S/4HANA Drives Value for Industrial Machinery & Component Companies
This will be the first of three blogs I will be writing on the value S/4HANA can bring to industrial machinery and component (IM&C) companies.
We all know that the pace of change is as fast as it’s ever been, and it’s only continuing to accelerate. To compete and win in today’s market reality, industrial manufacturers must fundamentally transform their business models, business processes, and the IT operations that support both. Why?
• First, industrial customer expectations are rapidly evolving. By 2025, the global worth of the internet of things is predicted to be $6.2 trillion.
• Second, hyper-connectivity to the internet and to one another has exploded, as there are now more than 2.8 billion Internet users worldwide, up from only 35 million users in 1995. That’s 35 million to 2.8 billion in just 10 years!
• Third, business complexity is increasing. A staggering 90% of the world’s data has been generated within the last two years.
In the midst of these market realities the pace of business continues to accelerate.
• Consider that the average lifespan of a company on the Fortune 500 is now less than 15 years, compared with >75 years in 1955.
• According to Ernst & Young, the combined value of goods and services will be $41 TRILLION by 2020, nearly 2 and half times of what it was in 2010.
• And last, but certainly not least, Cisco predicts that the “Internet of Everything” will create $14.4 TRILLION in value through the combination of increased revenues and lower costs from 2013 to 2022.
The complexity and velocity described above are creating critical challenges for industrial manufacturers in today‘s constantly-changing environment.
• In Engineering, as well as R&D, products and solutions are becoming more complex and development cycles are becoming shorter, making the need for simulation and optimization even more critical to increase the speed of innovation
• In Sales and marketing, customers are demanding complete solutions inclusive of product, service and even financing that can be seamlessly delivered via multiple channels. Inability to do so leads to decreased revenue and overall lack of competitive differentiation.
• In Supply Chain and Manufacturing, lack of embedded visibility and collaboration across the shop floor, procurement, and material management stakeholders can lead to stock outs for key components, which can increase inventory carrying costs. Without the right information, the manufacturing value chain is unable to respond quickly to change orders and on-time delivery performance suffers.
• From an Aftermarket Service perspective, the inability to offer new and innovative service offerings like remote and predictive service can seriously diminish customer loyalty and erode profit margins
User Experience Complexity
Now let’s take a look at complexity in regard to the User Experience of an industrial manufacturer.
• First, we have scattered information that needs to be collected from different systems or transactions. Users have to open multiple windows or take copious notes on paper to get their jobs done.
• A second cause of complexity is low user acceptance. Typical users often dislike working in a system because of perceived performance issues and unappealing user interfaces. Simulations can be significantly hampered by performance issues, reducing the value that the system should be driving.
• Due to high data latency, batch processing and data duplication across multiple systems can cause inconsistent and untimely data being used across the enterprise, which is not only inefficient, but can also lead to inaccurate and unprofitable decision-making.
• Multiple user interfaces also drive complexity. Screens and user interfaces that are complex and function-oriented can often not be personalized, may look different across systems, and may not play nice with all of the different mobile devices being used.
Information Technology Complexity
Now let’s take a quick look at complexity from the perspective of the IT Department of an industrial manufacturer.
• Data redundancy across systems, from OLTP to OLAP for example, may cause inconsistent data that needs to be checked and re-checked to make sure decisions are made based on the most accurate and up-to-date information.
• An extensive data footprint can cause a data explosion situation that really brings to light the limits of current technology. Not only are day-to-day operations problematic because of the sheer amount of data, but an industrial manufacturer’s ability to innovate quickly is also severely hampered by too much data. The colossal nature of “big data” in an industrial environment can have a seriously adverse effect on current and future hardware costs.
• Predefined maintenance of data aggregates for reporting can create numerous additional tables and procedures that ultimately inflate the database to an unmanageable size. In this type of situation, IT needs to spend a lot of time on maintenance that could have been better spent working on real innovations as opposed to inefficient “plumbing.”
• Complex system landscapes need to be maintained and integrated, including productive, test/quality, and development systems. Multiple, complex system landscapes can also negatively impact hardware and system maintenance costs.
Reducing Complexity and Increasing Simplicity
From a vertical line of business perspective, SAP S/4HANA can definitely help industrial manufacturers simplify.
• With true Product Innovation and Integrity, resources and project-tasks can be more accurately planned and re-scheduled across multiple business functions. Product data can be created, consolidated, managed, and processed in one common database, resulting in improvements like a 17% faster time to market with easy access to product and new product pipeline status.
• From a Sales, Marketing, and Aftermarket Service perspective, by aggregating, monitoring, and predicting demand shifts, forecasts can be created and re-aligned accurately, collaboratively, and quickly to fine tune forecasts and align capacity, resulting in improvements like 12% more field sales achieving quota and 20% lower DSO with real time access to accurate pipeline and sales data.
• Timely and accurate Supply Chain Management collaboration helps planners obtain real-time information on KPIs like material shortages, quality issues, or inventory stock levels in a single, consolidated MRP cockpit. This cockpit, or dashboard, can provide options and navigation paths to improve all transactions and processes, resulting in improvements like 36% fewer stock outs with real-time enterprise wide visibility of inventory.
• Regarding Manufacturing and Asset Utilization, maintenance orders can be automatically generated by quick and easy mass scheduling of service plans, fast mass updates for asset data and records, as well as real-time insight for key asset metrics; driving improvements like 32% lower un-planned downtime where asset safety and reliability are monitored based on real-time performance information.
With regard to horizontal line of business priorities:
• Procurement can leverage the Ariba Network, which helps facilitate simple and efficient collaboration with trading partners, ensuring orders are received and processed quickly, and invoices are submitted for payment without errors, driving results like 98% touch-less approach to processing invoices and payments with Ariba software
• Finance can operate more simply by combining Accounts Receivables with Profit Center Information, reporting based on line items not aggregates, allowing end-to-end analysis and new report generation, and delivering dramatic results like 65% faster financial close processes.
• With insight into current and future staffing needs, Human Resources can quickly identify, source, and onboard, both full time and contingent workers, seamlessly managing the total workforce in the most efficient and cost-effective manner possible, driving results like 22% lower employee turnover when the system aligns workforce plans with financial budgets; and designs strategies to optimize the workforce.
SAP S/4 HANA can help industrial manufacturers reduce User Experience complexity.
• Contextual Information like Smart Business Cockpits can help bring the most important information to the users’ attention on one screen and provide easy-to-use navigation to facilitate action, creating true value like 20% higher revenue per employee for companies where more employees receive analytical information.
• High User Acceptance is a clear benefit of SAP Fiori, the new user experience (UX) for SAP software that applies modern design principles – insight to action, decision support, and simulation in one infinitely-personalized environment, driving results like 147% higher annual revenue growth and 11% higher operating income on average for organizations where BI systems support historic, current, and predictive analysis.
• Zero Data Latency means “real, real-time.” Users can make decisions on live data at the most granular level, analyze information on the fly, and connect to the massive amounts of data being generated around them. 30% improvement in employee and business partner responsiveness and decision making is a common result of real-time data access.
• The role-based, harmonized user interfaces of the new S/4HANA apps are natively designed with the SAP Fiori user experience for consumer-grade usability on any device. S/4HANA provides a role-based, mobile-first, consistent experience across all lines of an industrial business, and driving results like a 40% improvement in user productivity.
SAP can also help Industrial IT departments run simpler.
• Data consolidation can help reduce complexity by compressing the technology stack and combining the transactional and analytical layers, driving real-time data analysis on a single source of truth. One global industrial manufacturer realized a 70% improvement in their product data management analysis across the organization.
• A reduced data footprint with a high data compression rate can help eliminate redundant and/or obsolete data tables, providing better scalability and higher system and network availability. An industrial tooling manufacturer saw massive improvement in their sales and pricing data load and analysis performance which is growing at about 3 terabytes per year. They went from 7-10 days to 24 hours to load the data, and they also increased the speed of new report creation from 6-9 months down to 3 days.
• Elimination of Data Aggregates also reduces complexity, lowers the time IT has to spend on maintenance, and increases user flexibility.
• A Simplified System Landscape merges OLAP & OLTP systems, providing the flexibility to choose a deployment model based on flexibility or functional needs, either on premise, in the cloud, or with a hybrid combination of the two.
In the next installment of the blog series, I’ll be writing about the specific value points S/4 HANA delivers for individual lines of business like supply chain, manufacturing, and aftermarket service, as well as what the journey of moving to S/4 HANA looks like for a typical customer migrating from ECC.
Avi Bedi is a Director of Industrial Machinery & Components Solutions Management for SAP. Before joining SAP, Avi held various product management, consulting, and development positions with i2 Technologies & Trilogy Software. Avi has a B.E. in Electrical Engineering from Bangalore University, an MBA in Finance from Southern Illinois University, Edwardsville, and an M.S. in Information Systems/Computer Science from Texas A&M University, College Station. He is currently based in the Washington DC area in the United States.