Technology holds the key to efficiency and the competitive edge for many manufacturers, but are they ready for it? Freya Purnell reports.
With economies under pressure around the world, manufacturers face new pressures as they try to find the most cost-efficient, competitive frameworks in a global market.
Saj Kumar, VP of discrete manufacturing for SAP APJ, says that over the last 12 months he has observed a drive towards 24×7 manufacturing operations, and obtaining real-time visibility into these global operations has become non-negotiable. This has resulted in IT departments needing to integrate multiple plant systems into a central business system, and provide realtime analysis and reports to management.
“Under current economic conditions, the pressure to globalise is immense and the rate at which companies have either moved their operations to lower cost product centres or outsourced operations has increased exponentially,” he says. “In the last 12 months, we have seen IT investments in the areas of global manufacturing visibility for compliance and reporting, and supplier collaboration platforms with outsourced partners and contractors.”
Plaut IT Australia national solution lead – manufacturing integration, John Broadbent, agrees that some of the major concerns for manufacturers are supply chain visibility and distributed manufacturing. The Fukushima nuclear disaster early in 2011 was also something of a wake-up call for companies who had all their eggs in one basket geographically.
“Now they have realised that remote control of smaller discrete plants close to market is actually a better model,” Broadbent says.
Among Australian and New Zealand manufacturers, there is also a drive to improve efficiencies to remain competitive. Broadbent says using overall equipment effectiveness as a measure of operational efficiency, Australian manufacturers are typically averaging between 30 and 50 per cent, lagging well behind the global average of 60 per cent and world’s best practice of 85 per cent. However, there is a consciousness that work is needed to return these operations to world-class standard. “I’m finding that most manufacturers are stretched to capacity because they are not running efficiently and so they are focusing on fire-fighting,” Broadbent says. “My sense has been that manufacturing organisations particularly have now basically taken all the low-hanging fruit through budget cuts and headcount reduction, and now they’re looking at simply doing what they do better through improved efficiencies.” Broadbent also says manufacturers expect to see quick wins from projects, with typical return on investment shrinking from two years to three to six months.
Manufacturers are also looking beyond core efficiency improvements in transactional processing through ERP, according to Kumar. But the siloed nature of manufacturing systems is creating problems.
“Plant workers typically are disconnected from enterprise systems and are not in tune with requirements or demand. This disconnect between plant and enterprise can create serious challenges. Significant opportunities for streamlining operations exist when you solve the information gap between the plant and the business,” Kumar says.
The benefits of integration
It is this information gap that SAP has sought to bridge with its Manufacturing Integration and Intelligence (MII) solution, which connects to systems in the plant as well as to enterprise systems to provide a unified view of all the information relevant to manufacturing.
MII provides a single view of information from multiple data sources, simplifying the process of relating orders and materials to real-time operations.
“Our customers have seen increased productivity in manufacturing, continuous optimisation of processes and performance, better equipment utilisation, faster, more reliable operational compliance and reduction in energy consumption,” Kumar says.
With solutions such as MII, Broadbent believes SAP is responding “exceptionally well” to the need of manufacturers, as the type of integration it provides is critical for companies to progress along the manufacturing intelligence journey. Plaut has created a roadmap detailing the different stages of this path –from information, to knowledge, insight and wisdom. “The fifth step is actually foresight – you know now that the data you are receiving is real-time, it’s valuable, it’s the single version of the truth, and it’s used not to report on your business, but to actually guide your business,” Broadbent says. IDC Manufacturing Insights head – international, Dr Christopher Holmes, believes in 2012, we will see companies increasingly linking technology with efficiency improvements. “These companies will be focused on driving out cost and becoming even more productive with the increased use of analytics and automation. To increase top line growth, they will also be centering their efforts on satisfying domestic demand within the region, and exploiting new business opportunities in the after sales and support market.”
Kumar also believes that over the next 12-18 months the focus of manufacturing CIOs will change from efficiency improvements through an ERP platform to strategic initiatives to drive competitive differentiation.
This view supported by IDC Manufacturing Insights, which also says vendors must have a clear strategy on how they can assist companies to do this. In addition, vendors should look at how they can help manufacturers capture, store, analyse, and deliver data across functions to support decision-making. “The role of the CIO is becoming critical to the future of manufacturing companies. The key areas of focus are central manufacturing visibility to drive global operations; real-time information management tools to drive real-time sales and operations planning; mobile applications to support an increasing global and mobile workforce; and energy management in production operations through energy KPIs and dashboards,” Kumar says.
From the ANZ perspective, Broadbent is not positive about the potential for increased IT investment by manufacturers over the next 12 to 18 months. He expects to see some attrition in the market, as those who don’t keep up their investment in their operations find it impossible to be competitive.
But emerging requirements around areas such as traceability, which are now coming to the forefront, may force manufacturers to embrace technology faster.
“Traceability takes on a bigger role in today’s supply chain given that they are extremely complex with many operators networked through complex relationships, an increasing number of cases of products manufactured through non-compliant manufacturing practices and poor quality of raw material, and increased regulatory pressure,” Kumar says.
“Complete product traceability needs tight ‘closed loop’ integration between plant and enterprise systems. This is driving CIOs to invest in manufacturing integration solutions to connect the ‘shop floor’ to the ‘top floor’.”
HANA and the supply chain
With its real-time capabilities for managing big data, SAP HANA could be utilised in manufacturing operations and across the supply chain, particularly in relation to Sales & Operations Planning – an absolutely critical part of managing supply and demand for any manufacturing company.
“We believe that the ability to run S&OP in real time will dissolve traditional boundaries and silos and create a loosely coupled organisation that is quick to make rapid changes throughout the value chain,” Kumar says. “Some of the capabilities include constraint-based supply/demand balancing in real time at detailed and aggregate levels, instant company-wide financial impact analysis and real-time what-if scenario analysis on a full S&OP data model.”
With suggestions that the next approved connector into HANA will be MII, this could be a reality for manufacturers soon. But Broadbent warns that many Australian manufacturers simply are not ready for a closed loop process incorporating HANA.
“One company we were speaking with recently is running SAP Advanced Planning and Optimisation, but they can’t optimise their supply chain because the data from the factory floor doesn’t come in for five to six days,” he says.
“They have got a long way to go to do the change management necessary on the factory floor itself to get the systems in.”
This article was first published in Inside SAP December 2011.