Efficiency & technology
Last year, the world wasted $1tn of food due to food being produced at the wrong time, or the wrong price, or delivered to the wrong place. That’s not just costly, it’s a global disgrace. Yet once it’s fully implemented, the Internet of Things is expected to bring huge efficiencies to the supply chain. The IoT will know what level of demand exists, where that is and when consumers will need the food. This kind of efficiency could keep $600bn of food within the system, improving efficiencies but, most importantly, actually feeding people.
A great example of an IoT application is what I call ‘the internet of bananas’. Imagine there’s a small, disposable sensor attached to the skin of each banana – the back of the label seems the logical place to put it. Samsung smart fridges can already be connected to your online supermarket trolley so every time you eat a banana, your kitchen will calculate the rate of consumption and add just enough replacement fruit to the weekly shop.
Since it is also part of the IoT, your supermarket will then aggregate all banana orders in your town and it too will only order enough fruit. Each step up the supply chain will suddenly become super efficient, saving on transport costs, packing, storage and, of course, bananas.
This is obviously fantastic news, especially since the concept can be equally applied to everything from food and clothing through to oil production and cars. By connecting the dots using powerful cognitive analytics, the IoT will drive efficiencies at every level. But we also have to be aware of something called ‘the economics of abundance’. Put simply, this says that when you produce too much of something, the price can fall so low that the producers lose less money giving it away rather than trying to sell it.
So let’s say that the internet of bananas reveals that global production is 70% more than actual consumption. As the system becomes super efficient, this overproduction causes the price to drop through the floor. As a direct result, a bunch of bananas costing £3 now will cost just 30p in two years, then reach a point where bananas are being given away with some other type of grocery.
If you don’t believe this could ever happen, look at Google, who just give away the kind of detailed maps people used to pay a lot for. Or take a look at the Japanese economy, which became a global powerhouse in the ’70s and ’80s on the back of increasingly sophisticated yet low price electronic goods. Consumers quickly became so adverse to purchasing product they deemed were dropping in price all the time that it led to a deflationary cycle that continues to grip the country to this day.
This is why it’s always important to consider the wider economic consequences of technology. Because when no one is making any money, the system itself stops working.
John Straw is Co Founder of DISRUPTIONHUB, and an advisor to McKinsey & Co and IBM.