A Guide to Unlocking New Business Models With IoT for B2B

IoT eCommerce Business Model Opportunities for Manufacturers With Elastic Path

Elastic Path is Unlocking New eCommerce Business Models With IoT

The world of manufacturing is rapidly changing. Some of the major trends permanently transforming this industry are:

• Robots replacing people, drastically reducing the time and cost to produce a product.

• Just-in-time delivery and increasing business agility means goods are produced closer to end consumers.

• Value chains—the series of steps performed in order to create and deliver a product or service—are becoming increasingly regional. Most of the value is concentrated in product design, development, marketing and sales rather than in the production itself.

• Competition is growing while profit margins are narrowing.

These changes do, however, create a unique opportunity for manufacturers to grow locally and internationally. New revenue streams can easily be found by first expanding into new business models and second, by increasing the stickiness with the existing customers by replacing onand off-again transactional relationships with more enduring ones. The key to unlocking new growth opportunities and expanding existing business lies in the successful adoption of a technology called The Internet of Things (IoT). This guide is designed to help you, as manufacturing business leaders capitalize on the opportunities presented by IoT and deliver a remarkable value to your customers.

 

Chapter 1: Opportunities for Manufacturers

The Internet of Things— a machine-to-machine network that needs little or no input from humans— is now fully transactional. Refrigerators can order their own replacement parts. Smart tractors can place their own service calls. Manufacturing plants can order their own supplies and even use artificial intelligence to fine-tune their orders based on market conditions, weather reports, and any number of other factors.

The Internet of Things is taking the “sell and forget” model, where businesses don’t hear from a customer again after a single transaction, and replacing it with an ongoing ‘as-a-service’ model. Perhaps counterintuitively, this requires more marketing and post-sales support from human employees yet, perhaps obviously, it also requires a commerce platform that supports a vast array of touchpoints that goes well beyond the now-standard website, mobile app, and social media channels.

According to the World Economic Forum, the number of connected devices is expected to triple by the end of 2025 to more than 20 billion devices, making the IoT a true game changer. Alongside that, the IDC predicts that revenues from the Internet of Things are expected to surpass $1 trillion by 2022. Two thirds of all connections will be industrial rather than personal or residential—smart buildings, smart utilities, smart cities, smart manufacturing, smart retail, and smart health.

This creates an opportunity for Manufacturers to drive revenue growth through the introduction of new IoT-enabled business models. With the proliferation of IoT-enabled business models, enterprises will transition to a smart, data-driven, automated manufacturing system. This kind of system relies on information to analyze demand, product performance, and historical patterns to order products and services through marketplaces governed by smart contracts and blockchain technology.

Products are monitored during shipment via location sensors, and their movement through the manufacturing process is tracked with RFID chips. IoT-enabled business models vary greatly depending on a manufacturer and their digital maturity. Here we share select B2B use-cases and case studies of companies leveraging IoT.

Chapter 2: IoT Use Case 1 - Automated Inventory Replenishment

 

A manufacturing warehouse is equipped with smart shelves that automatically track inventory levels. When an item’s availability drops below a predefined threshold, an order is automatically sent to the manufacturer. Payment can be collected at the time of the transaction or later.

 

 

Customer Benefits

 

• Reduction of operational expenses by keeping inventories at a healthy minimum with just-in-time delivery.

 

Manufacturer Benefits

 

• Refocusing sales staff from fulfilling recurring orders to building customer relationships.

• Greater customer stickiness thanks to an ongoing business relationship.

 

levi_strauss_ecommerce_business_model_example

 

 

Levi Strauss & Co. is an American clothing company known worldwide for its Levi’s brand of denim jeans with an annual revenue of over $5 billion. Being one of the leading companies in the industry, it strives for continuous sustainable business growth. Stock management is an extremely important aspect of any retail business and the same is true for Levi Strauss & Co.

According to McKinsey, optimization of inventory management can help reduce inventory running costs by up to 10%. To optimize their inventory management processes, the company moved to real-time inventory monitoring in some of its stores. It equipped all the items in the store with RFID chips for monitoring the precise position of every single item on the selling floor at all times.

This allows them to not only monitor stock in real-time, but also track important customer behavior, e.g. when the item has been touched and tried on. With the extremely accurate tracking system, the store can avoid both overstock and out of stock situations, thereby saving associated costs and reducing revenue losses.

 

Chapter 3: IoT Use Case 2: Industrial Vending


Overview
 
An industrial vending machine dispenses products for a company’s employees. They include just about anything from office paper to batteries. Employees use badges linked to their employer’s account to access the machine rather than paying for the items themselves. Payments can be deducted from the employer’s account at the time of the transaction or collected later. Inventory levels are monitored automatically and refilled as numbers drop below a certain threshold.
 
vending_iot_ecommerce_business_model_diagram
 
Customer Benefits
 
• Reduction in operational complexity and overhead since the vending machine operates on a managed-service basis. The manufacturer assumes end-to-end responsibility.
 
Manufacturer Benefits
 
• Refocusing sales staff from fulfilling recurring orders to building customer relationships.
 
• Greater customer stickiness thanks to an ongoing business relationship.
 
 
fastenal_ecommerce_business_model_woman_construction_worker
 
 
Fastenal is a distributor of industrial supplies with over 2,200 branches throughout the US, Canada, Mexico and Europe. Its portfolio includes maintenance supplies, tools, personal protective equipment (PPE) and many other categories.
 
Customer’ employees are required to wear PPE in order to reduce the number of work-related incidents. One of the factors that impacts employee compliance is the availability of the PPE and how close it is to the workplace.
 
To provide convenient access to its supplies, including PPE, Fastenal is placing connected vending machines at customer premises. To access supplies, employees use authorized access to the vending machine. The transaction is recorded, and inventory is updated. The machine gets re-stocked by Fastenal staff as needed.
 

Chapter 4: IoT Use Case 3: Usage-based Model

Overview
 
A manufacturer provides an expensive piece of equipment to a customer that is used on a product-as-a-service basis. The manufacturer, rather than the customer, is responsible for the machine’s operation. The machine has IoT sensors installed that provide real-time usage data, and the customer only pays when the machine is used. Payments can be deducted from the customer’s account at the time of the usage or collected later.
 
 
capacity_based_ecommerce_business_model_diagram
 
Customer Benefits
 
• Steep reduction in capital investment.
 
• Zero maintenance costs.
 
Manufacturer Benefits
 
• Lower barrier to entry for potential new customers since investment costs are minimal.
 
• Greater customer stickiness thanks to an ongoing business relationship.
 
 
rolls_royce_ecommerce_business_use_case_model_airplane_engine_wing
 
Rolls-Royce is famous for its luxury cars, but it’s also the world’s second-largest manufacturer of aircraft engines after General Electric. Until recently, airlines were responsible for the engines after purchasing them from Rolls-Royce.
 
The company has since transitioned to a product-as-aservice model where airlines no longer purchase the engines outright. Instead, they pay for the engine’s operating hours while Rolls-Royce maintains ownership and is responsible for maintenance and repairs.
 
These engines are constantly monitored with IoT sensors. Not only is the data used to schedule maintenance work, it also helps Rolls-Royce develop better engines in the future. The interests of Rolls-Royce and its airline customers are in perfect alignment here, since both want and need to make sure the engines are in good working order at all times.

Chapter 5: IoT Use Case 4: Predictive Ordering

Overview

A company uses an ever-changing variety of products in its operations. They want to have everything available as needed while at the same time keeping stocks at a healthy minimum to keep storage costs down.

The manufacturer supplying the inventory uses IoT sensors to aggregate data about historical usage patterns, and syndicates it with available discounts, exchange rates, weather forecasts, and other factors that may affect manufacturing and the cost of supplies.

Artificial intelligence then processes this data to determine how many units of a given product will be needed in the near future and automatically transmits an order to this customer.
 

predictive_ordering_ecommerce_business_model_diagram

 

Customer Benefits

• Reduced storage, maintenance, and inventory management costs. 

Manufacturer Benefits

• Refocusing sales staff from fulfilling recurring orders to building customer relationships.

• Greater customer stickiness thanks to an ongoing business relationship.

 

navistar_truck_ecommerce_business_model_truck_example

Navistar is a manufacturer of commercial trucks, buses, defense vehicles, and engines. Usually, vehicle manufacturers schedule maintenance based on mileage or time passed since the last maintenance appointment. This approach does not work that efficiently for a large fleet and can lead to unplanned maintenance for some of the trucks.

In order to help the vehicles’ owners to maximize their fleet’s efficiency and reduce truck downtime, Navistar decided to move from reactive maintenance to proactive maintenance. The company collects real-time data from sensors installed in more than 300,000 trucks. This data is then analyzed together with various 3rd party data, including meteorological, geolocation, vehicle usage, traffic and historical warranty. This helps to predict equipment failures and conduct preventative vehicle maintenance.

Today, fleet owners can use mobile devices to monitor vehicles’ health in real-time, prioritize repairs and schedule vehicles’ maintenance at the nearest convenient location.

 

Chapter 6: IoT Use Case 5: Pay for Result

Overview

A manufacturer provides its customers with IoT-enabled products and services that deliver measurable benefits. While the customer uses the IoT-enabled product and service, the manufacturer monitors its usage in real-time. The customer only pays for the benefits gained, e.g. a share of revenue generated or a share of cost savings.

 

Revenue_sharing_diagram_ecommerce_business_model_iot

 

Customer Benefits

• Reduced costs for the customer since they don’t have to pay upfront for the product or service.

Manufacturer Benefits

• Lower barrier to entry for a new product because it holds less cost for the customer.

 

enlighted_use_case_example_ecommerce_iot_business_model

 

Enlighted is a company offering IoT platforms for smart buildings. It provides sensor technology and scalable networks for real-time data collection and high-value applications. It is the first company to come to market with the Energy Savings-as-a-Service Model for LED lighting and control.

When most of the companies are looking to improve energy efficiency to reduce their carbon footprint and decrease associated costs, often the energy efficiency projects scare people away with high install costs and project risks. Enlighted provides customers with IoT-enabled advanced lighting control system and LEDs connected to their platform. It monitors usage in real-time and the client pays Enlighted a utility rate for the saved electricity. With the rate being lower than the rate they pay their local utility provider, the customer pays only for the saved electricity and enjoys a guaranteed savings of 10-20% on energy costs.

 

Chapter 7: Bringing IoT Use-cases to Life

IoT use-cases require a sophisticated IoT ecosystem that includes IoT components, equipment, connectivity, platforms and applications.

 

internet_of_things_chart_ecommerce_business_model

 

Manufacturer-Owned Solution

With a manufacturer-owned solution, a manufacturer controls the entire ecosystem. It provides equipment with sensors, it is responsible for connectivity, it owns the platform that aggregates and analyzes data, and it owns the business applications. 

A tractor manufacturer, for instance, might supply vehicles with IoT sensors and use the data to schedule maintenance and repairs. This approach requires a significant amount of investment but it allows the manufacturer to control the entire process from beginning to end.

 

manufacturing_ecommerce_business_model_diagram_chart

Customer-Owned Solution

With a customer-owned solution, the customer purchases equipment with sensors, installs data-management software, and connects everything to the Internet. The manufacturer is only responsible for the product and services supply.

A car company, acting as customer, may use the IoT to track the inventory of various parts used during the production process, and when inventory is low, a request is automatically sent to the parts manufacturer for a resupply order. This approach requires less investment from the manufacturer, but it also allows for less control over the process.

 

customer_responsibility_chart_ecommerce

Regardless off the chosen approach, the B2B manufacturer is likely to own and control the transaction layer.

 

Chapter 8: The Role of Headless Commerce in IoT

A number of pieces need to be in place for a business to take advantage of the Internet of Things, including a headless, API-first commerce platform that meets today’s and tomorrow’s complex IoT requirements. They include:

Commerce APIs: Since most IoT business models require automated ordering without human intervention, the commerce platform must have a mature API layer.

• All commerce functionality must be exposed through APIs to provide enough flexibility to implement any use case.

• APIs must be versionless, or perpetually up to date, making the platform extensible enough that it can support existing and future IoT use cases.

• The API layer must be highly scalable and therefore able to support a large number of transactions from a vast array of devices.

• Business logic must be unified across all traditional touchpoints (web, mobile, etc.) and IoT-enabled devices to ensure business rules are implemented consistently.

Catalog: B2B manufacturers will need to offer a diverse portfolio of traditional and innovative products across different channels like:

• Physical items, which can be sold separately or in bulk.

• Pay-per-use offerings.

• Subscription-based offerings.

• Revenue-sharing offerings.

• Value-added services.

• Intangible offerings, e.g. licenses.

• Third-part offerings, since some of the IoT business models will include partner-enabled products and services.

Pricing: New IoT business models require a commerce platform that can support diverse pricing models and can flexibly combine them such as:

• Standard per-unit pricing.

• Tiered and volume-based pricing.

• Contract-specific pricing.

• Various types of rebates.

• Bundle pricing.

• Condition-based pricing.

Ordering: The IoT produces new types of product orders that can’t be processed by, or supported with, out-of-date commerce platforms. An IoT-ready platform must meet the following requirements:

• Ability to process a high volume of orders from different customers.

• Quick order and reorder functionality.

• Ability to import data from different formats, including CVS, XML, and Excel.

• Visibility into existing orders by types (one-time, subscriptions, etc.).

• Ability to track order execution in real time.

• In-flight order changes and cancellations.

Account Management: In order to enable complex B2B and IoT business models, a commerce platform must be able to manage the following in complex enterprise accounts:

• Multiple roles, including buyers and administrators.

• Multiple shipping and billing addresses.

• Complex hierarchies.

• Account-level and affiliate-level discounts.

• Self-service.

• Asset tracking across different affiliates.

Integrations: Many IoT use cases require complex interactions between back-end systems, so the commerce platform needs to include a comprehensive integration framework that can do the following:

• Provide customer and transaction data to third-party systems for collation and analysis.

• Give third-party applications access to the product catalog for automated ordering.

• Synchronize catalog and account information with third-party systems for partner-enabled offerings.

 

Conclusion

Manufacturers that wish to unlock the potential of the Internet of Things need to start with a plan.

 

1. Interview existing customers and prospects to identify pain points that can’t be resolved with the current business model.

2. See if any IoT use cases can address some of these pain points.

3. Audit people, processes, and systems to identify which use cases can be implemented and find out if any gaps need to be covered.

4. Design the target state of the organization, including people, processes, and systems. Then draft a business case.

5. Select a commerce platform that meets all requirements and find a partner that can implement it on time and on budget.