How IoT helps Firms Optimize their Digital Performance. Economic Impact of IoT

Case Studies on how IoT helps Firms
Optimize their Digital Performance
and how IoT will have a large
Economic Impact in the Future
ROBERT B. COHEN, PHD
SENIOR FELLOW, ECONOMIC STRATEGY INSTITUTE
BCOHEN@BWAY.NET
IOT SLAM, APRIL 28, 2016
THE AUTHOR THANKS THE EWING MARION KAUFFMAN FOUNDATION,
BROCADE COMMUNICATIONS AND THE ORGANIZATION FOR ECONOMIC
COOPERATION AND DEVELOPMENT FOR THEIR FINANCIAL SUPPORT.

Overview of Presentation
 Using several case studies and quantitative analysis, this talk offers
examples of how businesses are using IoT to improve their
performance and optimize digital operations.
 It explores how moving to IoT pushes firms to become more involved
with analytics for big data lakes. Firms also begin to deliver software
updates through enhanced workflows, such as DevOps and
Continuous Service Delivery (like Netflix and Amazon).
 The talk also forecasts how much different industries such as
finance, healthcare, aircraft and autos plan to invest in IoT over the
next decade.
 It describes the likely impacts on revenues, economic growth, and
jobs.
2

Key Ways Firms are Using IoT for
Economic Advantage
 To Optimize Supply Chains
 Dramatic reductions in parts costs and inventories
 Mostly in autos and aircraft, emerging in healthcare and pharmaceuticals
 To Optimize Production
 Streamlining Production Processes
 Facilitates Expansion/Contraction of Production
 Greatly reduces Production Costs
 Permits introduction of Software-Managed Lean Production
 To Improve Analytics
 Provides control over Logistics and Production Processes
 Offers important economies to customers; Precision Agriculture reduces
inefficiencies
3

IoT Innovations at a Major US
Automaker
 “Driving Value to Time” – Data analysis let designers evaluate how
much new materials such as aluminum could improve fuel
efficiency.
 Analytics is key for synchronizing customer preferences to the supply
chain’s capabilities.
 “a complex vehicle like the automaker’s van includes about 60 different
items where a customer can choose a specific feature, from exterior
color to roof height to wheelbase length to door style — in all, more
than 27 quadrillion combinations for a single vehicle.”
 Move to software defined infrastructure that will use Hadoop.
 New architecture to add almost 50% more to the production cost
savings of $2 billion achieved over the past 4 to 5 years. These
efficiencies based on software.
4

Automaker’s Economic Benefits
from IoT
 Saved $2 billion in costs from analytics over the past 4 years (2011-2014
and most of 2015).
 Supply chain savings of $1 billion to $1.5 billion over 5 years. Reduced supply
chain costs by about 1 percent to 1.5 percent a year using data analytics.
 Efficiencies in distributing vehicles to dealers, saves $50 to $100 per car for
about 2 million cars a year, or $100 million to $200 million a year. Over 5
years, this would total $500 million to $1 billion.
 Improved the bottom line.
 ROI of 300% to 470%
 New staff for data analytics costs $150 million to $200 million over 5 years.
 Cost of hardware and software for data analytics, computing and storage
of $200 million to $300 million over 5 years.
5

Boeing’s Benefits from IoT
 Further optimizes “Lean Production” based on ideas from Toyota
 “Pulse Line” manufacturing, where the fuselage and wings move from a single fixed
designated area that is part of a four-step, [four-day] production line to the next at a
fixed rate.”
 Boeing is scaling up the “monthly output of 737s” from 21 planes in 2005, to 42 in 2014
and 52 in 2018.
 Result is “to cut factory flow time by 33%... [cut] defects …by around 60% and…reduce
the current wing manufacturing site footprint by 50%.”
 Expanding 737 production lines from 4 to 7 in same plant.
 Drive additional automation in aircraft and component (wing) production
 Computer-based controls support streamlining complex processes
6

Economic Benefits for Boeing
 Savings on Production Costs
 If Boeing reduces the factory flow time by 33% and we assume that this is reflected in a
33% savings in production costs, Boeing should save about $10 billion on costs of
producing the 737s.
 Supply Chain Optimization
 By managing its supply chain more effectively, we estimate that Boeing might save at
least $300 million to $500 million per year over a 4 to 5 year period.
 Data Center Consolidation
 Cost savings from data center consolidation could save Boeing about $1 billion a year
for about 4 or 5 years.
 Improved Competitiveness
 Could add about 5% to 10% per year to sales over the coming decade..
 revenues might increase by about $4 billion to $8 billion a year.
 This would also raise revenues for Boeing’s suppliers in the engine and parts industries
by about $2.5 billion to $5 billion17 annually.
7

Boeing has used Data to Create a
“Services Platform”
 Aircraft becomes a bundle of hardware, software and services.
 Competitiveness is now defined by aircraft plus the analytic and the support
services they offer
 Boeing can use sensor networks to manage nearly everything about the Dreamliner
while it is in flight.
 It has created a “Mission Control” to monitor and manage Dreamliners.
 Center for Applied Simulation and Analytics (CASA) will
 “create and develop simulation and analytics technologies” to evaluate the designs
and likely performance of newly conceived and operating aircraft.
 Move to Agile, Software Defined Infrastructure
 Computing and data storage infrastructure that is agile and software-defined “to
enable rapid time to market for future value-added services” that depend upon
digital data analysis.
 On a Boeing 787 (Dreamliner), “146,000 data points are continually monitored by on-
board systems and automatically transmitted to the ground.”
8

Large Health Care Provider’s Early
Steps to Precision Medicine
 Changes in infrastructure
 Develop new data analytics capabilities and infrastructure
 Create biorepositories -- facilities to collect and annotate biological specimens for future use with key clinical and
genetic information.
 Organized 3 Proof of Concept Projects with Microsoft Research
 Sudden cardiac death syndrome
 Colorectal cancers
 Chromosome 22q11 deletion syndrome
 Treatments are family oriented and centered around carriers of genetic traits that indicate likelihood of having the
problem.
 Data Analytics become Central to Precision Medicine
 Collaboration with repositories of genomic and clinical information; NY Genome Center
 New York City Clinical Data Research Network (NYC-CDRN).of the Patient-Centered Outcomes Research Institute
(PCORI), a 22 organization patient-centered clinical research effort.
 National Human Genome Research Institute (NHGRI) has funded eMERGE, a national network that combines DNA
biorepositories with electronic medical record (EMR) systems for large-scale, high-throughput genetic research in
support of implementing genomic medicine.
 NIH major funding in support of Precision Medicine.
9

Changes to Medicine
 Data analytics take a leading position
 Chief Data Analytics Officer is hired, staff expanded.
 New governance models to streamline data analysis
 Creating a “hub and spoke” model of analytic services
 Analytics development and investment is considered a collaborative,
team based effort
 As a result, medicine becomes more patient-oriented and
decentralized
 Treatment moves to centers outside large hospitals
 Health challenges are managed ahead of time, to promote wellness and
take action before a problem requires more costly treatment; i.e., to lower
healthcare costs.
10

Industry Level Spending on IoT:
Early Adopter Industries
11
Author’s Estimates

12
ENTERPRISE SPENDING ON DATA ANALYTICS AND THE INTERNET OF THINGS
2015-2019 2020-2025
BILLIONS OF DOLLARS BILLIONS OF DOLLARS
SPENDING ON DATA
ANALYTICS AND
INTERNET OF THINGS
30 162
GDP IMPACT 49 320
NEW JOBS CREATED IN
000s
133 720

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