Industry 4.0 Is your ERP system ready for the digital era? Investing in Germany | A guide for Chinese businesses

Industry 4.0 stands for disruptive change caused by the expansion of the Internet of Things and by Cyber-Physical Systems in production and logistics. The term includes innovations such as intelligent products and processes, a deeper integration along the supply chain, and digital technologies in production. The aim is a faster reaction to increasingly variable customer demand, resulting in increased competitiveness in dynamic, volatile markets. This study assesses available SAP® technologies in the area of enterprise resource planning, illustrates the successful implementation of Industry 4.0 in an integrated concept with the help of use cases, and makes recommendations.

02 Industry 4.0 |Is your ERP system ready for the digital era?

Deloitte in the Digital Era 05 Our understanding­ of Industry 4.0 06 The path towards the fourth industrial revolution 07 Goals for strategy, organization, and processes 08 Demands on ERP Systems made by Industry 4.0 10 Technical requirements 11 Process-related requirements 16 Assessment of existing SAP technologies 20 ERP system classes: status quo, evolution and revolution 22 Connection of ERP systems to the shop floor 29 Conclusion: an initial but very essential step 32 Use cases: successful examples in the area of ERP 36 Deloitte-M4.0-Cube: integration of use cases 37 Conclusion 44 Result and possible improvements 45 Different ways to approach Industry 4.0 with Deloitte as acompetent partner 46 Contact 48

03 Investing in Germany | A guide for Chinese businesses Industry 4.0 |Is your ERP system ready for the digital era?

Deloitte in the Digital Era

Deloitte is one of the largest audit and Enterprise Resource Planning: We want to share with you the ERP and consulting companies in the world. Unlike still the company’s backbone Industry 4.0 expertise we have developed. other consulting companies, we offer a In recent years, Enterprise Resource In the following sections we outline the broad variety of consulting services in Planning (ERP) systems such as SAP® ERP challenges as well as process-related and different areas. These span the conceptu- ECC and SAP S/4HANA® have become the technical requirements for ERP systems in alization of future-oriented strategies, the central instance for the planning, control, Industry 4.0 and present the ERP systems establishment of optimized processes, the and execution of all business processes, best suited to supporting Industry 4.0. transformation of a whole organization, due to the advantages of depicting all and the implementation of innovative business-relevant data in, and accessing it technologies. We always strive for the best from, one system. Industry 4.0 is not going solutions and we therefore make use of to change this, but the role of ERP systems our network – which consists of more than will change. The focus will shift from central 250,000 experts worldwide – to respond in data collection to the support of mobile, an optimal way to clients’ requirements. role-based user interactions. Thanks to real-time data access and intelligent data Industry 4.0 as a cross-functional analyses, the efficiency and transparency topic: our strength of process execution can be increased As all business functions and processes significantly. are affected by Industry 4.0, Deloitte is the ideal partner for mastering this theme. Our competencies in Enterprise Disruptive technologies such as the Inter- Resource Planning and Industry 4.0 net of Things (IoT), Big Data, and Analytics But this does not happen automatically. provide an opportunity to improve current Every company needs a tailored concept processes or to develop processes which to make optimal use of its data. It is only have not been realizable up to now. Pro- then that the company will be able to adapt cesses change but so do the roles and flexibly and dynamically to the changes responsibilities of employees: rather than demanded by the market. Innovative data being machine operators they become management – which will be presented shapers and controllers of smart, connect- later on in this paper – must therefore be ed systems. Companies that engage in developed. Deloitte represents a reliable Industry 4.0-oriented process changes are and competent partner in designing and constantly communicating with their busi- realizing such data management as we ness partners. Hence, new products and have more than 12,000 experts in the area services can be offered which influence the of enterprise applications, especially SAP, company’s strategy and business model. who assist in implementing and enhancing ERP systems.

05 Investing in Germany | A guide for Chinese businesses

Our understanding­ of Industry 4.0

Owing to the growing uncertainty in the market and the customer’s desire for more individualized products, companies are coming under pressure to make their production and logistics processes more flexible. The key word is Industry 4.0. The en- tire IT infrastructure must therefore be re­designed – this includes systems for the planning, control, and execution of production and logistics. The key to process integration is innovative data management with an Enterprise Resource Planning (ERP) system as central planning instance. First, the term Indus- try 4.0 and its relation to a company’s EaRP system will be defined.

06 Industry 4.0 |Is your ERP system ready for the digital era?

Our The path towards understanding­ the fourth industrial of Industry 4.0 revolution

After mechanization with the help of water Technical pillars of the development The ERP system as an essential part of and steam power in the late 18th century, The interconnectedness of physical objects a Cyber-Physical System the standardization and division of labor facilitates innovative, decentrally controlled The purpose of ERP systems is to serve that enabled mass production in the early production systems which permit the as the central instance for master and 20th century, and the electrification and production of small lot sizes and a range transactional data in all business-related further automation of production in the of product variants. This development processes in companies. With the help of 1970s, we are now experiencing another is mainly enabled by the miniaturization interfaces, ERP systems are connected to change: the fourth industrial revolution – and increased performance of microelec- input and output devices such as scanners, Industry 4.0. Industry 4.0 presents oppor- tronics, communications, and information illustration and communication devices tunities and challenges but it represents a technology. But technologies which can be and also to other hardware-software-sys- change that companies need to come to linked to Big Data are just as important for tems within and across companies. Con- terms with in order to stay competitive in the implementation of Industry 4.0. This sequently, the ERP system can be seen as the market. affects the storage, exchange, and effective an essential part of the CPS network and use of large amounts of data arriving at therefore needs to be taken into account in The Internet of Things in production high speed from different data sources. integrated Industry 4.0 concepts. However, and logistics Moreover, technologies for data input and new, flexible processes and especially the Our understanding of Industry 4.0 is the output such as 3D scanners, virtual reality dissolution of the paradigm that all com- application of the Internet of Things (IoT) to glasses, and mobile devices are needed. pany data has to be stored centrally pose industrial processes. This refers especially a challenge to ERP systems. This is why the to the representation of physical objects Technical integration of Cyber-Physical study examines how different SAP technol- such as machines, tools, workpieces, and Systems ogies can support Industry 4.0. workpiece carriers and their equipment in Cyber-Physical Systems (CPS) are frequently the digital world, with the ability to commu- mentioned in connection with Industry 4.0. nicate with other objects. These resulting Sometimes Industry 4.0 is even used as a smart objects are connected with each oth- synonym for the technical integration of er and together they build a system which such systems in production and logistics. allows for more flexible, more efficient, and CPS refers to the involvement of computa- more transparent planning, control, and tional logic in physical processes. Embed- execution of production and logistics. This ded, connected computers monitor and also requires changes along the supply control physical processes in a closed-loop chain and in work organization and adapt- control in such a way that the physical pro- ing business models and services. cess and the computational logic influence one another. Machines and products are therefore equipped with sensors, actua- tors, and a connection to the company’s communications network. The embedding of the products as active components in the CPS is essential. This way workpieces and workpiece carriers hold all necessary information for executing and controlling their production themselves. 07 Investing in Germany | A guide for Chinese businesses

Goals for strategy, organization, and processes

Industry 4.0 aims at making production Fig. 1 – Goals of Industry 4.0 and logistics processes (which are currently planned, controlled, and executed statical- ly) more dynamic. Industry 4.0 therefore Strategy also has an impact on all performance •• New business models and services through digitalized products levels and processes which companies •• Shorter time-to-market for a fast reaction to new customer deal with to create value for the customer. demands Such performance layers – which will be later used to illustrate use cases – are for •• Higher robustness to volatile customer demand example the IT infrastructure, operational processes, planning, and controlling. On the other hand, knowledge, capabilities, the Organization •• Increased quality of work through an improved work-life-balance company‘s culture, organizational struc- tures, and strategic targets also present •• Diversified tasks through the automation of routine jobs areas for change. Thus the goals of Industry •• User-centric work environment through innovative man-ma- 4.0 can be divided into three categories: chine-interaction strategy, organization, and processes, as shown in Figure 1.

Processes •• Saving of time through more efficient and more transparent production processes

•• Higher flexibility through dynamic planning, control, Industry 4.0 has and execution implications for all •• Higher productivity and resource efficiency for individualized performance areas and products business functions of a •• Shorter lead times through the application of intelligent analyses company. •• Different work organization through mobile process control and execution

•• Increased quality through predictive error avoidance

08 Industry 4.0 |Is your ERP system ready for the digital era?

09 Investing in Germany | A guide for Chinese businesses

Demands on ERP Systems made by Industry 4.0

If the ERP system is to be used in a CPS environment to support Industry 4.0, it must fulfill a variety of technical and process-related requirements which are described below.

10 Industry 4.0 |Is your ERP system ready for the digital era?

Technical requirements

Data becomes more and more the key to maximizes the value of data for the busi- the planning, control, and execution of all ness and includes the storage, exchange, activities along the supply chain. That is and use of data. The development and why companies must handle all data with implementation of such concepts must be care and make wise use of them. Compa- encouraged, as only data which is error-­ nies must look for new ways of using data free, up-to-date, accessible, and usable and need to exploit the opportunities of can contribute to the company’s success. their data security to create an effective In conclusion, technical challenges lead basis for decision-making. The main chal- to technical requirements (TR1, TR2, and lenge here is innovative data management. TR3) for ERP systems which are shown and For us, innovative data management is a described in Figure 2. comprehensive, long-term concept which

Fig. 2 – Technical requirements for ERP Systems

TR1 Simplification of data model: Data storage •• Simple table structures for the logical data model of ERP systems •• Goal: abandonment of intermediate results (timeliness of data)

Decentralized data management: •• Distributed storage of data in different systems •• Goal: dynamic, bi-directional (ERP-MES-PLC) loading of data to control processes flexibly

TR2 Connection to legacy systems: Data exchange •• Exchange (vertical and horizontal) and processing of data with and from different hardware-software systems •• Goal: integration of systems for a flexible planning, control and execution

Speed of data access: •• ERP system should deliver requested data within short response times •• Goal: fast reaction to changes which are on short notice

TR3 Visualization: Data use •• The user interface of the ERP systems should display information adequately (i.a. display on different devices), understandingly und intuitively •• Goal: improvement of human-machine interaction

Integration and Intelligence: •• ERP system should connect data from different sources and hence create new information •• Goal: generation of new information

Automation: •• ERP system should use the data to trigger automated processes •• Goal: reduction of errors and increase in efficiency

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TR1 – Data storage: logically simplified On the other hand it is possible to store and physically distributed data decentrally where there is no hierar- There are two perspectives on data stor- chy of IT systems. In such a scenario, the age, the logical and the physical. The logical independent systems start communicating perspective describes the data model with each other when there is the need to and hence the structure of the database solve temporary tasks such as finding the which serves as the central instance for the next work station for the processing of the company‘s data management. Typically, an work piece. This theoretically achieves the ERP system is based on a number of tables desired flexibility. Nevertheless, there is no which store fundamental data as single en- way to avoid redundancies and inconsisten- tries, aggregated intermediate results, and cies in that case. General data such as, e.g., condensed data. For classic ERP systems the organizational structure and material these condensed data are based on com- master data have to be managed centrally. putation routines which can be executed Moreover, it is also important for flexible at predefined time intervals only. This is production to plan sequences in advance due to a lack of performance which leads in order to have sufficient resources (per- to data not being up-to-date. An example sonnel, budget, etc.) available. This is why would be the posting of inventory between it is a challenge in Industry 4.0 to balance storage locations. The flexibility which is centralized and decentralized data storage necessary for Industry 4.0 is only achieva- to avoid redundancies and inconsistencies, ble if the planner is able to access the most allow for planning, and realize the desired current data from all business functions. flexibility. This is summarized in Figure 3. This requires the development and im- plementation of a simplified data model which allows access to a current, single set of data at all times and which also updates Fig. 3 – Data storage upstream results.

The physical perspective of data storage is Centralized Decentralized the physical place where data is stored and managed. There are two opposing ways of storing data, namely completely centrally and completely decentrally. The centralized approach represents the main idea of ERP systems where all important company data are stored in one place in order to avoid redundancies and inconsistencies. Nevertheless, this increases the size of the centralized database which requires novel technologies for efficient data processing. Thinking about flexibly controlled produc- tion reveals that not all data are available in advance and thus cannot be stored cen- trally. For example, when it is not desirable to assign an order sequence, the workpiece has to be identified dynamically. Then some The main component of innovative data data such as the workpiece’s identifier and management is the smart combination of in some cases also work instructions have to be stored decentrally on the workpiece itself. centralized and decentralized data storage.

12 Industry 4.0 |Is your ERP system ready for the digital era?

Fig. 4 – Data exchange

Horizontal Integration

ier stmer

Vertical Integration

Centralized Decentralized anatrer

Vertical Integration: Exchange of data between the ERP system, the MES, and the shop floor Horizontal Integration: Exchange of data along the supply chain through the integration of customers and suppliers

TR2 – Data exchange: integrated and A vertical integration of the planning, con- The flexible planning, immediate trol, and execution levels in the company As companies interact with other parties additionally enables flexible control of control, and execution of such as suppliers, institutions, and cus- production and logistics processes. For production requires vertical tomers beyond their boundaries, an ERP example, production orders are exchanged system has to be able to support end-to- between the planning level, ERP system, and horizontal connection end processes and to exchange data with and the execution level, manufacturing of data generated by these external parties. This horizontal inte- execution system (MES). The latter then ex- gration facilitates the consistent availability changes data with the machine’s program- different systems. of customer and supplier data. Horizontal mable logic control (PLC). The challenge integration is one of the strengths of ERP that arises is hence the connection of the systems, thanks to their existing interfaces. ERP system in two directions – horizontal and vertical (see Figure 4).

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For horizontal integration beyond the TR3 – Data use: intuitively displayed, Apart from using data to trigger automated company‘s boundaries it is vital to define integrated and automated execution or at least other processes, the and establish communication standards To maximize the potential of company data visualization of data is important for involv- for data security and to avoid data manip- it is important not only to store and ex- ing the user. The user therefore needs to ulation. As the IT systems of the different change data but also to use them effective- have the possibility to interact with the ERP supply chain partners communicate using ly and efficiently. Such advanced data use system, using an adequate user interface. a number of interfaces it has to be ensured has to be applied to all data, independently The design and configuration of such user that the technologies are capable of being of their storage location – but especially to interfaces which are based on self-explan- integrated. the data which are physically distributed. atory elements for the visualization and For us, advanced data use also considers the mobile use of data on different devices Apart from the possibility of connecting dif- user-friendly human-machine interaction, such as smartphones and tablets provides ferent systems with each other, the speed data connection among different com- an enormous potential from a process-re- of the data access of ERP systems and panies, and the automation of business lated point of view. The easier it is for the connected data sources is another chal- processes. The challenge is the realization. user to work with ERP systems, the more lenge that presents itself. As mentioned Over recent decades, companies have efficient and more transparent process earlier when discussing logically simplified collected large amounts of data but they execution will be and the fewer errors will data storage, the planner has to be able to are still at an early stage of using it wisely. be made during data input. To exploit the access the most up-to-date data to super- The reason for this is that the existing data full potential of such interfaces they should vise and, if necessary, influence production have to be connected intelligently to new in- have the following five characteristics: and logistics processes. This is why ERP formation. Only if large amounts of data are systems need to have minimal response connected can Big Data become Smart Data. times. If data is stored in different places, data exchange is essential for process exe- An example is the collection of data from cution and immediate data access is even the various machine tools with the help of more important. It is thus obvious that a sensors. These collected data are then en- concept for innovative data management riched with technical data such as thresh- must integrate the storage, exchange and – old values and historical data, commercial to be explained next – use of data. data such as costs, and external data such as demand forecasts, to create new busi- ness-relevant information. The resulting key performance indicators (KPIs) serve as a basis for analyses and reports. Automa- tion, either partial or complete, can take place on the basis of these processes. For example, imagine the automated procure- ment of material based on the expected demand in the next planning period and the current inventory level. When projected stock falls below a threshold, purchase req- uisitions are automatically generated and purchase orders are sent out to the supplier.

14 Industry 4.0 |Is your ERP system ready for the digital era?

Role-based – the user interface provides the functionalities of ERP systems to Mobile – the user as needed for the job role the user is able to access informa- and tasks. Information is displayed tion about production processes and analyzed accordingly. at any time and anywhere and may change control parameters promptly.

Personalized – the user interface provides the user with modern functionali- New role of ties which give the impression ERP systems that the work is supported according to individual needs. This way a bond between the user and the working medium is established.

Simple – complex functionalities of the ERP systems are divided into sin- gle steps which the user executes one after another. The simplifica- tion of the user interface increas- Agile – es the efficiency and reduces the the user interface enables probability of errors. the user to work quickly and without delays with an ERP system. Information is called, processed, and visualized immediately.

New role of ERP systems in data stor- on real-time data which can be accessed dancies and inconsistencies while dynamic age, data exchange, and data use on various devices with a modern user data such as transactional data for orders In Industry 4.0, ERP systems will fulfill a new interface replacing access to tables with the could be stored decentrally to allow for role. Typically, an ERP system is the central help of transactions. flexibility. Data exchange with all IT systems instance for data storage in a company to has to be planned carefully and there is a plan, control, and execute business pro- All dimensions of innovative data manage- need to assess which novel technologies cesses. This is the ERP system’s strength ment – data storage, data exchange, and such as sensors, analytic algorithms, and which continues to exist. But the ERP sys- data use – are affected by the new role of data glasses are able to make the use of tem has to be embedded into an upstream, ERP systems. An adequate concept has to ERP systems even more efficient. connected system consisting of intelligent be developed individually for each compa- components. It will still be the central part ny to maximize the benefits of Industry 4.0. of this entire system but for example not all For example, it has to be decided which data will be stored in the ERP system’s da- data should be stored centrally in the ERP tabase any longer. Moreover, the connec- system and which data it is advisable to tions to other IT systems become more and store decentrally on the workpiece itself. more important and so does data use. The Static data such as material master data planner receives intelligent analyses based could be stored centrally to avoid redun-

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Process-related requirements

To achieve the goals of Industry 4.0 listed in Figure 1 (higher flexibility, increasing Lean Management and quality, etc.) processes along the supply chain have to be adjusted. In particular, the Industry 4.0: lean and still flexible increased flexibility in production is of great importance to enabling the manufacture The focus in both concepts for all planning and controlling of individualized products at low cost and activities is the customer and their need for individualized with high resource efficiency. The idea products. This is why production models which are based on of a flexible and adaptable production is requirements are used. The reduction of inventory which is a not a new one. Nevertheless, Industry 4.0 form of waste in lean management is also aimed for in changes the way of achieving the desired Industry 4.0. It should facilitate the steadily growing range of flexibility compared to frequently used variants at low cost. A lot size of one is also requested in management methods. Industry 4.0.

In Industry 4.0 ERP, systems will still play The main differences between Industry 4.0 and Lean Manage- a central role but it has to be evaluated ment are the following: the static sequencing and release of how they should be used to maximize their production orders and the worker, in additionto the machine, potential for Industry 4.0. It is obvious that as central instance for production execution, e.g. for quality new requirements for ERP systems exist. assurance. In Industry 4.0, production orders may be adjusted Apart from the technical requirements frequently and are released just before executing the task that described in the previous section, there was changed. This way the rough-cut and detailed production are also process-related challenges to planning becomes less important as customer orders and re- cope with. These challenges lead to new quirements can be committed directly to the production line. process-related requirements (PR1 to PR6) which are listed and described in Figure 5. Moreover, the approach to avoiding errors differs in Industry 4.0 from the one in Lean Management. In Lean Management, quality is created throughout the process. It is the worker‘s duty to identify errors and correct them cumulatively. This leads to a continuous improvement for the company. But the process is a reactive one and this is why Industry 4.0 uses technologies proactively to identify errors. With the help of continuous data collection, data consolidation and the use of analytics, errors are detected before they in­ter­rupt producti- on (predictive maintenance).

The goals of both concepts are similar. Nevertheless, the focus of production means changes from the worker to self-optimi- zing production machines.

16 Industry 4.0 |Is your ERP system ready for the digital era?

Fig. 5 – Process-related requirements for ERP systems

PR1 Technical connection of ERP Systems to MES and PLC:

Suitability for dynamic planning, •• Vertical integration to make the production planning and execution more dynamic control, and execution •• Bi-directional exchange and usage of decentralized stored data

•• Goal: cost-efficient production of a higher variety of variants

PR2 Technical connection of supply chain partners:

Support for an integrated end- ­ •• Horizontal integration e.g. with suppliers and customers to-end process •• Goal: integrated information and process flow along the supply chain

PR3 Modern user experience:

Progressiveness of the human- ­ •• User-friendly, personalized and intuitive human-­machine interaction machine inter­action in the process •• Role-based and graphical data input and output

•• Goal: fewer errors and more efficiency in the process execution

PR4 Use of innovative mobile applications:

Location-independent control and •• Horizontal integration e.g. with suppliers and customers execution of processes •• Goal: integrated information and process flow along the supply chain

PR5 Performance of processes supported by the system:

Efficiency of process steps •• Faster data processing based on current data supported by the system •• Goal: ad-hoc processing of requirements which changed on short notice

PR6 Effective usage of connected data:

Process improvement through •• Use of all existing data from different data sources intelligent data analyses •• Generation of intelligent reports

•• Goal: decision support for predictive planning and control of processes and/or the trigger of automated, subsequent processes

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PR1 – Suitability for dynamic planning, collaboration platform based on cloud This way the production manager can control and execution: vertically inte- technology where metadata is stored. This supervise the manufacturing from afar, since grated and interconnected way manufacturers profit from customer operating figures are displayed on a mobile PR1 consists of two main criteria: the possi- feedback and can improve their machines. device. If there is any abnormality or the bility of technically connecting ERP systems Operators can take over the asset master need for adjustments the manager can also to MES and PLC and its support of decentral- data and spare parts information provided. intervene using a mobile device. ized planning, control, and execution. Moreover, they can reduce their mainte- nance costs and times, among other things Another example is the support of mainte- The connection of the ERP system to the by shortening issue response times with the nance workers. Intuitive applications can be MES and PLC creates a vertical integration of service providers. configured for their tasks so that the worker different organizational levels. This facilitates receives e.g. part and maintenance informa- a dynamic release of production orders that Horizontal integration is vital for implement- tion on a mobile device. aims at manufacturing a large range of vari- ing Industry 4.0 as it permits the exchange of ants at low cost. Changes to the production data easily and efficiently between different PR5 – Efficiency of process steps order can be transmitted to the MES imme- business functions and supply chain part- supported by the system: fast and diately through the integrated data exchange ners. adaptive between the ERP system and MES. The MES The performance of processes that are sup- sends the changes to the PLC of the machine PR3 – Progressiveness of the human-­ ported by the system contributes significant- which adjusts the execution of the produc- machine interaction: efficient and ly to the flexibility of production. Faster data tion order at once. error-free processing based on current data helps to Process execution can become more effi- achieve the goal of a fast reaction to chang- The decentralized planning, control, and cient and less error-prone if it provides a ing requirements. execution of production is supported by the modern user experience. A user-friendly, ERP system when it is able to exchange data personalized, and intuitive human-machine If there is any change in data it is important that is stored in different places bi-direction- interaction and role-based and graphic (in- that all systems which have access to these ally. This aims at making production even stead of transaction-based) data input and data are always synchronized. Only in this more flexible (see paragraph on data storage output supports the worker’s daily activities. way can it be ensured that all business func- in section 2.1). tions work with current and consistent data. An example would be the collection, pro- If this is not the case, the repetition of work PR2 – Support for an integrated end- cessing, and visualization of stock data with is an inevitable consequence. For example, to-end process: horizontally integrated the help of modern devices. Stock informa- a change in the bill of materials in the ERP and flexibly adjustable tion does not have to be written down on a system which is caused by poor quality The technical connection of all business piece of paper and entered into a stationary influences not only the procurement process functions and all external supply chain system any longer. It is now possible to enter where new parts have to be purchased but partners creates horizontal integration and send the data to the ERP system on-the- also the production process as different that aims at an integrated information and fly using an app. This reduces manual work components have to be used for the assem- process flow along the supply chain. This way and minimizes errors during data collection. bly. Consequently, the new bill of materials a supplier can react more swiftly when facing Additionally, the data in the ERP system has to be transferred to the MES which does changes in the customer order or supply reflect the current stock situation at all times. the detailed planning for production steps bottlenecks. Process parameters can be and resources. adjusted flexibly according to changing re- PR4 – Location-independent control quirements, while taking cost efficiency and and execution of processes: whenever quality goals (on-time delivery performance) and wherever into account. The ERP system should provide innovative, mobile applications for user interaction, An example that illustrates the benefits of for example via smartphones and tablets, the horizontal integration of different supply ideally out-of-the-box. These applications chain partners is the SAP Asset Intelligence should be applicable to all business-relevant Network. It is a secure network which auto- processes and aim at flexible control and the mates asset data exchange between OEMs, execution of processes from anywhere at operators, and service providers using a any time.

18 Industry 4.0 |Is your ERP system ready for the digital era?

PR6 – Process improvement through intelligent data analyses: effective, predictive, and automated An ERP system has to be capable of using connected data effectively. All available data, especially those from different data sourc- es, have to be used. The aim is to create intelligent reports which serve as decision support for predictive planning and execu- tion of processes and/or trigger automated, downstream processes.

Some procurement tools are able to analyze the stock and consumption information of materials themselves. When stock falls below a certain threshold they can automatically generate purchase requisitions. The buyer will be alerted and can accept or reject the purchase requisition. In some cases the system can automatically send out purchase orders to a supplier (sometimes even pre- viously chosen among a number of offers by the system itself) to guarantee materials availability.

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Assessment of existing SAP technologies

SAP SE supports the trend towards Industry 4.0 with technical innovations which can be differen­tia­ted be- tween technologies for data storage, data exchange and data use (see Figure 6). In the area of data storage SAP SE offers the in-memory database system SAP HANA, which speeds up data access. The integration software SAP Plant Connectivity (PCo) in combination with SAP ME and SAP MII can be used to exchange data from the underlying ERP system down to the machine control level. An example for an innovation­ with regards to data use are SAP Fiori and UI5 Apps with built-in analytical functions.

20 Industry 4.0 |Is your ERP system ready for the digital era?

Fig. 6 – Process-related requirements for ERP systems

Data storage Data exchange Data use

SAP HANA DB Architecture SAP ME, SAP MII and SAP PCo SAP Fiori & UI5 Applications The HANA database supports al- SAP ME, SAP MII and SAP PCo facili- SAP Fiori and SAP UI5 offer role- most instant data access by storing tate data exchange between the ERP based applications and interfaces data in fast memory, column-orient- level and the machine control level. on mobile devices. With the help of ed data management, and the shift As a result, the program can incor- alerts, the attention of the user is of program code from the applica- porate dynamic information. directed to critical situations, while tion level to the database level. suggesting possible solutions.

SAP SE supports the increase of flexibility in production by offering different technologies in the area of data storage, data exchange, and data use.

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ERP system classes: status quo, evolution and revolution

The technology stack of existing ERP sys- 2. Evolution: tems can consist of one or even several of ERP systems which offer classic ERP the technologies described above. Accord- functionalities on the basis of the ing to their technical characteristics, it is in-memory database SAP HANA (SAP possible to classify various ERP installations ERP® ECC on HANA, Business Suite on into the three following groups based on HANA). their level of innovation (see Figure 7): 3. Revolution: 1. Status quo: ERP systems which offer classic as well ERP systems which offer classic ERP as new ERP functionalities that are functionalities on the basis of DB2 technically and functionally designed databases (SAP ERP® ECC on AnyDB, for the use of the underlying database Business Suite on AnyDB). technology SAP HANA (SAP S/4HANA Enterprise Management with SAP Fiori/ UI5 applications).

22 Industry 4.0 |Is your ERP system ready for the digital era?

Fig. 7 – ERP system classes

tats vtin evtin (SAP ERP ECC/ SAP Business (SAP ERP ECC/ SAP (SAP S/4HANA Suite on AnyDB) Business Suite on HANA) with Fiori/UI5)

Traditional division into Significant performance High-performing function-related units improvements through through the use of SAP the use of SAP HANA HANA in-memory Transaction-based user in-memory database database and the access (“old-fashioned” simplification of the user interfaces) Enabled for intelligence architecture functionalities Long access times and Modern user experience high latency periods Traditional user with SAP Fiori applications through the use of experience technology aggregated data Embedded intelligence

23 Investing in Germany | A guide for Chinese businesses

Status quo: a matter of time The interconnectivity of an ERP system with Having mentioned the technical benefits, ERP systems which run software applica- boundary applications which is perceived however, on the software side the new da- tions such as SAP ERP ECC on classic DB2 as a necessary requirement for a digital- tabase architecture does not even differen- databases currently constitute the status ized company from a holistic point of view tiate which business processes have to be quo for the majority of companies. For sev- is often only achievable at high cost and executed. The classic core ERP functionali- eral generations these systems were im- with high configuration and development ties and the extended functionalities of the plemented as a central planning element in effort. A digital reflection of the operational SAP Business Suite on HANA (see previous most companies. Business processes in the processes and of the product itself, which section) are equally enabled to make use of area of logistics, production, and finance can foster the adaptability of the entire the advantages. were designed interactively sector- and production as a consequence of the in- industry-wide around different modules creasing volatility, is difficult to realize with Using SAP HANA requires a technical (procurement: SAP MM, logistics: SAP WM, those technical installations. In the medium migration of the existing data set from a plant maintenance: SAP PM, production: and long term, these ERP systems will face traditional database to the new database SAP PP, finance: SAP FI, controlling: SAP significant challenges to meet Industry 4.0 technology. This system conversion is an CO). The end-user is able to access these requirements. initial but essential step towards a com- functions by means of different transaction plete conversion to SAP S/4HANA which codes which are mostly not connected to Evolution: on the way to digitalization can then be implemented later on. Through a special business role. In order to extend Evolutionary ERP systems facilitate signif- the use of in-memory technology, Industry the business processes beyond a compa- icant performance improvements in the 4.0 requirements can be met to a certain ny’s borders SAP SE launched the SAP Busi- execution of business processes which extent by reducing the reaction time and ness Suite which covers next to the core have not been possible with the classic hence increasing adaptability. ERP modules functionalities for Customer systems so far. The SAP HANA database Relationship Management (CRM), Supplier architecture combines different innovative Relationship Management (SRM), Product software-related and hardware-related Lifecycle Management (PLM) and Supply technologies. A hardware innovation is the Chain Management (SCM). hybrid of the very common column-orient- ed access functionality of an in-memory The programs enabling the proper func- database and the classic row-oriented tionality of these ERP systems such as technology that is popular for relational postings and reports are based on data databases. An essential characteristic of which are mostly selected from aggregated SAP HANA is its consequential in-memory tables or index tables that in turn derive platform design which basically promotes data from a larger variety of basic tables. the analysis and processing of data directly This leads to an increased complexity of in random access memory instead of using the system landscape which in particular the traditional hard-drive-based mode causes negative effects on the availability of operation. This enables the execution of data (e.g. blocking of objects through of transactional (Online Transaction Pro- users) and access to data (e.g. no parallel cessing, OLTP) and analytical procedures postings) and on the overall performance (Online Analytical Processing, OLAP) in the of the entire system. Long access times, same system aiming at processing Big Data long latency periods, and an inevitably high practically in real-time. The partial relo- degree of data redundancy are the conse- cation of programs from the application quences of the technical characteristics of layer directly into the database layer also these systems. increases the performance of the system which is seen as inevitable on the way towards digitalization.

24 Industry 4.0 |Is your ERP system ready for the digital era?

25 Investing in Germany | A guide for Chinese businesses

High performance, modern user experience, and the usage of embedded intelligence pave the way towards a digital company, which increases overall production flexibility.

Revolution: well prepared for SAP S/4HANA is mainly characterized digitalization by three key technical innovations: A complete new generation of ERP func- tionalities of the Business Suite is brought •• modern architecture, to the market with the software package SAP S/4HANA Enterprise Management. •• a modern design facilitating mobile use of Through a variety of Simplifications – pri- SAP software and marily in the traditional areas of finance and logistics – the transition from a purely •• the technical integration of embedded transactional system which collects data, intelligence. towards an active decision-supporting system for the end-user based on real-time In the course of an upgrade or a new internal and external data is prepared. In installation of SAP S/4HANA, the underlying the core of SAP S/4HANA Enterprise Man- database model is simplified. Applications agement, the “Digital Core”, all business-re- from now on will use live data instead of lated functionalities which have formerly data that is temporarily stored and aggre- been divided into modules are designed for gated, enabled by the fast access speed the technical characteristics of the under- of the in-memory database. However, the lying SAP HANA in-memory database. This fundamental database structure will not be range of functionalities can easily be en- changed. A finance or sales document will hanced through other components of the still have its importance. Merely through enhanced SAP S/4HANA Suite (SAP S/4HA- the elimination of aggregates and index NA Suite: Non-S/4HANA-branded solutions, tables (see Figure 8), which were inevitable SAP S/4HANA Products: S/4HANA-branded before to permit different views of docu- solutions). The SAP S/4HANA Suite compo- ments, performance will increase about nents for example encompass the pro- ten times by reducing the redundancy of curement software SAP Ariba as well as the data and the nearly complete elimination of Human Resource tool SAP SuccessFactors. latency periods. Among the SAP S/4HANA products, the Extended Warehouse Management (EWM) can be listed as an example which is opti- mized and innately, technically integrated into the SAP S/4HANA architecture.

26 Industry 4.0 |Is your ERP system ready for the digital era?

Fig. 8 – Simplified table structure

Sales document Sales document

eaer Item Inies eaer Item Incl. Status Incl. Status Incl. Status Incl. Status

aes rer

eivery I I I I

iing ment

tats In

27 Investing in Germany | A guide for Chinese businesses

Fig. 9 – From transactional to role-based user interfaces

In the area of human-machine interaction, These technical innovations on the one information in the form of alerts when SAP SE promotes its SAP Fiori UX strategy hand define a completely new working critical situations such as material shortag- in which the transactional operating model experience and on the other permit the re- es are about to happen. In a next step the is transformed into a role-based user ex- structuring of production landscapes from staff will be actively provided with deci- perience. SAP Fiori is expected to steadily scratch. The related organizational changes sion-supporting recommendations based replace the “old-fashioned” SAP GUI (Global will be even further-reaching than simple on algorithms that have been programmed User Interface) with the aim of facilitating migration to a new database would be. The beforehand. In turn, the recommendations transition into a new era in the field of new human-machine interfaces require can be simulated to evaluate the effects of client-centric user experience. Modern in-depth training of staff in the use of these execution and finally can be used to make user interfaces which are currently popular systems, since existing knowledge can only the best possible decision. in the consumer industry (e.g. smartphone be transferred to a limited extent. applications) enable this transmission by replacing existing transactions with several In addition, SAP SE will increase the intel- smaller individual SAP Fiori applications ligence of future generations of ERP sys- designed for a specific business role as tems. Embedded analytics functionalities shown in Figure 9. will be implemented in the core of SAP S/4HANA Enterprise Management. These context-based analysis and reporting func- tionalities basically consist of virtual data models which by nature are designed for use by role-based SAP Fiori applications. Thus, for example, a material or production planner can be provided with particular

28 Industry 4.0 |Is your ERP system ready for the digital era?

Connection of ERP systems to the shop floor

Conventionally, production is planned In individualized production scenarios, SAP Plant Connectivity (PCo) enables the top-down from the production planning consistent data exchange between product exchange of data between the MES level, level (ERP system) to the execution level engineering and manufacturing execution supervisory control, and data acquisition (MES) down to the machine control level plays an essential role as the interconnec- (SCADA) services, human machine inter- (PLC). SAP SE responds to this requirement tion of these functions forms the start of faces (HMI) or programmable logic controls by connecting the ERP system with the solid manufacturing processes. Conven- (PLC). SAP ME offers full integration with MES and hence enabling the exchange of tionally, the Engineering Bill of Materials SAP ERP systems out-of-the-box. Non-con- information between the top floor and the (EBOM) is handed over to the manufactur- formity management is supported by shop floor in real time. That is what is called ing department, where mostly the system in-line sampling and system-guided manual ‘connected manufacturing’. (background job) based on the require- rework processes. ments from engineering develops the Man- All ERP system classes presented in the ufacturing Bill of Materials (MBOM). These previous section can be used to vertical- routings are then a fixed pattern. With the ly integrate with the production control aim of being more flexible, SAP launched and execution levels and to dissolve the the SAP Visual Enterprise Manufacturing automation pyramid. The ERP system’s Planner (VEMP), which permits the manu- reach needs to be expanded towards the facturing engineer to create these MBOMs machine layer. The machine layer itself has by re-grouping the parts and components to be programmed more openly so that and be able to add other parts that are the middle control layer which integrates needed for assembly/packaging processes. the various data sources can manage the With regard to the imperative of a lot size production process more autonomously. of one, the SAP VEMP is a beneficial imple- mentation. There are many reasons for performing the orchestration of production execution in a SAP Manufacturing Integration and Intelli- separate MES such as SAP Manufacturing gence (SAP MII) and SAP ME use the data Execution (SAP ME) or equivalent. If there from the EBOM or rather the routing from is a downtime in the ERP system’s connec- the MBOM. Both systems complement tivity for whatever reason, production has each other. On the one hand, SAP MII to keep running. Manufacturing processes integrates shop floor solutions such as SAP usually need more detailed execution ME and other data sources with the ERP operations than planned in the routing by system for production, quality manage- ERP systems. It is not desirable to track ment, plant maintenance, and materials every state of work in progress (WIP) for management. On the other hand, it is used every production step. Regulatory compli- to visualize KPIs calculated by analyses of ance and the imperative of a lot size of one the data extracted from the integrated require a traceability and a product gene- data sources. SAP MII offers an alert frame- alogy at the unit level. For that purpose work monitoring the threshold values for parametric data need to be connected to any machine and creates preventive main- the units. tenance work orders for each threshold breach.

29 Investing in Germany | A guide for Chinese businesses

Fig. 10 – Vertical data exchange

Production plan Serial number management Bill of materials uality inspection results Variant management Order confirmation Production steps Inventory and equipments

II Production details Log parametric data management Tolerance checks Production step routing Return conformance or Shop floor controls non-conformance decisions

Mapping of production details from the manufacturing execution system to PLC control parameters

ata eange

Sensor detects part carrier Machine reports completion Requests control parameters Requests next operation

30 Industry 4.0 |Is your ERP system ready for the digital era?

SAP ME/MII and SAP Plant The material will be processed at the workstation according to this information. Connectivity enable vertical As soon as the production step is executed data exchange between the results will be sent back to the ME. The ME now executes the check and decides the planning, control, and whether the production step can be set to execution levels. complete or not. If the conformity check is successful, the next work step for the material will be identified dynamically. The material will be sent to the next work sta- It facilitates vertical integration from the tion where the PLC asks for control param- ERP system to the machine level such that eters and the MES sends these using PCo. the control program for machines does When all production steps are successfully not have to be determined in advance any executed, the order conformation is sent to more as usual. PCo is based on stand- the ERP. This process of exchanging data is ardized communication interfaces which shown in Figure 10. enable fast and easy configuration. It can be dynamically fed with freely defined With the help of vertical integration and parameters from superior levels which dynamic data exchange by means of PCo, permits a fast adaption of the production different products can be manufactured process to the customer’s needs as desired without a rigidly defined production se- in Industry 4.0. PCo enables communica- quence, i.e. the production is now flexible. tion between a source and a target system Moreover, production benefits from the using OPC Unified Architecture (OPC-UA) advantages of mass production while man- and other common protocols for machine ufacturing individualized products. communication. Target and source systems can be SAP ME, SAP MII, SAP ERM, SAP ERP, SAP S/4HANA, SCADA, PLC, plant histori- ans, 3rd party MES and sensors.

SAP ME uses shop orders created from production orders to control and track production. Materials and serial numbers are represented by shop floor control (SFC) numbers. The production process when using PCo looks like this: when the material arrives at the machine, the PLC asks the ME for material- and workstation-specific con- trol parameters. SFC-related data required for the next production steps will be trans- mitted from the ME to the PLC using PCo.

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Conclusion: an initial but very essential step

Fig. 11 – Assessment regarding technical requirements

Technical requirements Status quo Evolution Revolution

TR1 Data storage

TR2 Data exchange

TR3 Data use

Does not meet requirements Meets requirements to a small extent Meets requirements partially Meets requirements to a large extent Fully meets requirements

No matter whether the technologies Assessment with regard to technical leads to the possibility of using current, presented in the area of ERP can be cate- requirements non-aggregated data. This leads to an im- gorized as evolutionary or revolutionary, it Figure 11 shows the result of the system’s provement in the area of data storage. makes sense to assess them according to assessment regarding the technical re- the technical and process-related require- quirements data storage (TR1), data ex- Evolutionary and revolutionary ERP sys- ments described in section 2. Apart from change (TR2), and data use (TR3). tems have an advantage in the area of data the system’s technical degree of innova- exchange (TR2) compared to classic ERP tion, the decision to invest in a suitable ERP Traditionally, ERP systems are based on systems. They facilitate fast data access system is mainly driven by its benefits from centralized data storage (TR1). Thus, de- by means of the SAP HANA database. The a process-related point of view. centralization in terms of Industry 4.0 is a horizontal and vertical integration of inter- criterion which is hard to achieve. This is nal and external IT systems is a feature that Based on the classification into three why classic and evolutionary ERP systems all ERP systems support by nature. categories – classic, evolutionary, and (SAP ERP® ECC or Business Suite on AnyDB/ revolutionary – the ERP system’s degree of HANA database) only meet these criteria to fulfillment of the requirements mentioned a small extent. Nevertheless, revolutionary in Figure 11 will be assessed with the help ERP systems (SAP S/4HANA) benefit from of Harvey Balls. the simplification of the data model which

32 Industry 4.0 |Is your ERP system ready for the digital era?

Fig. 12 – Assessment regarding process-related requirements

Process-related requirements Status quo Evolution Revolution

PR1 Suitability for dynamic planning, control, and execution

PR2 Support for an integrated end-to-end­ process

PR3 Progressiveness of the human- ­­ machine inter­action in the process

PR4 Location-independent control and execution of processes

PR5 Efficiency of process steps supported by the system

PR6 Process improvement through intelligent data analyses

Does not meet requirements Meets requirements to a small extent Meets requirements partially Meets requirements to a large extent Fully meets requirements

Looking at the data use requirement (TR3), the ERP system’s database which will offer Assessment with regard to classic and evolutionary ERP systems additional potential for decentralized data process-related requirements are not mature in terms of intuition and management. The shift of the source code In fact, the assessment of ERP systems with personalization. They are equipped with from the application to the database layer regard to process-related requirements elementary visualization, analysis, and increases the speed of data access but correlates to the assessment with regard to automation functionalities in the form does not yet tap the full potential. Moreo- technical requirements (see Figure 12). of transaction-based user interfaces. By ver, SAP Fiori apps do not so far support all contrast, SAP S/4HANA offers a much more user roles and business functions and thus advanced mobile and role-based user ex- cannot fully replace classic transactions. perience with the help of modern technol- This leads to the fact that there might still ogies such as SAP Fiori and SAP UI5 which be a major development and configuration are available out-of-the-box. effort when implementing e.g. S/4HANA, based on special custom requirements. It can be concluded that revolutionary ERP systems such as SAP S/4HANA best meet Independently of the ERP system class, the the technical requirements in terms of integration of SAP ME, SAP MII, and SAP Industry 4.0. Nevertheless, there is still de- PCo increases the degree of fulfillment, velopment potential in all defined criteria. especially in the area of data storage (TR1) In future, data will still be stored centrally in and data exchange (TR2). 33 Investing in Germany | A guide for Chinese businesses

34 Industry 4.0 |Is your ERP system ready for the digital era?

The main principle of Industry 4.0 is to Another very important aspect in Industry increase flexibility and adaptability in 4.0 is the timeliness of data and the speed production and logistics processes (PR1). of data access (PR5). While evolutionary The ERP systems of all three categories ERP systems are based on new database enable vertical integration of IT systems technologies that allow for fast data access, from the different organizational levels in revolutionary ERP systems basically avoid a company. Nevertheless, this may require the storage of aggregated intermediate the development of complex interfaces and results through the use of a logically simpli- major configuration efforts caused by e.g. fied data model. This way it is ensured that the different communication standards of the user always works with current data. information technologies. Vertical integra- tion is facilitated by the use of integration The timeliness of data is mainly needed for software such as SAP ME, SAP MII, and intelligent analysis tools (PR6) which are SAP PCo, which connects the top floor and integrated into the core of ERP systems the shop floor level. This way, production (S/4HANA Enterprise Management). Classic becomes more flexible and dynamic as and evolutionary ERP systems do not offer data can be transmitted demand-driven a variety of functionalities for data analysis from the ERP system to the PLC and vice whereas revolutionary ERP systems are versa. This makes possible a greater variety meant to visualize data in form of dash- of variants at low cost. boards and provide them to the user – also on mobile devices. The horizontal integration of supply chain partners (PR2) is also a traditional func- It can be said that the improvement poten- tionality of all ERP system categories. They tial of ERP systems lies rather in the user provide different interface standards to interaction with the system than it does exchange data across companies but the in the integration of IT systems within and automation of these data exchanges still across companies (PR1 and PR2). Moreover, represents an area for improvement. process efficiency can be increased by both the timeliness of data and the transparen- Revolutionary ERP systems provide an cy created by different, newly integrated efficiency gain in the area of human-ma- analysis functionalities. As revolutionary chine interaction (PR3). While classic and ERP systems originally fulfill the majority of evolutionary ERP systems do not provide these requirements, they have received the intuitive data input and output technolo- highest rating in this assessment. gies, SAP S/4HANA does with its SAP Fiori and SAP UI5 applications. Role-based and intuitive user interfaces help avoid errors and increase the efficiency of control and execution activities. This will become even more efficient when using these function- alities on mobile devices (PR4). The user may use the modern data human-machine interfaces on-the-fly on a smartphone or tablet. This location-independent hu- man-machine interaction enables new processes which have not yet even been in focus.

35 Investing in Germany | A guide for Chinese businesses

Use cases: successful examples in the area of ERP

Industry 4.0 is no longer in the future. The first techni- cal innovations in the area of production and logistics are helping to make processes more transparent and more efficient. The following section outlines how ex- isting technologies may be used throughout the whole company and how they can contribute to the flexibility of business processes.

36 Industry 4.0 |Is your ERP system ready for the digital era?

Deloitte-M4.0-Cube: integration of use cases

The Deloitte-M4.0-Cube , which stands for Enabler: The Deloitte-M4.0-Cube is Manufacturing 4.0, helps companies to plot describe technical solution opportunities their solution space for Industry 4.0. This which facilitate the implementation of a conceptual model which way they get an overview of their feasible Industry 4.0. The enablers are a selection is used to plot use cases solutions and can draw a conclusion about of technologies that facilitate the connec- how to achieve their individual goals. tion of the physical and digital worlds. They with regard to performance can be divided into three types. They are layers, business functions, As shown in Figure 13, the Deloitte-M4.0- characterized by the transformation of in- Cube consists of the following three dimen- formation. They are distinguished between and enablers. sions: “physical to digital”, “digital to digital”, and “digital to physical” which are the dimen- sions of the value loop. Business functions: Moreover, the enabler “Digital Vision and define the context in which the enabler is Culture” exists. It describes the readiness applied in the company. They represent of a company to invest in digitalization and the traditional business functions along the the visualization of processes and its will- supply chain. ingness to implement necessary changes in the organization.

Fig. 13 – Deloitte-M4.0-Cube

errmane

ayers e g e

Strategic Targets r r u Organizational Structures u r i

i g

Knowledge, Skills & Culture naers s

n Planning & Controlling Advanced Robotics i o

Human Augmentation

Advanced Visualization r Operational Processes Advanced Manufacturing e r

Social Media

IT Infrastructure Cloud Computing Artificial Intelligence Big Data & Advanced Analytics Digital Infrastructure Human Interface Advanced Sensors Product Digital Culture Sourcing & Digital Vision Development Logistics Procurement siness Manufacturing Aftersales ntins Sales & Marketing

37 Investing in Germany | A guide for Chinese businesses

Performance layers: Fig. 14 – Performance layers describe the levels of perspective from planning, to control and execution. The organization and the IT infrastructure are Digital Strategy & Structure considered as well. The performance layers Industry 4.0 initiatives to increase long- are divided into two categories – digital term competitiveness and growth strategy and digital operations. Digital strategy comprises all performance layers that support long-term competitiveness and growth. Performance layers being Strategic targets in the area of smart operations support Digital strategy & innovative short- to medium-term operational excel- business models lence. The performance layers are shown in Figure 14. Organizational Structures Project-oriented structure across business units Digital options will be plotted in the

Deloitte-M4.0-Cube each with one per- Knowledge, Skills and Culture formance layer, one business function, Qualification of workers, and one enabler as coordinates. Different sensitization for digitalization digital options build a use case. Companies Planning & Controlling can benefit from the combination of differ- Vertical and horizontal supply ent use cases which may seem independ- chain integration ent from one another. A number of use cases can be summarized to an integrated Operational processes Industry 4.0 concept for the whole supply Increase of efficiency and productivity chain. This concept serves as a basis for an

Industry 4.0 implementation strategy. IT Infrastructure Integrated IT system Ideally, companies should try to define digi- landscape tal options for all business functions and all performance layers. Only through this the full potential of Industry 4.0 can be tapped which leads to a long-term, strategic com- Smart Operations petitive advantage for the company. Industrie 4.0 initiatives to increase short- and medium-term operational excellence

The performance layers describe the levels of perspective from the planning, control, and execution points of view plus the organizational and IT infrastructure.

38 Industry 4.0 | Lorem ipsum dolor sit amet

Project experience visualized as use cases

Industry 4.0 is no longer in the future. The first technical innovations in the area of production and logistics are helping to make processes more transparent and more efficient. The following section outlines how existing tech- nologies may be used throughout the whole company and how they can contribute to the flexibility of business processes.

39 Investing in Germany | A guide for Chinese businesses

Use Case #1: Mobile inventory management

Description: Fig. 15 – Project experience use case #1 It is an application that provides mobile inventory management functionalities to the user. It enables the mobile and easy en- try of stock information in the supply area Performance which ensures that all stock data are always Layer reflected correctly in the system. This reduces manual work, decreases costs, and

increases the efficiency of materials man- Strategic Target Enablers agement. Organizational Structures Robotics Human Augmentation Benefit: People Visualization Advanced Manufacturing The application uses the scanner function Social Media Planning & Controlling Cloud Computing of mobile devices and enables the real-time Artificial Intelligence Operational Processes Big Data & Advanced Analytics entry of stock information. A previously Digital Infrastructure Human Interface non-existing transparency is thereby IT Infrastructure Advanced Sensors Digital Culture created for materials management which Digital Vision leads to an improvement in production and Logistics logistics processes.

#1 #2 #3 #4

Digital Option #1: Digital Option #2: Digital Option #3: Digital Option #4: Logistics – operational Logistics – operational Logistics – operational Logistics – operational processes – digital vision processes – advanced processes – Big Data and processes – visualization and culture: sensors: Advanced Analytics The user-friendly visualiza- The use of mobile devices Mobile devices enable the pro- Thanks to an advanced data tion of information on mobile in warehouse management duction worker to collect phys- model a more detailed rep- devices offers the opportunity facilitates the digitalization of ical data (i.e. stock information) resentation of production can to analyze data in real-time business processes which pre- with the help of a scanner. be captured in the system. and to make decisions as well viously caused a lot of manual as corrections (stock transfer effort. postings).

40 Industry 4.0 |Is your ERP system ready for the digital era?

Use Case #2: GPS-based vehicle management

Description: Fig. 16 – Project experience use case #2 GPS can be used for the management of trailers in the yard. Transmitted data is visualized in real-time on a PC (e.g. based on GoogleMaps). Another opportunity is to Performance transfer the collected data to an upstream Layer ERP system using e.g. interfaces such as IDocs. The data is then available for pro-

duction planning and execution. Strategic Target Enablers Organizational Robotics Benefit: Structures Robotics Human Augmentation Human Augmentation Visualization More efficient planning and control of People Visualization Advanced Manufacturing Advanced Manufacturing intra-company inbound and outbound Social Media Planning & Controlling Cloud Computing logistics through the localization of trailers Artificial Intelligence Operational Processes Big Data & Advanced Analytics in the production ground increases the Digital Infrastructure Human Interface transparency of the trailer park. As a con- IT Infrastructure Advanced Sensors Digital Culture sequence, production supply planning and Digital Vision execution become more efficient. Logistics

#1 #2 #3

Digital Option #1: Digital Option #2: Digital Option #3: Logistics – operational Logistics – operational Logistics – operational processes – digital vision processes – advanced processes – visualization and culture: sensors: The processing and subsequent The digitalization of business Collecting position data of visualization of GPS-position processes (logistics planning trailers using GPS enlarges the data enables a new form of and execution) shows a living intra-company IT infrastructure. planning and executing logistics digital culture in the company. processes.

41 Investing in Germany | A guide for Chinese businesses

Use Case #3: Shop floor integration with MES

Description: Fig. 17 – Project experience use case #3 The bidirectional data exchange from the ERP system to the machine control level (PLC) through an additional interconnec- tion of an MES fosters customer individu- Performance alization and flexibility in production. This Layer way customer orders may change at short notice and the changes will still be taken

into account during production. Strategic Target Enablers Organizational Benefit: Structures Robotics Human Augmentation Time and cost savings through greater People Visualization Advanced Manufacturing flexibility in production due to data ex- Social Media Planning & Controlling Cloud Computing change between the planning, control, and Artificial Intelligence Operational Processes Big Data & Advanced Analytics execution levels and hence the possibility Digital Infrastructure Human Interface of parametrizing machines based on cus- IT Infrastructure Advanced Sensors Digital Culture tomer requirements. Production efficiency Digital Vision is increased as workers benefit from e.g. Manufacturing digital work instructions.

#1 #2 #3 #4

Digital Option #1: Digital Option #2: Digital Option #3: Digital Option #4: Manufacturing – knowledge, Manufacturing – operational Manufacturing – planning Manufacturing – planning skills and culture – digital processes – advanced and controlling – big data and controlling – advanced vision and culture sensors and advanced analytics manufacturing The production worker is sup- Machine data such as quality The MES also serves as a The direct transfer of customer ported by digital work instruc- information are collected by platform for Big Data analyses. orders from the ERP system tions which are stored at MES sensors during production With the help of advanced via MES to PLC permits the level and can be accessed on and sent to MES. This way the analytic tools such as SAP MII production of a lot size of one. demand. production can be adjusted if there is the opportunity to With the help of technologies quality issues occur. e.g. analyze the root causes of such as SAP PCo which serves errors and non-conformity that as middleware between the led to customer returns. MES and the PLC, an individ- ualization of products is ena- bled and changes in customer requirements can be taken into account during production even at short notice.

42 Industry 4.0 |Is your ERP system ready for the digital era?

Use Case #4: Online platform for the procurement of indirect materials

Description: Fig. 18 – Project experience use case #4 SAP Ariba® is an online platform that increases the efficiency of the procurement of indirect materials. Transactions will be (semi-)automated which leads to more time Performance available for strategic procurement. The Layer platform is not only usable for operational procurement but also for strategic procure-

ment, thanks to its analysis and dashboard Strategic Target Enablers functionalities. Organizational Robotics Structures Robotics Human Augmentation Human Augmentation Visualization Benefit: People Visualization Advanced Manufacturing Advanced Manufacturing By automating frequently repeated procure- Social Media Planning & Controlling Cloud Computing ment transactions, the efficiency of pro­ Artificial Intelligence Operational Processes Big Data & Advanced Analytics curing indirect materials can be increased. Digital Infrastructure Human Interface IT Infrastructure Advanced Sensors Digital Culture Digital Vision Sourcing and procurement

#1 #2 #3 #4

Digital Option #1: Digital Option #2: Digital Option #3: Digital Option #4: Sourcing and procurement – Sourcing and procurement – Sourcing and procurement – Sourcing and procurement – planning and controlling – planning and controlling – operational processes – operational processes – digital vison and culture Big Data and Advance cloud computing visualization SAP Ariba enables the digitali- Analytics SAP Ariba functionalities are Thanks to a modern user inter- zation and automation of stra- The data model used by SAP available in the Cloud which face procurement information tegic, tactical, and operational Ariba and its built-in analyt- makes them usable at any time. is visualized role-based for the procurement processes. ics functionalities support The technical connection to a user. the transformation of large Cloud facilitates a more effec- amounts of data into intelligent tive integration of supply chain data analyses which serve as partners. beneficial decision support for procurement transactions.

43 Investing in Germany | A guide for Chinese businesses

Conclusion

44 Industry 4.0 |Is your ERP system ready for the digital era?

Conclusion Result and possible improvements

As shown in the assessment matrices, clas- So when a company decides in favor of sic ERP systems only partially meet tech- Industry 4.0 there has to be a suitable ap- nical and process-related requirements. proach to mastering the implementation. Evolutionary systems still have some ad- Therefore, it is necessary to change the vantages over classic ones but only revolu- processes along the entire supply chain, tionary systems fulfill most requirements to to select supporting technologies, and to a great extent. They are an initial but very qualify workers in order to achieve the goal essential step towards Industry 4.0 – nev- of increasing flexibility and higher quality in ertheless they can still be improved. production.

For the realization of Industry 4.0 at least partially decentralized data management is needed to increase overall flexibility and to produce individualized products with a Revolutionary ERP lot size of one in a cost-efficient way. There- fore, companies wanting to implement Industry 4.0 need to consider their data systems such as management, which data should be stored centrally or decentrally and how modern S/4HANA are an initial user interfaces might increase process efficiency. But due to the limited number of SAP Fiori apps not all necessary busi- but very essential step ness roles and functions are supported in a company. Moreover, improvements are towards Industry 4.0 required in the area of analytics for ERP systems in order the better to utilize the data collected and generated. With the help of technology providers and users this may be changed in the near future. To overcome these challenges, a use-case- based approach by the technology user is required to help technology providers improve their functionalities.

45 Investing in Germany | A guide for Chinese businesses

Different ways to approach Industry 4.0 with Deloitte as a competent partner

As revolutionary ERP systems offer the SAP SE recommends a system conversion Our cross-functional portfolio of consulting greatest support for a flexible planning, for existing SAP ERP clients as it is easier, services allows us to also look at surround- control, and execution in production, com- less cost-intensive and less disruptive than ing business areas which will be affected panies need to think about how to success- a greenfield implementation of SAP S/4HA- by the change in IT. As Industry 4.0 can be fully upgrade to SAP S/4HANA. And many NA. It still offers a majority of advantages implemented incrementally, it is advisable roads lead to Rome. which are characteristic for the SAP S/4HA- to define use cases for the different busi- NA technology. A greenfield implementa- ness functions and realize them one after The possible ways to SAP S/4HANA include tion is recommended for those clients who the other. But the potential of the technical a greenfield implementation with an ini- want to build up a completely new system. enablers is not used to a full extent until tial data load, a system conversion, and a use cases are applied along the entire sup- landscape transformation. For companies This is why the transition process has to ply chain. To achieve this, Deloitte may help that already work with SAP ERP ECC 6.0 the be well thought out. Hence, companies with the identification and implementation transition to SAP S/4HANA can be done opting for a transition should plan it wisely. of applicable use cases. with the help of a system conversion. As Therefore, Deloitte represents a reliable long as the system is a Unicode system, partner. We have gained vast professional But in addition to looking at process-relat- the change from SAP ERP ECC 6.0 to SAP experience in SAP system implementations ed improvements, employees have to be S/4HANA should work smoothly. If this is and transformations worldwide and across enabled to use the new technologies effec- not the case, the system has to be convert- industries. Together with the client, Deloitte tively. This requires the training and qualifi- ed into Unicode beforehand. The system analyzes and assesses the client’s IT land- cation of workers to carry out their opera- conversion is done in one step by doing scape, identifies gaps and improvement tional tasks but also includes the need for both a software upgrade and a change of potential, and provides advice on suitable motivation in order to eliminate the nega- the database. information technologies for the client’s tive aspects of resistance to change. Only business. After the selection of technolo- if the workers support the change in the The system conversion can be either done gies, Deloitte may also assist in the imple- company can efficiency and flexibility gains from the SAP ERP ECC or Business Suite mentation, configuration, and operation of be achieved. Therefore, Deloitte offers on any database to SAP S/4HANA directly them. change management and human resource or by splitting it into the migration to the consulting services to the client to best HANA database and afterwards the system prepare employees in the company for the conversion to SAP S/4HANA or with anoth- upcoming innovations. er intermediate step to S/4HANA Finance. When deciding in favor of the intermediate step to SAP S/4HANA Finance the logistics processes will not be simplified right away but can be added later on when converting to SAP S/4HANA Enterprise Management. Figure 15 shows the road to SAP S/4HANA.

46 Industry 4.0 |Is your ERP system ready for the digital era?

Fig. 19 – Transition to SAP S/4HANA

a SAP S/4HANA Enterprise Management

SAP S/4HANA ataase Finance

SAP ERP ECC, SAP ERP ECC, SAP Business SAP Business ataase Suite with Suite Release ≥ 6

1 3b any ataase ataase System Conversion from any From HANA database to SAP database to SAP S/4HANA S/4HANA Finance via Add-on

2 4

System Conversion from any System Conversion from database to HANA Database S/4HANA Finance to SAP (Data Migration) S/4HANA Enterprise Management

3a 5

System Conversion Greenfield from HANA database to SAP S/4HANA SAP S/4HANA Enterprise Management

47 Investing in Germany | A guide for Chinese businesses

Contact

Peter Dengel Director Tel: +49 (0)62 27899 0523 [email protected]

Christoph Bartodziej Carolin Schwägler Consultant Consultant Tel: +49 (0)151 5800 1135 Tel: +49 (0)171 2096 953 [email protected] [email protected]

Authors Christian A. Hochmuth Christoph Bartodziej Carolin Schwägler

Contributors Dr. Volkmar Rudolf Katharina-Elise Viehhauser Lukáš Pokorný

48 Industry 4.0 |Is your ERP system ready for the digital era?

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Issue 06/2017