industry. But these are local solutions. The Internet of Things makes location irrelevant so companies can keep an eye on machine operations anywhere in the world.

Beyond machine maintenance management, the Internet of Things enables social analytics and a direct interface with customers. The instant availability of data about customers and the market creates a live feed of sorts, similar to a TV news channel. This will greatly help managers make sound tactical decisions for distribution supply chains, shop floor schedules and sourcing.

In this new world, business intelligence metrics will drive ERP parameter changes directly, turning ERP from a “system of record” into a “system of intelligence.” The ERP system will be able to generate direct recommendations — based on real-time, accurate data — for factory floor and supply chain managers.

And deploying advanced business intelligence capabilities is easier than ever. Today’s ERP systems, with much of their functionality in the cloud, are not a strictly defined set of modules. Instead, many offer marketplaces that allow users to shop for and seamlessly add new applications for functions like advanced business intelligence.

Prioritize Cybersecurity

Cybersecurity is a clear and legitimate concern for manufacturers, and with more products connected than ever before with the rise of the Internet of Things, it must be prioritized. But the Internet of Things is a new reality of life, and manufacturers should not shy away because of any real or perceived security risks. Instead, they should couple their proactive approach to adopting new technology with an equally aggressive approach to cybersecurity.

Performing a cybersecurity risk assessment, annual or biannual penetration testing — in which security professionals attempt to break into a manufacturer’s IT systems or applications to identify deficiencies — and monthly vulnerability scanning are best practices to ensure ongoing data security. However, with the advent of the Internet of Things, manufacturers employing this technology must also make sure that they are including these devices in their risk assessment and security testing activities. Additionally, it’s important that manufacturers have a crisis response plan prepared in case of a breach. Having legal and communications advisers lined up and a detailed action plan for proactive outreach to both customers and the press will enable manufacturers to ably handle any crisis.

Maximize ERP Potential in an IoT World

While some manufacturers are already realizing the efficiency gains, cost savings and competitive benefits of the Industrial Internet of Things, others have been slower adopters. However, the stage is set for manufacturers of all sizes to revolutionize their businesses and ERP operations with the Internet of Things. Today, manufacturers have the tools at their fingertips to embrace the Internet of Things, realize efficiency gains and supercharge their businesses.

Evert Bos is a technical fellow for Microsoft Dynamics 365 operations in Sikich‘s technology practice.

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