Economic Analysis of a Massively Populated Internet of Things System: An Agent-Based Simulation Approach

Abstract

With 212 locations serving a geographical area three times the size of the state of Texas, our international client has been experiencing unexpected failures in his portfolio of thousands of refrigeration units, resulting in an associated loss of $1.4 million. These losses have been attributed to lapses in food quality caused by improper refrigeration, and the adopted reactive maintenance strategy of the refrigeration units. To assist our client in complying with the cold-chain regulations of food safety and mitigate such losses, the agent-based simulation was used to model and assess the viability of two distinct massively populated Internet of Things (IoT) alternatives. The first (alternative A) involves monitoring the availability of each of the refrigeration units and signaling for the initiation of repair processes and food removal from failed units when the cooling temperature differs from a specified threshold and a more sophisticated and expensive alternative B that involves the adoption of the added capability of a condition-based predictive maintenance strategy to reduce unplanned downtime and mitigate or eliminate the causes of failure. Using historical data, a simulation of the current operations was first modeled, validated, and then augmented with capabilities to address the operational characteristics of the proposed IoT implementations. Results of financial analysis results including the probabilistic risk analyses, that account for the variations and the probability distributions of the assumption parameters, showed alternative A to be superior, with a mean net present value (NPV) of $416,703, and a modified IRR of about 18.77% exceeding the project cost of capital of 12.80% with complete certainty. The client was also advised that a 30% reduction in the acquisition cost would make investment B as viable as investment A.

Keywords:

• Internet of Things
• Cold-Chain
• Simulation
• Risk Analysis
• Economic Feasibility

EMJ Focus Areas:

• Simulation
• Economics of Engineering

Correction Statement

Applied Engineering Management Manuscript. Accepted by Associate Editor Pinheiro de Lima. This article has been republished with minor changes. These changes do not impact the academic content of the article.

Additional information

Notes on contributors

Mohammed Basingab

Mohammed Basingab, PhD, is an Assistant Professor in the Department of Industrial Engineering at King Abdul-Aziz University, and currently serves as a general secretary of the Saudi Society for Industrial and Systems Engineering. His research interests include, but are not limited to, Quality Management, Six Sigma applications, Big Data Simulations, Agents Based Simulation, Internet of Things (IoT) applications, and Supply Chain Management. Email: [email protected]

Luis Rabelo

Luis Rabelo, PhD, is a Professor of Industrial Engineering and Management Systems at the University of Central Florida. He holds dual MS degrees in Aerospace Systems Engineering & Management from MIT, and a PhD in Engineering Management from the University of Missouri-Rolla in 1990. His intellectual contributions include 240 publications and three international patents. His experience includes Ohio University, BF Goodrich Aerospace, Honeywell Laboratories, the National Institute of Standards and Technology, NASA, and MIT. Email: [email protected]

Ahmad Rahal

Ahmad Rahal, PhD, is a Professor of Management and the Lead Faculty in the College of Business at the University of Arkansas in Fort Smith. His areas of interest include Supply Chain Management, Quality Management, and Analytics. Email: [email protected]

Khalid Nagadi

Khalid Nagadi, PhD, is an Assistant Professor of Industrial Engineering department at the University of Jeddah and currently serves as the Vice Dean of the Institute of Research and Consultations. His research interests is on the use of hybrid simulation to enhance the IoT applications, quality management, lean six sigma in healthcare, manufacturing, and construction. Email: [email protected]

Hatim Bukhari

Hatim Bukhari, PhD, is an Assistant Professor in the Industrial and Systems Engineering Department at the University of Jeddah. Currently, he serves as Vice Dean of Development and Sustainability of the Institute of Research and Consultations. Dr. Bukhari holds a PhD in Industrial Engineering & Management Systems from the University of Central Florida, and a MSc in Engineering Management and Leadership from Santa Clara University. His research interests includes Engineering Management, Quality Management, Internet of Things (IoT) applications, and Supply Chain Management. Email: [email protected]

Murad Andejany

Murad Andejany, PhD, is the Chair of the Department of Industrial and Systems Engineering, and the CEO of the Investment and Sustainable Development Fund at the University of Jeddah. He currently serves as Vice-Chairman of the Board of Directors of the Saudi Society of Industrial and Systems Engineering. Email: [email protected]