A friend of mine, let’s call him Bob (again) drinks beer over a two hour pub lunch at an average rate of 668mL/hr (this was an interesting measurement exercise, but probably the subject of a future story). The beer comes in 330 mL bottles and retails at $8 a bottle, an estimated gross profit of $7 a bottle.
If his glass is empty at any time, his latent (unmet) demand for beer will cost the hotelier 26c a minute in lost profit.
Pubs with wait staff recognise the cost of this latent demand and avoid it by monitoring customer stock levels (how much beer is in the glass), and rate of change of this stock (how quickly they’re drinking). They use this information to ask at just the right time if the customer would like to restock (another beer?) so there is no costly unmet demand.
When Bob is sitting at the pub, demand over a two hour lunch is predictable — but consider another scenario where demand varies due to external factors.
I noticed when attending a wedding recently that the bar staff and manager were highly focused on getting the guests ‘organised for speeches’. The main organisational activity appeared to be getting a glass of champagne in every guest’s hand. During the toast after the groom’s speech, I watched 150 people destroy about $2400 of champagne in 30 seconds. By anticipating and satisfying this unusual spike in demand, the manager of the restaurant netted the restaurant about $1500 gross profit, and kept his guests happy.
Historically, businesses selling assets that were deployed remotely could not monitor the need for maintenance, consumable re-order or detect factors that might lead to a spike in demand, like hotels and restaurants can in the examples above. Purchases of consumables and maintenance only occurred when the end user identifies the need and triggers the order, resulting in unsatisfied demand, and missed sales opportunities. Users that didn’t keep up to date with maintenance or consumable replacement were impacted by reduced asset life and quality, safety or environmental impacts.
With recent advances in low cost custom sensors and gateways solutions for products (such as those designed and manufactured by intellidesign), and low cost data connectivity services (such as those provided by M2M One) monitoring demand requirements of remote customers is now achievable.
For businesses selling assets that have high value consumables or maintenance requirements, or have customers with variable consumption profiles — remote monitoring of demand and rate of change can yield predictable and substantial increases in sales by avoiding avoiding latent demand scenarios, generating strong return on investment.