Entering and Managing In the IoT Space

Part 2

Last week we shared information, highlighted the potential opportunities and discussed potential distributor involvement in the Internet of Things (IoT) and Industrial Internet of Things (IIoT) arena while also featuring the first segment of input from Dick Friedman.

As promised, below are additional thoughts from Dick:

Part one of this series touched on the threat of manufacturers bypassing electrical distributors to capture the IoT opportunity, and suggested that a key element to remaining relevant in this space is staff skill level.  This follow-up article highlights other recommendations for pursuing business in this space.

Additional Recommendations

• Training.  Check with industry associations, local colleges and other industry resources, about industry-created web-based courses in systems analysis and design (e.g., how to connect sensors with communications devices), coding apps (e.g., using the Java or “C” language in a Linux environment) and data analysis (what to do with the sensed data) and setting up security across the network. Private trade schools and some colleges/universities also teach coding and other IoT/IIoT skills.  
• Services. Another way to participate in the sale of IoT devices is to become a systems integrator, even though that service might alienate some customers. If so, search out and study the web sites that enable, for a price, the connection of different IoT devices for post-configuration testing purposes, and for analyzing captured data; using such a site is mandatory. And remember, just because you offer a service doesn’t mean you need to offer it for free.  This service should be BILLABLE! It is a FEE-BASED, possibly subscription-oriented environment as there is much value provided here.
• Inventory Management. Because obsolescence of these devices occurs quickly (they are electronics), and can occur with little notice from manufacturers, one way to avoid obsolete inventory is to manage re-ordering via Min/Max settings in your ERP software.  These should be set manually. For example, Min = 1, Max = 2, means consider reordering when the quantity on hand decreases to 1 or less, and then the order size is Max minus quantity on hand. Some ERP systems calculate Min and Max, and as with manually-set Min/Max, automatically calculated numbers can be reviewed on suggested-order displays, but using calculated numbers motivates some people to assume that computer calculations are correct, which increases the risk of buying too much.

If an IoT device ever becomes an “A” item, its inventory management method could be changed to the Re-OrderPoint/EOQ (ROP/EOQ) method, after which the system can forecast future unit sales, determine when to consider buying and calculate how much to buy. But this method would greatly increase the risk of owning too much of an inventory that will regularly obsolete itself.

Regardless of the inventory management method, monitor the monthly unit sales of IoT devices, by customer.  A good report should show unit sales in each of the prior 4 months, and can be used to identify downward trends; a graph would be better. If an IoT-enabled  product is being stored for one specific customer, try to obtain an agreement with them that requires a 90-day notice before they stop buying that product; in case of less than a 90-day notice, they would be obligated to buy all the remaining inventory.

With manufacturers of stocked IoT-enabled products, try to get an agreement that they will provide at least 90-days notice prior to changing a product’s specs, let alone discontinuing its manufacture. IoT-enabled products obsolete quickly, but not every 90 or 120 days.

Again, thanks for Dick Friedman of General Business Consultants for his perspective and input on how to 1) get into this business and 2) how to manage the inventory.

As Dick references, the IoT / IIoT space is:

• A people business
• A services business where charging for valued-services is how companies are remunerated.
• There is a hardware aspect of the business
• There is a software element to the business.
• You can resell software and “inch” into the business, you can supply the hardware and leave the services / software business to others, you can offer the software, you can acquire a VAR and/or system integrator to gain other entries into the market, you can write your own software (or possibly a portal), consider representing companies in complementary aspects of the business and/or push manufacturers who are monitoring / managing / hosting data to include your in their revenue stream if you are selling the subscription service (and get a percent of the longer-term revenue stream).

There is no “one” business model today.  There are potentially multiple business models. The key is “what is right for you” and part of this is “what are you willing to invest”?

Here’s one suggestion that some distributors are exploring … hiring a lighting controls engineer who not only can design, spec and sell a lighting control system but can also commission / program the system.  The commissioning is a billable service … to end-users and/or to contractors. This is just a “first step”.

And as your organization builds its skills, hires the appropriate people, and designs its model communicate this to your suppliers. This is a knowledge-based business that will grow slowly and capture leading edge customers, but has the potential to be very unique and “sticky” in a given marketplace.

On the hardware side, as Dick mentioned, the products are electronic. Consider how quickly televisions change nowadays.  IoT and IIoT products will be similar.  Just like many distributors do not stock LED products deeply, be cautious about deep IoT/IIoT inventory. Let manufacturers have the inventory carrying costs.

Are you in the IoT / IIoT space? If so, what are you seeing? If considering, what questions are you asking yourself?