Keeping Up with Connectivity Amidst Supply Chain Uncertainty
It's no secret that the pandemic had a huge effect on the global supply chain. As the world shut down, demand for home connectivity skyrocketed, creating a supply shortage and a host of challenges for manufacturers in the IoT and smart home industries. Although supplies are starting to level out, any illusion of market certainty is long gone, and companies in the home connectivity space are starting to make some fundamental changes in the way they operate in today's tenuous landscape.
The good news is that consumers are continuing to place a high value on connectivity, and experts anticipate continuing strong growth in the smart home sector over the next several years. According to estimates from Statista, household penetration of smart home equipment and services will reach 30.6% in 2022 and climb to 59.9% by 2026. [1]
How can IoT and smart device manufacturers stay agile while strategically preparing for this growth? This article will cover some of the macro trends affecting the home connectivity and IoT industries—the major shifts that have occurred, where the market is headed, and best practices companies can employ to stay relevant and successful, even in the midst of these uncertainties.
A Few Kinks in the Chain
Prior to the pandemic, the home connectivity market dealt with little to no supply challenges. If a manufacturer had good planning processes in place, delivery was almost guaranteed. For the most part, manufacturers were focused on innovation, not logistics, so the technology was there. Unfortunately, consumer adoption was not. Lack of interoperability, complex set-ups, and cost were stumbling blocks for the average homeowner.
Once COVID hit, however, market demand surged. Consumers working remotely had an increased need for home connectivity, not to mention a surplus of disposable income to spend on it. Fragmentation still plagued the market, but consumer interest in the smart home was growing. One study found that since March 2020, 70 percent of consumers have reported making changes in their living environment due to spending more time at home during the pandemic, and 51 percent reported purchasing at least one smart device during that period. [2]
Meanwhile, chip manufacturing capacity was also shifting. With the 2008-2009 car market crash still in the back of everyone's mind, auto makers quickly canceled their orders during the pandemic. This initially opened up supply for consumer electronics and other smart home devices; however, once car sales picked up again, chip orders ramped up and created a manufacturing shortage. Macroeconomic policies gave buying power and priority to the automotive industry, which only exacerbated shortage issues for companies in the IoT and consumer electronics sectors.
Add global lockdowns, hundreds of shipping vessels held up at the Suez Canal, and Russia's attack on Ukraine to the mix, and it's no wonder the industry is still dealing with supply chain disruption. Many companies have responded by adjusting their inventories to absorb fluctuations, but inflation and the threat of a recession have added yet another layer of uncertainty for manufacturers. In other words, the industry hasn't landed on a “new normal” just yet. With so many unknowns, only one thing has become abundantly clear—companies focused on growth need to think strategy when it comes to their supply chain.
Finding Balance in the Short-Term
One of the biggest challenges for IoT and smart device manufacturers will be balancing short-term market realities with the vast opportunity in front of them. Some companies have already allocated more time, focus, and resources to delivery and procurement. This has not only changed up internal responsibilities, workflow, and personnel dynamics, it has also placed a lot of power in the hands of suppliers.
Supply shortages have made established supplier networks critical. This has created a huge challenge for start-ups and newcomers attempting to enter the market. Most are relying on their own market research to build use cases, and many are struggling to find vendors and parts to create their designs.
Experts anticipate that most of these trends will resolve themselves over time, but some, in particular geopolitical tensions, may run for more years to come. The following are some supply chain strategies developers can implement as the market stabilizes:
- Work to establish local supplier relationships to help protect against global uncertainty.
- Focus on fostering good communication and collaboration with procurement teams and vendors.
- Seek out suppliers that value relationships and treat you like a partner, not just a customer.
- Newcomers, as well as legacy players, should choose integrated solutions like development kits and platforms to reduce guesswork, streamline development, and speed time to market.
Creating Value in the Long-Term
With demand for home connectivity increasing, companies in the IoT and smart home spaces will need to keep innovating, even amidst all the uncertainty. Times of adversity often create opportunity, and in the end, the market leaders will be the ones that answer the consumer call for connectivity, build strong use cases, and create long-term value.
There are a few major developments that companies should keep in mind as they focus on the long game. First, virtual business relationships and remote work are here to stay. Travel and face-to-face meetings won't disappear, but most companies are reducing travel and moving toward hybrid work environments. Device manufacturers and developers will need to embrace this new normal and work on strengthening virtual vendor relationships. This also unlocks some potentially new user applications within the work-home environment.
The second trend is the industry's move toward full interoperability. Matter, the industry's first universal home connectivity standard, is set to launch any time soon now. Contrary to previous smart home standards, Matter is supported by all the major industry players. This long-awaited development will resolve the IoT industry's fragmentation issues and also open up new doors for IoT and smart device developers.
Finally, and perhaps most importantly, IoT and smart device companies need to start developing solutions that will better engage users. This has been a drawback of earlier designs, which often failed to resonate with consumers and spur adoption. The following are some best practices to consider:
- Start with the end in mind. Instead of beginning with technology, begin with a well-defined problem and user need and then backtrack to figure out how technology can fill in the gaps. Finding ways to differentiate and specialize will also be key.
- Look at existing conveniences. Take inspiration from applications that have already resonated with users and create smart home services and devices that the consumer is likely to adopt. For example, consumers already embrace automatic locks on their cars, why wouldn't they want the same functionality in their homes?
- Lean into artificial intelligence (AI). Although the industry has traditionally shied away from AI, it might be time to factor it into designs. One roadblock within the IoT market is data overload, and some experts believe AI could be the vehicle for relieving that burden and making all that data useful. In fact, IDC projects that AI and machine learning infrastructure will enable new consumer experiences such as selective listening and highly personalized media. [3]
Tapping into Potential
In today's post-pandemic world, connectivity has become a basic necessity. The connectivity industry is still in the midst of revolution, and the end is not in sight. According to McKinsey, the potential economic value the IoT could unlock is large and growing. “By 2030, we estimate that it could enable $5.5 trillion to $12.6 trillion in value globally, including the value captured by consumers and customers of IoT products and services,” the firm states. [4]
How can IoT and smart device developers capitalize on this growth opportunity? As with any emerging market, there is no silver bullet to finding success. Managing market uncertainties while envisioning future possibilities is a balancing act every manufacturer will encounter. However, with the right strategies, design focus, and supply chain partners in place, developers can be better prepared to tap into a market that is not only poised for growth, but begging for fresh innovation.
References
[1] https://www.statista.com/outlook/dmo/smart-home/control-connectivity/united-states
