Also in this issue

Artificial intelligence and blockchain in purchasing

Innovation partnerships and digitization

Intelligent robots

Revolution, not evolution

The fundamental changes in the future of procurement

Your magazine for Procurement & Logistics

Q2 / 2018 edition

Drozak in the spotlight

Drozak in the spotlight Save the dates:

2018 event calendar

MAY 16 – 17 MAY 2018

World Procurement Congress in London Agile Procurement: Thriving through Disruption

A leading conference for global procurement managers

OCTOBER 17 – 19 OCTOBER 2018

BVL Logistics Congress in Berlin Industry conference for logistics and supply-chain issues

NOVEMBER 14 – 16 NOVEMBER 2018

BME Symposium in Berlin Europe‘s largest buyers’ congress for purchasers and supply managers

2

3

Editorial

In the last issue of trend, we promised you exciting news from the front lines of the digital transformation. Now we are proud to bring you numerous industry insiders and experts from Europe and the United States. This special content and the doubled length of this issue are intended to highlight the enormous significance of digitization.

Digitization has a fascinating history. For example, ABB introduced the world’s first freely digitally program-mable robot in 1974. Today, the robot YuMi can conduct an entire orchestra. Who better than Dr. Sami Atiya to explain current fields of use, future applications and other issues on the horizon? A member of the group‘s Executive Committee, Atiya is also responsible for ABB‘s entire robotics business.

Currently, Watson is the most well-known robot. Indeed, it has already become a cult product. But is it in fact a product? Regardless, it has cult status, to be sure. The conversation with IBM’s Thilo Pfleghar and Annette Fassnacht gave us the unique oppor-tunity to discuss the particular facets and applications of artificial intelligence as they relate directly to robotics.

Have you invested in Bitcoin? Unfortunately, I have not. This annoys me. The cryptocurrency’s explosive development has driven increasing interest in blockchain, Bitcoin’s under-lying technology. Debbie Hoffman of Symmetry Blockchain Advisors identi-fies specific opportunities for applying this technology in the digital supply chain, while also illuminating the risks.

Of course, universities and public- private partnerships are also included in this issue. Dr. Byron Clayton, CEO of the Advanced Robotics for Manufacturing (ARM) Institute, discusses his mission to spark a manufacturing- industry renaissance. In the process, he explains how to bridge the gap between innovation at the university level and practical application at the production level. The University of Würzburg’s Prof. Axel Winkelmann presents the results of his “Komplex-e” research project, which studies friction- free business-data trans mission as the basis of many broader digital undertakings.

We conclude with news from the field. Siemens’ Jan-Pascal Mellies reports on how digitization is taking us from

supplier management to integrated innovation partnerships.

Have I promised too much? I am sure you will find your own highlights in this issue. And for our part, we and our partners will keep reporting on this topic.

In this sense, I wish you good business in Q2,

Dr. Jacek Drozak

“Digitization affects all areas of a company. But it is not purely an IT issue.”

Dr. Jacek Drozak, founder and CEO of Drozak Consulting

Artificial intelligence

The future has already begun

In 2011, IBM publicly showcased the performance of its Watson artificial-intelligence (AI) com-puter program for the first time. In the course of this demonstra-tion, Watson clearly defeated its human opponents on the “Jeop-ardy!” quiz show.

Developments in the AI field have progressed inexorably since that time, and today are increasingly visible even in everyday life. In this process, previously often-abstract basic research is being translated into concrete, widely available new products and services. From digital assistants to self-driving cars, the potential areas of appli-cation seem to be limitless.

This is true within the supply-chain and purchasing fields too. The opportunities for use may seem less obvious here at first glance. However, the potential impact on the competitiveness of indi-vidual enterprises can hardly be overestimated.

trend asked the IBM experts to describe the road ahead.

Brilliant deduction, WatsonAn interview with IBM’s Annette Fassnacht and

Thilo Pfleghar on artificial intelligence’s potential for supply-chain management and procurement

Mr. Pfleghar, we are very pleased that you can be here in person. How long will this kind of interview still be done by people, and when will machines take over instead?

P fleghar: This kind of interview will always have to be done by

people. Machines don’t have opinions, and can’t take the place of fundamen-tal human values. Personal impres-sions and common sense will remain important for the foreseeable future.

Your system came to people’s attention with the man-versus-machine Jeopardy! duel.* What exactly is IBM Watson?

F assnacht: We prefer to refer to it as “augmented intelligence.”

This is exactly what Mr. Pfleghar was referring to: It’s not about replacing something, it’s about expanding it. “Augmented intelligence” translates quite literally into an expanded human intelligence. It’s thus about deepening and expanding human knowledge.

P fleghar: In this regard, human beings are still the focus. They

will not be replaced, and will not be rationalized away. AI is not a job killer. It is an additional tool that makes work simpler, more efficient, and faster.

In fact, for the Jeopardy! event, we had a supercomputer that had access to vast amounts of data in order to be able to answer the various questions.

Since that time, technological devel-opment has reached the point that we no longer connect AI to a super-computer. Instead, numerous indi-vidual APIs with different capabilities and data are combined. That’s what makes Watson what it is. There isn’t a Watson that I can buy. Rather, Watson is a combination of different elements that are used in different ways.

F assnacht: We’re often asked, “Where’s your supercomputer?”

Of course there is no single Watson. Different systems are trained de-pending on demand, depending on the industry, and depending on the customer.

P fleghar: One example we al-ways like to use is that Watson is

an employee you get while it’s still at the childhood stage, although it has a certain amount of basic knowledge. Then it starts a course of study, where it learns what is necessary for the spe-cific customer. However, it can also pursue further education externally. For example, it could take a language class, go to university, acquire new knowledge, and then come back as an employee with expanded know-ledge and capabilities.

4

5

Artificial intelligence

Annette Fassnacht, media and public relations officer for

IBM Deutschland

has been responsible for IBM’s communications with journalists and influencers since 1998. She finds it exciting to report on the company’s continuous innova-tions. Recent examples include the intelligent cloud-based IBM solutions that will change our world.

Thilo Pfleghar, IBM Watson strategic consultant

works as a strategic consult-ant with international customers from numerous sectors to de-velop specific procurement and supply-chain management solu-tions based on the IBM Watson AI technology. Before his time at IBM, Pfleghar held executive positions at various enterprises around the world, including Cap-gemini, IBX Europe, and Hoechst AG Deutschland/South Africa.

Are we talking about different systems that operate independently under the Watson name? Or is there a connection between the systems?

P fleghar: The connection is that they can be used together, and

operate under the name Watson. Watson can mean that I have access to an analytics API, use an image- recognition tool, and augment the information using sensor data.

In an initial workshop, we can identify what APIs we can use most sensibly in order to achieve the customer‘s ob-jectives. There can’t be a meaningful solution without knowing the specific problem and having analyzed it in de-tail. Therefore, workshops also include consultants and data architects who are familiar with and understand the various APIs and their interactions. At the end there should be a solution that takes advantage of a number of APIs.

What activities do you believe will remain with people, and what will machines take over?

P fleghar: In my opinion, final decision-making powers will

always stay with people. The differ-ence is that the increased availability of data and facts will make better and faster decisions possible. Common sense nevertheless remains extremely important. What can be overwhelm-ing for a person is identifying patterns across a variety of different systems, and making these transparent.

F assnacht: We use Watson-like systems in the health care sector,

for example. There, of course, it is en-tirely crucial to find evidence-based answers to the “why” question. Without interpretable and evidence-based components even in the smallest decision steps, the conclusions drawn by AI systems often have difficulty winning acceptance.

Would you rule out final decision-making authority ever being transferred to intelligent systems? For example, in a dangerous situation, should an autonomous vehicle make the decision to brake, and thus possibly risk endangering the occupants?

P fleghar: One certainly can’t rule out the prospect of machines

making decisions under certain para-meters. However, I would always

advocate use of the overwrite function, so that a human can intervene.

To come back to your example: Yes, the driver should always have the option of making the final decision. However, transferring final decision-making power is of course itself a decision made by the human.

F assnacht: What you’re talking about is certainly a very commonly

cited example. I would like to point out that at IBM, along with others in our market, we are supporting the develop ment of AI ethics rules.

Let’s come back to companies. What aspects of AI will significantly influence an enterprise’s success in the future?

P fleghar: For me, the most impor-tant task is the early identification

of disruptions or disturbances. This empowers a company to act instead of react.

After a tsunami hits, it’s too late. Production stops, and access and departure routes are flooded. However, if a company can recognize the tsunami before others, and act correctly, this advance knowledge can produce a substantial competitive advantage.

In addition to the early identification of supply-chain risks, what are other key issues?

P fleghar: In order to act effective-ly and adapt the supply chain

accordingly, it’s ultimately all about identification, early documentation, and causal analysis. The specific risk assessment and the conclusions drawn from it will be different for every company.

For example, a supply reliability of 100% is not necessarily the optimum, since every percentage point of reliability (particularly the final percent-age points) also carries a cost.

In your opinion, what are the areas in which the potential of AI is already being realized, and where do you see additional potential for the future?

P fleghar: In my opinion, AI is being widely and effectively used to in-

vestigate end-consumer behaviors. Predictive analytics, causal analytics, and proactive thinking and acting are already well established there.

6

Companies that have a large volume of sensor data available to them, for example through manufacturing activ-ities, are also generally well-positioned for AI in this area.

However, this also involves some-what intangible elements, such as risk assess ments, trends and other develop ments, and disruption analyses. Here, there is more catching up to do.

AI is also taking on increasing impor-tance in the service sector. Chat-bots are key here. We all know them. People like them or hate them. Or we see it used for airline seat assignments, for insurance-company questions, or in the health care sector. Step by step, we’re moving farther along this path.

And if we stay specifically with procurement, what do you see as holding the greatest potential?

P fleghar: In my experience, there is extremely great potential in

aligning sales forecasts – that is, the probability that an order will come – with production quantities. Adjusting production quantities clearly has an impact on purchasing. With a more accurate sales forecast, based on past patterns and market information, production can be planned more pre-cisely, thus also improving the associ-ated procurement.

Disruptive technologies in particular influence processes, organization, and even the overall business model. What are the key success factors for someone wanting to implement AI solutions in a company?

P fleghar: For me, the most impor-tant success factor is to give up

the expectation that it will be a magic bullet. Neither Watson nor any other AI platform will ever be able to solve every problem all at once. I have been in pur-chasing for years, and have introduced a number of systems, and I have never seen a successful “big bang.”

For the implementation phase, I would always start with a relatively small user group. For supply-chain management, the first step is developing a high- level map of the supply chain, with an iden-tification of the pain points. Where does the information come from? When does it arrive? How is it pro-cessed? And how often do relevant pieces of information all exist within the company, but primarily in different systems that not everyone can access synchronously? Doing this gives us an initial road map and use case that can then be further developed in work-shops with the stakeholders.

We don’t want to replace the existing data. We just want to access it, aug-ment it with external data, and transfer it to a Watson dashboard, for exam-ple. This allows the end user to interact with it and pose direct questions.

If I can summarize, you’re saying that success-ful change management essentially depends on making the benefits we want to create accessible, on taking small first steps, and on making sure we don‘t leave people behind. Am I understanding this correctly?

P fleghar: Exactly. The benefits provided to the end user through

the introduction of the new system – and I don’t mean automatically the ROI – are the most crucial factor in its success.

In my view, the ROI assessment is highly dependent on the individual case. If I can reduce my inventory, this is relatively easy to calculate. Quanti-fying other kinds of projects can be extremely difficult.

In other words, the return-on-investment consideration is certainly one way of looking at it. But even independently of this, one could also assume that a company cannot afford to do without AI developments altogether. How do you see this?

P fleghar: I think hardly anyone will avoid AI entirely. We’re currently

in a phase in which more and more market needs are being modeled using AI systems.

Of course, the late movers have the advantage that they can take at least partial advantage of these develop-ments without having contributed an-ything themselves. The disadvantage

Artificial intelligence

With a more accurate sales forecast based on past patterns and market information, production

can be precisely planned, thus also improving the associated procurement.

7

is that they will realize the benefits of use later.

You spoke at the beginning of a child who has already undergone a basic education, and then learns more through a company-specific course of study. For any given project, what share of this development is typically specific to the company, and what share is generic?

P fleghar: Watson learns step by step. It comes with a certain

supply- chain knowledge, but even that must be refined on the basis of specific needs. We have a wide range of industries that are currently helping to integrate general knowledge into the system.

In training Watson, we make a dis-tinction between company-specific knowledge and general knowledge. The company-specific knowledge is trained only in the local system. By contrast, the general knowledge is gradually enhanced. However, this does not remove any specific know-ledge, which is a common concern.

What might a purchasing operation look like in the future?

P fleghar: At the moment, many people want to work with dash-

boards. The bigger the screens, the more boxes I can depict at the same time, and thus the more information channels I have.

In IBM’s supply-chain team, there’s the notion that we should get away from so many channels. We imagine the dashboard of the future as an inter face that interacts with the user. For exam-ple, a buyer could ask, “Watson, what are the most important trends in my product group?”, or, “Watson, what are the particularly important trends in the supply chain?”

With intelligent systems, employees get early information about what they should focus on.

And in the end, the next step will probably be the task of making all these KPIs and this flood of information manageable again. This will be necessary in order to reduce the complexity to the point where it is still manageable for individual users.

P fleghar: Ultimately, our goal with STI is to make this flood of infor-

mation manageable again. Of course,

access must be defined on the basis of roles and hierarchy levels. Ideally, everyone would be able to see out-side their own specific boxes and act proactively, but also without receiving any unnecessary information.

This interplay, or this democratiza-tion of information, is the most crucial thing. A jumble of information helps no one. Different information sources must be brought together and made evaluable. For example, sensor data creates a large amount of informa-tion, often collected on a second-by- second basis. The machine helps with the evaluation process by indi-cating what I can search for, and by automatically displaying relationships.

When you think about the various different industries, where do you think AI holds the greatest potential to effect future change?

P fleghar: Disruption and the decisions it makes necessary

are affecting supply chains in every industry. For this reason, AI will change the work of supply-chain professionals in all industries.

The demand for AI is greater where supply-chains are complex, and where customers have stringent re-quirements. This can be triggered by various factors.

There are multi-layered, multi-tier supply chains in the electronics, automotive, and health sectors, as well as for more complex consumer products..

In the industrial, chemical and oil, and health sectors, the complexity comes from the many data parameters that shape the production process.

By contrast, in the retail and food sector, it is the number of market participants and the need to provide sourcing information. AI can also help with consumer behavior.

Counterfeiting, fraud, extreme weather, and other risks threaten all industries..

F assnacht: The health care sector is an important area. There, man-

kind’s dream of defeating certain kinds of cancer is now within reach. With the support of intelligent systems, we can carry out a large number of very swift

comparisons, accumulate knowledge, and thus finally make rapid progress.

“Star Trek” paints a rather positive picture of the use of AI, while “Minority Report” depicts a more negative image. Which scenario do you see for the future?

P fleghar: I can use a bread knife to spread something on my bread

and satisfy my hunger. Or, alterna-tively, I could use it to stab a pilot and cause a plane crash. The decision lies with people. However, my assessment is positive overall.

I have worked for years as a buyer myself. I would have liked to know and detect important facts earlier, in order to be able to act in a focused way. If relevant data becomes available in a timely manner, I see that as a great added value.

F assnacht: You might be famil-iar with the example of the hand

weavers from the 19th century. At that time, there was widespread general pessimism with regard to employment trends. But look, tech-nological develop ments have in fact brought us significantly further as a society. Professions will continue to change. When I think of the hand weavers, working conditions have vastly improved since then. There has been radical change throughout human history. We’re seeing it again now. At IBM, we don’t see this as post-humanism.

Interview conducted by Patrick Strobel, a principal at Drozak Consulting

It’s still exciting

Even with all the current specific AI applications, we’re still at the beginning of a trend whose possi-bilities we can only begin to guess at today. Regardless of where this journey specifically takes us, no company can escape this development for long. Here more than ever, it isn’t about the big fish eating the small. It’s about the fast overtaking the slow.

Artificial intelligence

Keeping time with the learning robots

An interview with Dr. Sami Atiya (ABB Robotics) on the potential and implications of the use of

intelligent machines

Robots

Dr. Atiya, we are very pleased to be able to discuss an ostensibly new topic with you today – digitization. Is this in fact a new topic for ABB? „

Digitization is definitely not a new topic for ABB. We have offered digi-tal products and systems for more than 50 years. What’s currently new are the enormous increases in com-puter systems’ processing capacities, coming at the same time that prices have declined so significantly. This has opened a wealth of technical possibil-ities that were still unthinkable just a few years ago. This is now allowing us to connect the digitized islands from various eras that are found in all indus-tries. We can collect and evaluate data holistically along an entire value chain, helping customers produce more flexibly and efficiently.

When you compare digitization “then” to “now,” where do you see the primary differences? „

A simple example from our robotics development can make that clear. In 1974, ABB introduced the world’s first freely digitally programmable robot. For this, we used an Intel 4004 processor, along with the processor’s machine language. In 2015, we pre-sented the first collaborative robot, YuMi, which is taught what to do using a “lead-through” technique. That is, one takes it by the hand, so to speak, and shows it what to do. The program automatically created in this way can be refined in a 3-D environment, using a virtual robot.

Digitization then and now

Digitization itself is not a wholly new phenomenon. However, the technological possibilities are new. Today, thanks to widely available, sufficiently great computing pow-er, complex computing operations can be run cheaply and immedi-ately any where in the world.

The combination of artificial intelligence and classic robotics technology opens up numerous application possibilities. More-over, thanks to machine-learning systems, this entails increasingly less time and programming effort.

In contrast, the fear that people could be made obsolete and ultimately replaced by robots appears unfounded. Rather, the content of work will change, along with the need to work together in a focused way across departmental boundaries.

8

9

Robots

An ABB robot has already conducted an entire orchestra. How much effort is needed to bring the robot to that point, and what conclusions can we draw about current and future applications? „

YuMi, which I just described, was the one to direct the orchestra in Pisa. It was taken by the hand and trained by a conductor, and after 17 hours, including follow-up work, the virtual model could conduct the score. That was a comparatively minimal effort, with the added benefit that every identically constructed robot can now direct an orchestra using this program. It’s the same in the industrial environ-ment. We teach a robot a certain task, hone the program steps with the cus-tomer until everything is functioning optimally, and then this program can be reproduced. A washing- machine producer in Germany, for example, has deployed four identical robot groups, each including seven of our robots. In this case, it was only necessary to program seven robots, not 28.

With regard to the industrial sector, what specific applications are already in place and producing efficiency benefits in factories today? „

From the example of YuMi in Pisa, one can see very clearly how today’s state of technology allows robots to be used in much more diverse ways. We like to refer to this as “simplification.” By this we mean that robots can today be operated and programmed much more simply and intuitively. It’s not only the large factories in the automobile or electronics industries that benefit from this, it’s also particularly the small and medium-sized businesses without suitable skilled employees.For example, the lead-through technology I mentioned earlier is used

to teach a robot to remove burrs from castings. It is significantly easier to literally take the robot by the hand and follow the contours of the casting than to engage in complicated point-by-point programming, which demands extensive programming knowledge. Not to mention the time savings. How-ever, it’s exactly this latter point that is extremely important today, since products change increasingly quickly, with a larger diversity of variants.

The easier it is to deploy robots, the more often we’ll find them in the future. Of course, not in every opera house, but also outside traditional factories. Today, you can already find ABB robots in logistics operations, restau-rants, cruise ships, hotels, and retail stores, just to give a few examples.

The increasing use of robots is often seen as a threat. What role do employees play, and what impact will this development have on the working world? „

I agree with many experts that robots will handle new and challenging tasks. In the countries with the great-est density of robots (Korea, Japan, Germany), we see rising productiv-ity, but at the same time the lowest unemployment rates. People have to understand that a robot is still just a tool, even if it can take on a multiplicity of tasks. Setting up the robot, integrat-ing it into complex production pro-cesses, and using it in a way that op-timizes its capabilities requires human intelligence and performance. Even in the washing-machine production process I described, new jobs have been created through increased auto-mation. But a robot can easily lift and process a 40 kilogram machine. For a person, that is simply not possible without tools.

Dr. Sami Atiya, member of the ABB Group Executive

Committee

Dr. Sami Atiya is a member of the ABB Group Executive Committee, and oversees the company‘s Robotics and Motion division. He joined the company in June 2016. From 1997 to 2015, he held a series of executive positions at the Siemens Group. From 2008 to 2011 he served as the group’s CEO in the area of computer tomography, and from 2011 to 2014 as CEO of the Mobility and Logistics division. He has also worked as managing director at Harald Balzer & Partner in Stuttgart, at Robert Bosch, and in the robotics and artificial- intelligence research section of the Fraunhofer Institute for Information and Data Processing. Atiya holds an MBA from the Massachusetts Institute of Technology (MIT) in Cambridge, USA, and received a doctorate in electrical engineering from the University of Wuppertal in the field of robotics, sensor technology, and data process-ing. In addition, he received an engineering degree in electri-cal engineering and automation from the Karlsruhe Institute of Technology (KIT).

Robots today can be operated and programmed much more simply and intuitively.

10

An organization like ABB, which has long been moving at full speed in the direction of a digital world, must be managed accordingly. What management approach or framework do you use to accomplish this? „

It’s true that digitization also has an impact on personnel management. The basic reason for this is that dig-itization blurs departmental borders and undermines the clear definition of responsibilities. In addition, the time available for making and implementing decisions is progressively shrinking. My approach to managing my global value chains is to be as flexible as pos-sible, and as rigorous as necessary. That has proved itself internally and in dealing with customers, who of course face similar challenges.

For example, imagine that one buyer previously had procurement responsibility for a depart-ment such as a production cell, and another for logistics. Can this division of responsibilities still function in the future? „

With progressive digitization, tradi-tional departmental boundaries will disappear. One great advantage of

digitization is that data can be repre-sented and evaluated holistically along the entire value chain – even across borders. It is important here to incor-porate individual experts’ experience into decision-making processes. In this way, digitization promotes coop-eration across divisional boundaries, while also increasing transparency in the decision-making process.

When you look still farther into the future, what key developments do you see on the horizon? „

Technological development, along with the simultaneous decline in pric-es, has ensured that everyone today carries the performance of a main-frame computer from the 1970s in their pants pockets. Applications such as voice or facial recognition, which only a few years ago were categorized as artificial intelligence, are today ob-vious applications that are a part of everyday use. These trends will con-tinue. There is no question about that. In the industrial sector, this will lead to systems that can handle tasks autono-mously, learn from their own mistakes, and propose optimizations along a

value chain. The main trend I see is in the direction of further support for the people in the manufacturing industry. Given the age pyramid, this is a good development.

This interview was conducted by Thomas Keitel, a partner at Drozak Consulting

Robots

Permanent change

The development of autonomous, learning machines will help to permanently change the working world. Optimal resource allocation will free employees’ capacities for value-creating activities, which will be indispensable for compet-itiveness in the future. However, it is necessary to act quickly and set the right course in time.

Setting up the ro-bot, integrating it into complex production

processes, and using it in a way that optimizes its capabilities requires

human intelligence.

11

How does ARM use robotics to fulfill its mission of “driving the manufacturing renaissance?” „

ARM is a public/private partnership that bridges the gap between innova-tion at the university level and imple-mentation at the manufacturing level. By establishing ourselves as a world class knowledge center for what’s new and next in robotics manufactur-ing and education, we can help man-ufacturing become more competitive, while also helping American workers capture better, higher paying manu-facturing jobs. It’s fitting that our head-quarters are in Pittsburgh, Pennsylva-nia – a city known for reinventing itself after the decline of its steel industry in

the late 1970s. In the decades since, the local culture has been one of embracing new ideas and emerging technologies, while still maintaining a practical, blue collar work ethic. We now work with a network of organi-zations all over the country, including many international companies, to help other cities and regions revitalize their manufacturing industries and inspire “coopetition” – a healthy competition that makes everyone better and better able to compete globally.To establish and maintain a compet-itive edge, it’s important to not just develop new and innovative ideas, but to ensure those ideas are effectively

implemented. Our organization works to identify viable robotics solutions at the university level, and to inform them of the needs in the market so they aren’t inventing solutions in a vacuum that don’t address real problems. We then help bring them to a level of tech-nological and manufacturing readi-ness for manufacturers, integrators, and suppliers. We do this by funding project teams comprised of people from academia, industry, technology and workforce development. We also look to involve regional, state, and fed-eral governments that are looking to spur economic development through

Manufacturing Technology

Ready for the FutureA Private/Public Partnership Driving

the Manufacturing Renaissance

12

innovations in manufacturing and technology.

How can all the various players work together to ensure mutual success? „

Universities and research institutions need to be visionary, but the solutions they create are not always practi-cal. On the other hand, businesses typically focus on what is practical, repeatable, and safe. Member coun-cils and committees are established to foster collaboration and communi-cation between the innovators and the users, and to ensure that all interests are considered. This prevents either side from being one-dimensional in its approach.The teams that are provided with pro-ject funding also have skin in the game by sharing costs. These costs allow the universities, businesses, and govern-ments to feel a sense of commitment and obligation to the process. It is also important to get corporate investors and venture capitalists involved in the early stages to encourage additional development and provide good incen-tive to continue developing innovative solutions.

What important issues need to be considered to successfully incorporate robotics into a manufacturing environment? „

Challenges exist in two different realms: Technology and Education.In order to increase the widespread adoption of robotics for manu-facturing, robots must be cost- effective, rapidly deployed, versatile, collaborative & safe, and cybersecure. However, achieving these goals is no easy feat. ARM is working with its members to develop roadmaps and processes that specify and pursue technology development pathways to achieve these goals. The ultimate vision is a manufacturing environment where people and robots are working side by side, people performing tasks that robots can’t and robots perform-ing tasks that people shouldn’t.

Education is crucial to establish and maintain a workforce that can use these emerging technologies. Of course, workers must have relevant general and technical skills, but given the speed at which the technology is developing, they must have also have

the necessary adaptive skills to contin-ually up-skill. This education can begin with high school students, showing them a pathway to successful career opportunities in manufacturing through community colleges and apprentice-ships, which aren’t nearly as prevalent in the US as they are in Germany and other European countries. There is also a great opportunity to retrain existing workers with new skills that will make them more valuable in a manufactur-ing role and providing them with higher paying, in-demand careers. Deploying a successful robotics system also often involves functions like mechanics, elec-tronics, and programming, which pro-vide opportunities for a wide a variety of other disciplines. The pipeline of avail-able workers isn’t full enough to meet current demand, let alone growing de-mand. Therefore, it’s highly important for organizations to start casting a wider net and rethinking the way they evaluate, assess, hire and keep talent.

What changes will be necessary in the labor market for businesses to incorporate robotics technology? „

The pipeline required is huge and will create opportunities for a much more diverse workforce, especially for segments of our population, such as women, who are not well represented in manufacturing. Workers are also needed who understand the applica-tions where the robots will be operat-ing – things like welding, painting, and other activities – to ensure the work is being done properly. And moving some work from physical to cerebral roles can create opportunities for physically challenged workers, including disabled veterans.Educating people about robotics and advanced manufacturing helps to address their fears. Labor unions, incumbent workers, and others can sometimes feel threatened by the emergence of robotics. It’s important to address their fears and show them the opportunities these emerging tech-nologies represent, and how they can actually help save, bring back, and cre-ate new manufacturing jobs that might otherwise be at risk.

Interview conducted by Justin Baraga, Head of Office, Pittsburgh

Dr. Byron C. Clayton, Chief Executive Officer (CEO) Advanced

Robotics for Manufacturing (ARM) Institute

Dr. Byron Clayton is the Chief Executive Officer of the Advanced Robotics for Manufacturing (ARM) Institute. Founded at Car-negie Mellon University in Janu-ary 2017 and now operating as an independent non-profit, ARM is a national, membership-based consortium dedicated to assert-ing U.S. leadership in manufactur-ing by accelerating the commer-cialization of innovative robotic technologies and empowering American workers to obtain ad-vanced manufacturing jobs. By lowering economic, technical, and operational barriers, ARM and its members help manufacturing enterprises of all sizes adopt ro-botic solutions and hire a labor force prepared to work collabora-tively with robots.

Prior to his appointment as ARM CEO in January 2018, Dr. Clayton served as the President and CEO of Research Park Corporation (RPC), an economic develop-ment organization serving Baton Rouge, LA. Dr. Clayton also pre-viously led regional innovation clusters in printed electronics, ad-vanced energy, and water tech-nologies while based in North-east Ohio and has more than 25 years of experience develop-ing, commercializing, and imple-menting advanced manufacturing systems and software.

Manufacturing Technology

Assessment

Fit for the digital future?

Drivers of growth

Comprehensive digitization and inte-gration opportunities, paired with un-precedented scalable low-cost com-puting power, are driving entirely new business models. Companies must react to these changed competitive conditions or they will disappear from the market. Purchasing departments too must support this change holisti-cally. IT departments play an impor-tant enabling role here; however, the view should in no way be limited to this.

Assessment

When a holistic assessment is conducted, all relevant dimensions are systematically examined on the basis of their future viability. The start-ing point is the procurement strategy, which must support the company’s goals in a targeted way. Moreover, like the purchasing processes, a compa-ny’s organization and HR department must also systematically ensure that goals are being achieved – including during negotiations. In this regard, IT is not an end in itself. It must always be assessed on the basis of its con-tribution to the attainment of the company‘s objectives.

Rating

From the company point of view, the key question is the degree to which the current state of affairs in relevant areas will be sustainable in the future. A systematic comparison with bench-marks and best practices will clearly demonstrate where the gaps rela-tive to market leaders are particular-ly great, and where there is accord-ingly need for action. In this regard, a standardized assessment allows a direct comparison across company boundaries.

Tailor-made action plan

The sustainability evaluation should assess the importance of individual topics, while also taking their interdependencies into account. Subsequently, individual targeted measures can be defined on the basis of this evaluation, and translated into a “4.0 road map.” This systematic approach ensures that the right steps will be taken in the right order, beginning from a known starting point.

Strategy definition & targets

RFX / tendering

Compliance & sustainability

Performance management

Organizational setup

HR & skill development

Procurement integration

Spend analysis

Sourcing strategy

Negotiations

Legal & contract management

Supplier network management

IT systems

P2P

Support processes

Increased computa-tional power

Technology roadmaps

IT collaboration & investments

P R O C E S S E S

OR

GA

NIS

AT

ION

& H

R

PURCHASING STRATEGY

IT

13

14

BlockchainThe Opportunities, Risks, and Future Outlook

Most people have heard the term, “blockchain,” but not everyone understands it. Can you give us a basic overview? „

Blockchain is a decentralized digital ledger, and the technology on which bitcoin was built. Each transaction recorded is date and time stamped, and a record is made of each per-son who interacted with the ledger. The digital ledger is an original, single resource that captures and presents the latest information available in real time. Blockchain systems can be used as data management platforms or as ways to share and store documents.Blocks are created when a person re-quests a change or transaction on the ledger, and that request is broadcast-ed across a distributed network to individual computers known as “nodes.” Using encryption and algorithms, the network of nodes in the chain validates the transaction. Once the transac-tion is validated and approved, then the new block is added to the chain. If the encryption doesn’t match, then the transaction isn’t add-ed. This process typically takes be-tween 4-7 seconds, which is fast, but not as fast as other business systems we’re used to working with. This is a technical challenge currently being addressed by those implementing blockchain solutions.

What makes blockchain a good solution for supply chain and procurement? „

Both documents and payments can be transferred by a blockchain ledger, which makes it an excellent solution for supply chain. On the documentation side, blockchain creates an electronic paper trail for capturing and tracking things like warehousing, transporta-tion, and delivery trans actional data, in addition to contracts and other documents. It also provides a means of transferring payments instantly us-ing digital currency. By incorporating both the transactional data and pay-ments into the blockchain, supply chain efficiency and visibility can be significantly improved. It also creates

a means of validating that all neces-sary preconditions have been met pri-or to a payment being made. The high levels of security and encryption also prevent payments from being falsified. The system is creating a final agree-ment and record in real time. Some companies first elect to try blockchain as a means of handling either the doc-uments or payments through block-chain before adding the other piece. This gives them an opportunity to

evaluate the concept and the potential impact before deploying a more com-prehensive solution.

In what industries and applications is block-chain currently being used successfully? „

Many industries use blockchain to track the movement of products through the supply chain. The food industry uses it for meat product traceability. Blockchain allows them to account for the products from pro-cessing to storage to sale, ensuring that no product exceeds its sell-by date. The energy industry uses block-chain to distribute excess power from solar panels. The pharmaceutical and food industries use it to track products that require tight temperature controls.

Blockchain is also being used in IoT (Internet of Things) ap-plications where RFID is being used to track the movement of items.A successful blockchain solu-tion requires an ecosystem that

all participants will utilize. Regardless of the industry, it’s best to first build a team that includes subject matter experts who can advise on the re-quirements of the blockchain. In some industries, it may also be necessary to incorporate regulatory procedures into the system. This may take some addi-tional work upfront but can ultimately help streamline the process by mak-ing those regulations part of the data capture.

Blockchain

A successful blockchain solution requires an ecosystem that all

participants will utilize.

15

What other risks need to be considered in addition to the regulatory considerations? „

Enterprise blockchain regulatory risks mirror whatever risks already exist within the industry where the system would be deployed. Blockchain can help mitigate risk by creating smart contracts that incorporate “If/Then” logic to ensure compliance.If money is being transferred along the blockchain, then it’s important to be aware of any laws governing the trans-fer of money. While the transfer of the money is secure in a blockchain, the transaction must comply with applicable laws.

Cyber risk is much lower in blockchain than in many other systems. A hacker would need to gain control of at least 51% of the nodes simultaneously, which is less likely than breaching a system hosted on a single computer. Good idea to have a third party audit a system to test the security of the build.

How can companies successfully incorporate blockchain into their organizations? „

The process starts with education. Stakeholders should educate them-selves about blockchain and share information within their organization to get buy-in. The next step is to find an application where blockchain would make sense for their business. After that application is identified, a pilot project could be launched with busi-ness partners who can collaborate and test the viability and functionality of the system. Once a system is operating successfully, then the business exec-utives should look for opportunities to expand the concept within their organi-zations. Companies need to be looking at blockchain seriously now and deter-mining where they can start using it so they aren’t playing catchup.

Where do you see things going in the future? „Every industry has its own usage

cases being evaluated, some with quicker rates of adoption. Industries that are more forward-thinking and tech savvy will look for ways to incorpo-rate new solutions like bitcoin and stay ahead of the curveSome governments are using block-chain for managing their land records.

For example, Dubai is working to have all its land records on blockchain by 2020. The healthcare, real estate, and financial trading industries are also successfully using blockchain with increased regularity. The block-chain industry and infrastructure is still developing and emerging, so challeng-es do exist. Blockchain infrastructure is still being built, and in most indus-tries, there is no obvious best case or standard to follow yet. Also, some sys-tems are highly technology dependent, which requires specific expertise to develop and implement.

Interview conducted by Justin Baraga, Head of Office, Pittsburgh

Cyber-risks are much lower in a blockchain environment than in many other systems

Debbie Hoffman, Esq., Co-Founder & CEO Symmetry

Blockchain Advisors, Inc.

Debbie Hoffman is Co-Founder & CEO of Symmetry Blockchain Advisors, Inc. where she works with clients in their blockchain development and initial coin of-ferings utilizing her expertise in law, finance, blockchain, cryp-tocurrency and technology in-novation. Debbie serves as the 2017 – 18 Chairperson of the As-sociation of Corporate Counsel Financial Services Committee. Debbie was previously the Chief Legal Officer of Digital Risk, LLC, where she was responsible for the regulatory compliance and legal functions of the company. She spent a decade of her career as a real estate finance attorney at the law firm of Thacher Proffitt & Wood in New York. Debbie has also been a professor at the Flor-ida A&M University College of Law and the University of Central Florida. She is a frequent author in industry periodicals, a speaker at conferences and events, as well as a guest lecturer at univer-sities of higher education.

Blockchain

A technology takes on speed

The example of Bitcoin demon-strates impressively what an enor-mous potential for change comes with the blockchain technology. Especially in the field of supply chain, there already exist several applications which effectively use the strengths of this technology (e.g. the safety advantages inherent to the system). In order not to lose valuable ground to the competition, companies are urgently required to deliberately identify possibilities for potential deployment of this technology.

Innovation

The “how” in harmony with the “what”Digitizing supplier management

to produce integrated innovation partnerships

Mr. Mellies, the topic of digitization has long been an important one for your company. What is changing now? „

A great deal is changing, and extremely rapidly. In addition to tech-nological and procedural issues such as cloud applications, whole business models are changing. But so too is the culture, the way we work together, and our forms of organization. At Siemens, we engage in agile management strategies. That means we orient our strategy toward our customers, and work in network structures instead of in hierarchies. With regard to man-agement, the first “virtual robots” are taking over entire processes, giving employees more time for tasks that offer greater added value.Overall, the speed of the “what” is extremely high, and is tied to a direct change in the “how.”

Digitization is a disruptive change. What framework do you use to manage the digitization? „

We are currently developing a new strategy that addresses the core content of these transformations. But even if we have to pay close attention to this content, we also have to avoid leaving people behind. Indeed, we should even make them the focus of our efforts.

Digitization will help us have more time for “intelligent” work, with which we can accordingly produce more added value.

We are accompanying the overall transformation with a change process that explicitly factors in culture. Be-cause the world is volatile, insecure, complex, and ambiguous, we must become more flexible. From day to day, we have to be ready to put familiar issues behind us, and accommodate the new. In doing so, we must em-phasize our fundamental values more strongly, and treat these as an anchor point for the rest of our actions.

Not all employees have unreservedly positive feelings about digitization. How critical are communication and active management for success ? „

If we have learned one thing in the context of introducing digitization is-sues, it is that the classic top-down approach doesn’t work. We have to inspire employees in a bottom-up way, with experimentation. We have to re-lieve their fears that robots are going to take away their jobs.Digital leadership tasks are seeing disruptive change as well. Executives have to work “agilely.” Silos are no longer practical, and complete control simply slows an organization down.

Collaboration reloaded

Digitization enables entirely new business models. Value creation within companies, as well as collaboration across company boundaries, will be permanently changed. This requires the adaptation of processes and inter faces, and employees must be systematically prepared for this transformation. Holistic optimiza-tion will take the place of improv-ing isolated sub-processes.

The degree of vertical integration is declining, and companies are focusing more intently on their own core competencies. As a result, the role of suppliers too is changing. In this environment the systematic use of supplier inno-vations is of critical importance. Developing innovation partner-ships is one way of sustainably strengthening a company’s own competitive position.

The following conversation with Siemens’ Jan-Pascal Mellies illuminates key factors to be considered in this process.

16

17

Innovation

We have to train executives accord-ingly, and communicate as much as possible about these fundamental changes.

Current situation

Machines are increasingly closely networked, even with regard to demand planning. From an operational perspective, how will order processes change in the future? „

The key concepts here are E2E (end to end) thinking and transparen-cy. Value chains from customers to suppliers must be the focus, not in-dividual processes. The core element here must be a customer- synchronous production process with fully flexible management. We have not yet entirely reached this point, because even a fully networked value chain does little to help with regard to supplier delivery times of more than 40 weeks. With regard to transmitting orders and other similar messages to suppliers, we have already reached a degree of auto mation of more than 90 percent.In times of shortages, however, we still have to intervene manually. The focus will still be on partnerships in the customer- supplier relationship. But the ideal new world will be E2E networked.

Will traditional supplier management still exist in the future? „

More than ever. However, with a focus on collaboration, not on moni-toring the suppliers. Essentially, it will be complemented by issues such as networking, data transparency, and innovation. It will thus be a kind of “partner-integration management.”

What impact will this have on future invest-ments? Will partnerships extend into this area?

There have not yet been many disrup-tive investments today, because we need individualized concepts. Suppli-ers are working experimentally with us in the form of innovation partnerships. The key idea here is “co-creation.”

In addition, software consistency across the entire process chain is be-coming still more important. But so too are the corresponding high-perfor-mance communication components – like those we produce in our Karlsruhe factory, for example. Today, it already holds a share of at least 50 percent in a number of digitization-related areas. Pure hardware vendors will disappear.

From a commercial point of view, tra-ditional CAPEX business cases often no longer work, since calculating ROI is particularly difficult when operating in an agile experimental mode. Under these conditions, companies have to be courageous. Sometimes it’s even necessary to steer on the basis of a strategic gut feeling, following convic-tions rather than the pure figures.

Digitization relentlessly exposes weaknesses, and forces organizations to focus. What do you see as the key to competitive advantage?

In Germany, we always have to ask ourselves, “Why are we there?” If we can answer this question, outsource content that is not a part of the core business, and strengthen our core activities, then we will continue to have competitive production in Germany well into the future. In fact, digitization makes this faster and more transpar-ent. For this reason, we have to act in a focused way.

Jan-Pascal Mellies, Vice President and Finance Head of Manufacturing at Siemens Process

Automation

Born in 1979, Jan-Pascal Mellies is a business-administration graduate. After joining Siemens in 2003, he served in various strategic- procurement functions until 2016. In that year, he took over commer-cial management of the Karlsruhe electronics plant in Siemens’ Process Automation business unit. In a rapidly changing purchasing environment, he focuses on innova-tion and continuous development, seeking to continually increase the purchasing organization’s contri-bution to value added. Another key factor for Mellies is cross- functional integration across the entire supply chain.

Culture and change management within a globally active organiza-tion are also core themes in his role as an executive.

Suppliers are working experimentally with us in the form of innovation partnerships. The key idea

here is “co-creation.”

18

Innovation

Processes must be optimized before digitization takes place. Otherwise, a bad process will be digitized.

The ongoing evaluation of suppliers’ innovative capacities is becoming increasingly important. How will the necessary transparency be generated? „

The basis of any partnership is trust. Building the necessary relation-ships and establishing credibility and reliability requires close cooperation at all levels. Although order process-es will be fully automated in the fu-ture, for example, personal contact between the traditional “buyer” and service employees will be even more important.This personal contact must also con-tinue at the management level. We must allow more time for this kind of activity again, and pursue partner-ships as a kind of network-based cooperation.

Outlook

What factors do you see as critical for the successful introduction or establishment of integrated innovation partnerships? „

Trust, open communication, un-derstanding the requirements and

expectations, clear goals, a positive culture in which failure is accepted as a part of experimental working meth-ods, and definitely enthusiastic teams on both sides..

Let’s turn the clock ten years ahead... „Wow, if only we knew that...

Machine-based networking and the degree of automation will surpass our imaginations.In the future, traditional commodity negotiations, even in complex de-mand situations, will be handled by machines. Maybe in the future, our SMD Machine Center will negotiate commercial terms directly with ca-pacitor producers, and then translate these terms directly into our customer prices.

In order to keep the negotiations going... complex tasks will also need human intelligence in the future. More-over, a total-cost approach will cer-tainly include different components than what we see today.

People will continue to be the focus, because a digital world can be gen-uinely intelligent and sustainably success ful only through people.

The how determines the what, and vice versa. Focusing solely on one

component will not be enough. Do I personally worry? No. I look forward to everything ahead with respect and pleasure.

This interview was conducted by Michael Thon,

a partner at Drozak Consulting

Keeping people in focus

Digitization and its technological opportunities will produce substantial fundamental change. It will provide employees with a comprehensive toolset for managing the tasks of the future. It will not replace them.

When employees are relieved of operational activities and have access to more transparent information, their efficiency will go up significantly. These employees will continue to be the focus in the future – especially insofar as they interact with suppliers.

Machine-based networking and the degree of automation will surpass our imaginations...

19

Babylonian data confusionChallenges in the exchange of electronic messages

Data exchange

Industry 4.0 has for years figured high on many companies’ lists of the most important strategic topics. Yet the im-portance of electronic standards for the smooth transfer of business data, a technology that serves as the basis for many broader digitization projects, is often overlooked. Such standards are a critical element in efforts to net-work different systems and automate business processes, especially in the logistics sector. We examined this is-sue as a part of our “Komplex-e” re-search project (www.komplex-e.de), working with a partner company to analyze two typical electronic mes-sages in various ERP systems. Addi-tionally, we implemented them in our own ERP laboratory (www.erp-labs.de).

In doing so, we employed the widely used UN/EDIFACT e-business stand-ard. This offers the sector-specif-ic EANCOM subset, which enables electronic invoices, orders and pay-ment notifications to be transmitted to business partners, for example. In order to implement the standard, we carried out a current-state analysis with regard to processes, systems, interfaces, and master data. In addi-tion, we consulted the extra guidelines containing company-specific require-ments, as well as the definitions pro-vided by the e-standard publisher. By serving as a guide for the structure and contents of transmitted messag-es, such guidelines facilitate projects seeking to implement e-standards of this kind. Using this information as a basis, we sent test messages to the project partner, and subse-quently reviewed them to ensure they were received correctly. This ena-bled us to determine that numerous

internal-company, external-company, and semantic variations have devel-oped that do not correspond to the information provided by the compa-ny. Corrections both to the messag-es’ formal structure and contents had to be made, and new test messages were sent. This iterative process adds additional complexity for users trying

to connect with business partners, and increases the expense of coordi-nation for all participants.

Professor Axel Winkelmann says, “These significant company-specific deviations were surprising even to the research team, because they badly undermine the standardization efforts. In this regard, associations and to some extent even policy makers should work to ensure greater uniformity.”

The study found that the companies surveyed at times used only about 50% of the original e-standard definition. Network effects are greatly reduced by the development of variants or di-alects in the use of the standard, un-til it ultimately becomes a process of 1:1 communication between the com-pany and its partners. This conflicts with the basic concept underlying standardization, and inhibits automa-tion efforts. Instead, best practices should be agreed upon at the sectoral level. In addition, the publisher of the standard should consider addressing the origins of such dialects more care-fully, as well as their effects. Individual companies should pay close atten-tion to the various standards’ current degree of maturity. Moreover, they should carefully review which stand-ards their supply-network partners are using or plan to use.

Daniel Neuß, David Julian Hornung, Luisa Maierhöfer, Samuel Pfister,

and Axel Winkelmann

Prof. Axel Winkelmann holds the chair for business administration and informatics at the University of Würzburg. With his team, he focuses on the question of how companies’ business models, and thus corporate data fundamentals, are changing. He is an interna-tionally recognized expert in the area of business software, and conducts Germany’s largest re-search- and teaching- focused business- software laboratory at the university.

At www.erp-podcast.de, the largest German-language pod-cast on the issue of business software, he reports on new find-ings and challenges related to the use of business software in the corporate environment.

Preview

Imprint

Drozak Consulting GmbHLeibnizstraße 5310629 Berlinwww.drozak.comtrend@drozak.com

PrinterDahler Print, Wandlitz

Responsible under press lawPatrick Strobel Editorial department+49 (0)30 30 67 33 0

Photo credits:Adobe stock, and by generous permission of the named companies and/or article authors.

Composition and layoutSusanne Kwanka www.susannekwanka.de

Circulation / Frequency800 copies / 4 × per year

The magazine and all texts and photos are protected by copyright. Upon manuscript acceptance, publication rights and the rights to translation, allocation of reprint rights, electronic storage in databases, and production of reprints and photocopies are transferred to the pub-lisher. Any use of the material outside the limits specified by copyright law is prohibited without the permission of the publisher.No liability is assumed for any unsolicited articles or photographs. All information contained is published on the basis of best knowledge and belief, but is without guarantee. The magazine is provided free of charge.

In our next issue:Procurement in a seller’s market

Practical implementationWhat to do now

Risk management 4.0Everything in view,

everything under control

FEBRUAR

MAI