May 15, 2020
In an innovative partnership, the IOTA Foundation and THINKT Digital, the digital hub of NKT, will explore how assets can be autonomous economic agents which can pay for their own services as they move through the supply chain.
A cable drum is a large reusable carrier of cables such as those produced by NKT, the mother company of THINKT Digital. THINKT Digital has developed a digital platform TrackMyDrum.com for tracking a cable drums’ journey as it moves between cable producers, logistics, distributors and construction sites. The solution comes either with a little smart device, a NB-IoT tracker that can report location, temperature, shock etc., or purely as a software that manages and tracks events based on reports about the drum status, and utilizes a QR-code for identification. In both cases, the solution serves its needs for owners and users to make better management decisions.
Today, one of the big hassles is to ensure that drums are returned on time to their providers. Late fees reach up to 100 Euro per drum per month. For example, a German utility with a turnover of 1,000 drums per year has on average 20% late returns. Being late by only 3 months can cause a financial annual loss of 60,000 Euro (200 drums * 3 months * 100 Euro/drum).
TrackMyDrum has another useful feature to handle leftover cable length and optimal cable utilization. It can save additional up to 35,000 Euro annually for the same utility with a turnover of 1,000 drums and average leftover length of 4% on cable drums. Even with an assumption to save and re-use only 0,5% of the rest cable length instead of all 4%, the total cost benefit is impressive: 1,000 drums * 1 Km MV cable * 0.5% re-usable rest length * 7,000 Euro per 1 km = 35,000 Euro, or, 5 km of MV cable.
Moreover, it is important to mention the environmental and sustainability impact of TrackMyDrum for mitigating needless manual paperwork, administrative spreadsheet mistakes and inefficient logistics; all of which can lead to sending the wrong drums to the wrong locations. TrackMyDrum can easily save another 15,000 Euro for that same utility.
TrackMyDrum benefits are already significant when compared with digital platform running costs. However, adding distributed ledger technology to the toolbox opens up a new way of thinking about supply chain management.
Together with the IOTA Foundation, that researches and develops a DLT called the ‘Tangle’, we are exploring if the concepts currently tested in smart mobility can also be applied to smart supply chain use cases.
We will equip each drum with its own e-wallet so it can pay for any service it needs or receive payment for any service it supplies. Thus, it becomes an economic agent on its own and can, in real-time, incentive humans or machines to support its operations - by paying them. The basic underlying idea is to transform supply-chain management into an autonomous self-regulated market of various micro-services, instead of centrally planned activities.
Individual management -> central database -> decentralized model
A snapshot of how the drum market works today in Germany where there are approximately 500,000 drums rotating across the country and each of the drums cost €1.000 (conservatively) in logistic services each year. A key value of tracking the drums is to ensure better utilization. Today, each company manages their own little pool of drums and moves them around to be as efficient as possible – and this can include moving drums long distances from Frankfurt to Hamburg, if needed. But from a holistic viewpoint there will be available drums closer to Hamburg – just operated by another vendor. From discussions with vendors it is not unrealistic that more efficient planning of the system can save each drum 10% in logistics costs annually. In other words, there is a collective incentive of €50million from better coordination between actors and having digital data available for each drum, shows it is a realistic market opportunity. Everyone must share data on their drums and a central system can coordinate the most optimal and efficient deployment. This is classic platform thinking. But it will meet resistance in the market, as data on the movement of the drums also entail business sensitive information about each other’s customers and value chains. Question is, if the efficiency savings are worth the strategic challenge it presents? Most industries are facing the same questions and we see resistance to move towards such industry platforms as the underlying technology is to establish a central database – and who can be trusted to manage it?
A relevant innovative business model made available by distributed ledger technologies (DLT), is the ability to manage market data in a decentralized way. In fact, to enable the above efficiencies, all what is needed to be known, if a drum is available, where it is, and what is the cost of applying it? With DLT technology, it is possible to keep the information about drum ownership, it’s history and all other information discretionary. Even the drum’s owner doesn’t need to know who might rent it for a period – they just need to know that they are paid for the service
Moving from individually managed supply chains to a decentralized model is not done in one step. Thus we propose to explore more manageable use cases, where the drum behaves as an economic agent in its own right.
€2 if you report me lost and 20 cent for access to your mobile network
Imagine that cable drums would pay €2 to the user to change its status report (in-transit, accepted, ready to return), or charge cable manufacturers directly for cable mounting and transportation to customers. It will immediately change the “old” way of handling drums and prevent them from being lost or dumped.
We have explored several scenarios where cable drums (or more adequate: the ecosystem which the drum services) can benefit from incentivizing people along the supply chains to make an extra proper handling effort.
A few examples include:
i) The drums sometimes get lost on big construction sites and handlers or pick-up services cannot find them (which can cost utilities up to 8,000 euro per year). Further, there are fees for late returns and we can turn the situation into a Pokémon Go-like game where workers on sites are rewarded if they scan (find) a drum that is lost and report its GPS position via their mobile phones. The drum will need a Drum-ID and a Drum-Wallet, but it doesn't have to be equipped with an expensive smart device: A QR-code identification placed on it can do the trick. Once a worker scans the QR-code an immediate notification is triggered, whether the asset is reported lost and will get an instant token transfer for sending the location (which their smartphone can do automatically).
ii) In another scenario, the drum changes custody many times during transport and handling with the possibility that should it get damaged, it is unclear who had custody and is, thus, responsible for the damage. The solution could be that everytime it changes custody, it can pay the new holder of custody a small incentive to file a status report including pictures, timestamp and location (again, it can all be done with a simple twist on a smartphone). Everything will be recorded on the Tangle for audit/evidence purposes and users are incentivized with tokens to file the damage reports. Therefore, responsibility and settlements can be done quicker (or automatically) and eventually drive the cost of insurance down. In the long-term it will change business models into micro-services where insurance/handling costs are paid per leg-of-custody and based on much more granular understanding of where the risks are across the supply chain. It is a classic supply chain problem getting solved by new technology and small monetary incentives. The real value and incentives will be explored through user tests and feedback.
Autonomous, decentralized and self-regulating supply chains
The concept of incentivizing people to support the drum (or any other asset) becomes more efficient and is merely a first step towards a machine-to-machine economy that will be driven by the potential of artificial intelligence, the internet of things and distributed ledger technologies. Smart supply chains will not solely be based on better data and analytics allowing a central point to coordinate and delegate efficiently. But, like the “invisible hand” imaginged by Adam Smith to ensure efficient markets, we can rethink supply chains as multiple markets of supply and demand of services - and we start to have a decentralized marketplace.
It means that machines are, on the one hand, part of a system of connected devices/machines without requiring human-to-human or human-to-computer interaction. On the other hand, and on top of that, they are autonomous market players, making decisions based on real-time cost and needs - potentially as micro-services such as transport from producer to warehouse, warehouse time, lending service to a construction site etc. All decisions and actions based on best price options at that given moment. What we get is an Autonomous Economic Agent (AEA) that can search for options, negotiate and execute payments.
Symbolic image of a drum interacting autonomously with its surroundings
IOTA Foundation has established a Digital marketplace for machine to machine interactions which can be explored here: https://blog.iota.org/iota-foundation-launches-industry-marketplace-the-worlds-first-autonomous-and-decentralized-80d9290318f3
What is the legal situation in terms of M2M economy?
Legally, machines are not capable of binding (trans-) actions or contracts which have consequences for contracts and liability. Contractual relationships can and must be designed outside of technologies by legislators. For example, if something happens no one will (or can) sue a machine, of course. But who is responsible for the misconduct of a machine? The manufacturer? The operator? The developer of the software? And what happens when machines learn by themselves and make decisions based on that which can also be wrong? Do we need the introduction of an e-person as a legal entity? Whatever the case, this will lead to new business models on the part of insurance companies, manufacturers and other parties and an ultimate outcome - new business practices.
How it works
See the work of Jaguar Land Rover where they are turning autonomous cars into economic agents: https://www.jaguarlandrover.com/news/2019/04/money-earn-you-drive-jaguar-land-rover