ENABLING A SMART CONNECTED SUPPLY CHAINA Manufacturer’s Guide to Leveraging Modern Technologies Throughout the Enterprise

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ENABLING A SMART CONNECTED SUPPLY CHAINA Manufacturer’s Guide to Leveraging Modern Technologies Throughout the Enterprise

lnsresearch.com

TABLE OF CONTENTS

Section 1: Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Section 2: What Is the Cloud and Why Should We Go There? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Section 3: Modern Business Processes: Digital Transformation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

Section 4: Seven Steps to a Smart Connected Supply Chain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

Section 5: Summary & Recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

SECTION 1

Introduction

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The manufacturing industry has entered a completely new techno-

logical realm that did not even exist five years ago. Three industrial

revolutions forever changed manufacturing—and the world—and

the fourth is now underway. Factories have had to adapt rapidly with

the advent of advanced automation and robotics as well as software

to manage processes and control. The onset of digital manufacturing

accelerates the need for new approaches. While consumers typically

embrace disruptive technology with enthusiasm, manufacturers in-

evitably approach new technology with caution, carefully evaluating

how it can improve their businesses. Eventually, however, caution

must be replaced with innovation to ensure survival. Those orga-

nizations that find themselves on the wrong side of the technology

curve today will face increasing challenges to remain competitive as

time marches forward.

Introduction

From Industry 1.0 to Industry 4.0

1800 1900 2000 Today

FIRSTIndustrial Revolution

Through the introduction of mechanical production facilities with the help of water and steam power

SECONDIndustrial Revolution

Through the introduction of a division of labor and mass production with the help of electrical energy

THIRDIndustrial Revolution

Through the use of electronic and IT systems that further automate production

FOURTHIndustrial Revolution

Through the use of cyber-physical systems

First mechanical loom, 1784 First assembly line, Cincinnati slaughter houses, 1870

First programmable logic controller (PLC), Modicon 084, 1969

DEGREE OF COMPLEXITY

© DFKI, 2011

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This report discusses the benefits of moving to the cloud and of

adopting the Industrial Internet of Things (IIoT) Platform, and con-

siders some of the ways that manufacturers can embark on the route

to realizing value from these new technologies. In particular, we

highlight the Smart Connected Supply Chain (SCSC) as an example

of modern business processes using leading technologies. Manufac-

turers will learn how they can adopt business processes like SCSC

by getting started with the cloud and driving first-class customer

iteration through business processes beyond the enterprise walls.

We begin by defining the Smart Connected Supply Chain. At its

simplest it should be:

CONNECTED: within the enterprise, therefore linking all business

systems and people. This includes manufacturing beyond the enter-

prise to the extended supply chain of suppliers, customers, and other

stakeholders, as well as to the products and parts that compose the

entirety of that manufacturer’s operations.

SMART: making use of information available from sensors and con-

trollers in the plant, in business systems, and in the extended supply

chain. In time this will encompass learning systems, augmented

reality, and other emerging technologies allowing more capability

with less effort, improving productivity, quality, and customer satis-

faction in the process.

SEAMLESS DIGITAL COMMUNICATION: first and foremost, the SCSC

allows those involved in running the supply chain the ability to do a

better job by being better informed, more responsive, and productive.

Introduction (Cont.)

MATERIALSAND

SUPPLIERS

SUPPLY CHAIN MOM

ERPERP

PRODUCTSAND

CUSTOMERS

Plant

Controls

Sensors &Machines

Manufacturing Operations Management

SECTION 2

What Is the Cloud and Why Should We Go There?

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Cloud computing uses a network of remote servers hosted on the In-

ternet to store, manage, and process data, rather than a local server

or a personal computer.

In LNS Research’s 2015-2016 Metrics that Matter research project,

conducted jointly with MESA International, we asked our 250+

survey respondents about actual and planned ERP deployment

models. To nobody’s surprise, 64% of current ERP deployments are

on premise. However, two-thirds of planned new deployments will

be cloud-based.

Cloud: Today and Tomorrow

On-premise

Public cloud hosted by software vendor

Private cloud

Public cloud hosted by third party

0% 10% 20% 30% 40% 50% 60% 70%

Which best describes your current and planned ERP deployment model?

34%

25%

30%

11%

25%

7%

4%

64%

Planned

Current

CLOUD NOW: 36%

CLOUD PLANNED: 66%

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In our Metrics that Matter survey we asked: “What are the top

impacts you think cloud-based solutions are/will be having toward

helping you improve your manufacturing performance?”

The results speak for themselves: lowering the total cost of own-

ership will always appear near the top of the list. Unburdening the IT

department from having to run infrastructure usually ranks high. The

top responses all tie back to enabling agility:

• Bettermobility

• Makingmulti-plantimprovements

• Manufacturingflexibilityincrease

• Dataanalyticsacrosstheenterprise

• Scalability

It is important to note that cloud not only facilitates better internal

collaboration and communication—that benefit extends outside the

enterprise as well.

Every company that wants to grow needs to continuously nurture

its supplier and customer relationships; business processes such as

SCSC will support that effort.

So, we come to the simple conclusion about “why cloud?” If

companies do not have a cloud strategy, they risk falling behind their

competitors, wasting money, losing agility, and ultimately having un-

happier customers and suppliers—not an optimal situation.

The Cloud and Agility

What are the top impacts you think cloud-based solutions are/will be having toward helping you improve your manufacturing performance?

Don’t know

Lower the total cost of ownership for implementing |manufacturing performance software

Unburden IT from having to maintain servers and software updates

Speed the time it takes to implement manufacturing performance software

Make it easier to compare performance information across multiple plants / facilities

Make it easier to implement performance improvement across multiple plants / facilities

Increase manufacturing flexibility

Enable performance information on mobile devices

Give better access to manufacturing information to customers

Improve and / or reduce cost of corporate security

Other

Give better access to manufac-turing information to suppliers

0% 10% 20% 30% 40%

42%

25%

20%

19%

12%

11%

11%

10%

7%

6%

6%

4%

“We only focus on what differentiates us from our competition, and running an IT function is not one of them.”

–JEFF IMMELT, CEO, GE

SECTION 3

Modern Business Processes: Digital Transformation

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Digital Transformation Framework

The journey to digital and distributed business processes, while not

straightforward, is essential in maintaining successful operations as

technology adoption grows across industries. LNS Research has

developed a Digital Transformation Framework to help manufactur-

ers plan their route from idea to world-class manufacturing. While

neither explicitly prescriptive nor linear, it provides guidance to

manufacturers on how they can change their business processes

to make the most of new technologies that are disrupting industry,

such as cloud, the IoT, and big data analytics.

Below, the process is split into five main stages, though the starting

point may differ depending on the individual journey and circumstanc-

es. The most important aspect to realize is that Digital Transformation

is an iterative process requiring constant feedback, adjustment, and

improvement. Trial and error—followed by course-correction—should

be embraced as a necessary component of a continuous improvement

process, even though it flies in the face of many manufacturers’ risk-

averse technology strategies. These steps include:

STRATEGIC OBJECTIVES

This could be a vision on how Industry 4.0, Smart Connected Op-

erations, or Digital Manufacturing will increase the effectiveness

of your business. Companies must work through the process and

iterate the objectives to define, improve, and focus the team on

these objectives. They also must define at a high level the business

processes to be transformed. In our example, businesses would

define the existing supply chain processes and the expected SCSC

outcomes. Executive sponsorship should be signed off before com-

pleting this process.

SOLUTION SELECTION

BUSINESS CASE DEVELOPMENT

OPERATIONAL ARCHITECTURE

OPERATIONAL EXCELLENCE

SMART CONNECTED OPERATIONS

Eliminating Bias and Finding Long Term Partners

Evaluation

Team

Research

Pilot

RFPDISCOVERY

PLANNINGBUSINESS CASE

SELECTION

ProjectCharter

Defining Immediateand Long Term ROI

Managing IT-OT Convergence and Next-Gen IIoT Technology

Realigning People,Process, and Technology

Reimagining BusinessProcess and Service Delivery

COSTS TOTAL YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5

HARDWARE

SOFTWARE LICENSING

THIRD PARTY SOFTWARE

APPLICATION SOFTWARE

DOCUMENTATION & TRAINING

MAINTENANCE

INSTALLATION

INTEGRATION

LEGACY DATA LOADING

PROJECT MANAGEMENT

SUPPORT

TOTAL:

CONNECTIVITY

SMART CONNECTED ENTERPRISE

APPLICATIONDEVELOPMENT

CLOUD

BIG DATA ANALYTICS

IoT Enabled Business SystemsL4

Smart Connected Operations - IIoT Enabled Production, Quality, Inventory, MaintenanceL3

L2 L1 L0

IIoT EnabledNext-Gen Systems

L5 IoT Enabled Governance and Planning Systems

Smart Connected Assets -

IIoT Enabled Sensors, Instrumentation, Controls, Assets, and Materials

APMEHS

ENERGY QUALITY OPERATIONS

People – Process – TechnologyOperational Excellence Platform

OPERATIONAL EXCELLENCE SUPPORT

Fall short on any pillar and your OpEx platform becomes tippy

Fall short on two or more pillars and yourOpEx platform becomes totally unstable

DIGITAL TRANSFORMATION FRAMEWORK

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Digital Transformation Framework (Cont.)

OPERATIONAL EXCELLENCE

This takes a deeper look at how things are done and how they can

be improved. There are maturity models for this built around people,

process, technology, metrics, practices, and innovation processes that

help to incorporate Digital Transformation into existing programs such

as Lean and Six Sigma. In SCSC, companies define the sub-processes,

the communications with people inside and outside the enterprise,

and the technology to be used.

OPERATIONAL ARCHITECTURE:

Enterprise Architecture is traditionally IT-centric, focused around the

structured data contained in systems like Product Lifecycle Manage-

ment (PLM), Enterprise Resource Planning (ERP), and Supply Chain

Management (SCM). Operational Architecture includes the connection

to sensor data and the technical architecture of everything in the plant.

The SCSC business process extends down into the plant and beyond

the Enterprise Architecture to customers and suppliers—the extended

architecture will be defined at this stage.

BUSINESS CASE

This is the supporting master business case and transformative

business case journey that leads from the current as-is state to a

future state delivering against strategic objectives and using the

Operational Architecture defined in the previous steps. It should

be forward-looking on industry trends and incorporate a disruptive

approach to business as appropriate.

SOLUTION SELECTION

This provides methodologies to assemble and charter selection teams,

determine best fit requirements, and evaluate and select technology.

People - Process - TechnologyOPERATIONAL EXCELLENCE PLATFORM

Fall short on any pillar and your OpEx platform becomes fragile

Fall short on two or more pillars and your OpEx platform becomes totally unstable

APMEHS

ENERGY QUALITY OPERATIONS

People – Process – TechnologyOperational Excellence Platform

OPERATIONAL EXCELLENCE SUPPORT

Fall short on any pillar and your OpEx platform becomes tippy

Fall short on two or more pillars and yourOpEx platform becomes totally unstable

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Digital Transformation and Operational Excellence

The supply chain takes the pillars in each enterprise and defines the

people, processes, and technology required to bridge the enterprises.

In the supply chain we can imagine a bridge between the company

and the customer. Just as a suspension bridge is held up by cables,

which are in turn made up of more cables and, ultimately, wires, so too

is a supply chain a means of communication, not just via technology

but also by helping to bring people from customer and company to-

gether and to allow business processes to cross the divide.

Many business processes will ultimately connect companies to

their customers and suppliers. The first and most vital cable is the

supply chain cable. Getting started requires building important

smaller wires covering technology, process, and people. We will take

a quick look at each:

TECHNOLOGY is a key to success. As we have established, it is nec-

essary to choose a cloud platform. A key to achieving success in a

Smart Connected Supply Chain is access to business and manu-

facturing information, both from inside the enterprise and, where

necessary, from outside. Another given in most cloud platforms is

mobility. Modern platforms are often designed from the bottom up

to include a user interface layer that is accessible from anywhere.

Without a flexible mobile platform, many of the benefits that can

be delivered by SCSC will not materialize.

PROCESS can be complex in the supply chain. Keeping it simple

and concentrating on the individual processes (the wires described

above) will lead to success in initial projects. However, when defin-

ing the strategic objectives, the larger goals must also be defined to

ensure that the choices of platform, solutions, and partners (custom-

ers, suppliers, software vendors, etc.) will allow future expansion/

evolution and roll out to be achieved.

PEOPLE should be at the center of relationships between businesses

and their customers. An SCSC pilot is a great way to build relation-

ships with key people in a customer base. It is also an opportunity for

manufacturers to demonstrate the esteem in which they hold their

employees. Staff attraction and retention is vital in today’s cutthroat

employment world. Working with modern systems using technology

with which young engineers and business people feel at home will

greatly enhance the chances of hiring and retaining the best talent.

SECTION 4

Seven Steps to a Smart Connected Supply Chain

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WORK THROUGH STRATEGIC OBJECTIVES: Gain C-level spon-

sorship, define team, and outline goals. The team is vital;

make sure you include main stakeholders, gain necessary buy-in,

and agree to the goals. These goals should include the various gates

that need to be passed to ensure success and a clear definition of

success and failure criteria. Incremental failure is not a major issue

but it must be recognized as early as possible so that suitable alter-

natives can be planned and executed without undue delay to the

project. Failing fast is fine; failing when it is too late is not.

ENGAGE CUSTOMERS/SUPPLIERS: Select and on-board a

small number of key customers, suppliers, and products

for early steps. Augment the team with individuals from custom-

er and supplier companies and make a clear definition of project

responsibilities and touch points for your technology, people,

and business processes. Define success and the initial and long-

term benefits for your partner(s)—shared risk works as long as

the expectations for shared benefits are clear.

1.

2.

Companies will need to adopt cloud and IoT-based solutions to

ensure that their supply chains achieve connectivity, agility, and

responsiveness in the future. So how do companies get started on

this path? Normally straightforward apps are the place to start, often

with analytics that bring new and unexpected insights. Beyond that,

one of the key promises of the IIoT is to build business processes in

the extended enterprise. Our example is the SCSC business process.

If we visualize the supply chain as a suspension bridge with the de-

tailed processes, technologies, and people as the individual cables

that hold the bridge up, then success will only be achieved if we

manage to make every wire work as planned.

The following are steps for pursuing this path. Executive spon-

sorship and planning represent the two keys to any successful pilot

where people, technology, and processes are going to be signifi-

cantly affected. Keeping in mind the Digital Transformation Frame-

work earlier in this report, the seven steps to a SCSC are:

Seven Steps to a Smart Connected Supply Chain

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ENSURE YOUR ERP IS UP TO THE TASK: ERP in the cloud is

an advantage: you need to have access to necessary infor-

mation. Easy access to data will be a big advantage for new pro-

cesses on the cloud. While you may or may not already run ERP

in the cloud, the pilot will require minimum ERP functionality as

well as connectivity to your plant so that necessary supply chain

information can be collated and shared with your customer. This

pilot is intended to go beyond ordinary supply chain, allowing

customer visibility into the production schedule and actual order

progress. This will lead to quick order change capability and opti-

mization of resources across many customers and plants: a truly

Smart Connected Supply Chain.

DEFINE SCSC SCOPE: The meaning and functionality of

supply chain varies considerably depending on the type

of operation. Outsourced manufacturers may focus on supplier

collaboration while an OEM that depends on a large number of

suppliers to deliver components may want to focus on short-

term planning and scheduling.

3.

4.

Scheduling in many manufacturers is done almost off-line. Busi-

ness systems that handle planning often pass a “schedule” to a plant

or line that is then executed; feedback comes at the end of the order.

The SCSC scheduling app will give up-to-the-minute reporting on

planned and actual orders, taking into account current, rather than

assumed, manufacturing performance and capacity.

Manufacturers that make very complex products that will become

connected once delivered might choose to start with design and

product data definition. The SCSC will enable a complete end-to-

end solution from raw materials to delivered product, whereas in

pilots specific business processes must be chosen and addressed.

Whatever the choice, when defining the pilot, specify all the busi-

ness functions that you and your customer or supplier might want

and then choose those that will be used. This will allow everyone to

work towards a goal that will improve processes and help people.

Scope creep is a potential hazard to any complex project like

implementing the SCSC. Having defined initial business processes,

the list should not be expanded as it is always easy to add new func-

tionality later. This is a key role played by sponsoring executives

both within your enterprise and within partner organization—they

must ensure goals remain focused, though change can still be

allowed in subsequent phases if it is seen as beneficial. Modern

technology architectures allow flexibility, fast change, and experi-

mentation; these potential benefits should not morph into anarchic

change for its own sake.

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THE SUPPLY CHAIN

CABLE

PROCESS

PEOPLE

TECHNOLOGY

FORECASTING

PLANNING

SCHEDULING

PRODUCTION PLANNING

PRODUCTION EXECUTION

DEMAND MANAGEMENT

VISIBILITY

CONNECTIVITY

DATA MANAGEMENT

ANALYTICS

CULTURE

EMPOWERMENT

TRAINING

SELECT SOFTWARE: Although we include software selec-

tion as a separate item here, the choices that you make

will gradually coalesce as you go through the initial phases of

the SCSC project. Studying software capabilities of potential IIoT

vendors and those of your existing solution providers should be a

continuous thread of your project. We need to remember that the

majority of your smart supply chain exists only in smaller business

processes today. Working with vendors to bring the required busi-

ness processes into the IIoT and to enable custom processes to be

built through small apps running on the IIoT Platform will start to

deliver the promise of the digital manufacturing world.

DESIGN AND IMPLEMENT YOUR PILOT ON A CLOUD PLAT-

FORM, INTEGRATE AND CONNECT: Project implementation

will inevitability deviate from the plan on occasion, but having

clear goals and gates to pass and a committed, multi-disciplined

team will lead to success. Again, you should use your software

vendors as much as possible; it is very much in their interest that

you successfully deploy apps that meet your initial goals. Once

live, work with your customer to measure success; have the

goals been met? Which technology helped people the most?

Which technology drove the most financial benefit and where

could the biggest improvements be made? Which business pro-

cesses worked between supplier and customer and how did the

relationships between the people in the organizations develop?

IMPROVE AND DEFINE ROLL-OUT: Go to Step 1 and set new

goals, either rolling out to more customers and suppliers or

adding new functionality and business processes. The SCSC will

become an ever-growing set of agile processes driven by technol-

ogy for the benefit of the people in the extended supply chain. It

will bring together people who today are not connected at all (like

tier 2 suppliers and beyond, and end user consumers) with the

goal of improving everyone’s competitiveness. The SCSC will be a

large consumer of data gathered across an IIoT Platform and, more

importantly, it will be a generator of new and valuable data that is

sure to become part of a new big data analytics program.

5. 7.

6.

SECTION 5

Summary & Recommendations

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Summary and Recommendations

Presented by:Author:

© 2016 LNS Research.

The Smart Connected Supply Chain is a fantastic way of showing the

true value of cloud computing and the Industrial Internet of Things

beyond the usual benefits of saving IT money. When manufacturers

think beyond traditional business processes and consider process

improvements across their entire supply chain ecosystem, real

change can start. However, it is not the IIoT that will drive change

but the people and enterprises across the supply chain whose needs

are evolving rapidly in the highly competitive digital world. Business

processes such as those implemented in the SCSC will demonstrate

how the IoT brings together technology, people, and processes to

transform the way that we do business. Connectivity, from the lowest

level in the plant to the top of the business hierarchy and beyond to

customers and suppliers, enables these business processes.

Leading manufacturers are already embarking on this journey from

traditional to distributed business processes. Every manufacturer

that wants to keep up needs to start the journey now; there is little to

lose and much to win.

lnsresearch.com

Connect:

Andrew Hughes, Principal Analyst

andrew.hughes@lnsresearch.com