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Adaptive Manufacturing: Look to Your Factory to Sustain Leaner Supply Chains that Withstand Volatility

by Sudipta Bhattacharya | SAPinsider

July 1, 2004

by Sudipta Bhattacharya, SAP AG SAPinsider - 2004 (Volume 5), July (Issue 3)
As companies respond to cost and competitive pressures, supply chains continue to grow leaner every day. Inevitably, though, the leaner your inventory, the more exposed your supply chain is to production issues or unexpected changes in customer demand. To alleviate these risks, the burden of replenishing customer orders without a drop in service levels continues to shift to the factory, and real-time visibility into the shop floor is becoming critical. Consider these trends:

Make-to-order manufacturing is becoming a key competitive differentiator. This issue really pushes the problem to the factory. The battle is now on the shop floor — and the victor is the organization that can best build postponement strategies into its manufacturing processes and then rapidly build products as confirmed orders come in. When building to a specific order and identifying and managing an order status, the problem is frequently centered in the factory itself.

Lean is re-emerging. As inventory continues to become an expensive liability, maintaining high levels of customer service requires the factory to become the de facto response buffer. This need is further precipitated by customers that expect products to be delivered in continually shrinking time frames. Manufacturers must be able to rapidly digest customer input and dynamically adapt their manufacturing operations to pull-based systems.

Contract manufacturing is growing. Detailed, real-time shop floor information grows in value as more and more companies see outsourcing as a mandatory need. Maintaining control of distributed manufacturing operations is pushing the need for visibility to greater levels. The more complex the network, the greater the challenge in managing the visibility factor.

Despite these trends, the reality is that the typical factory is not sufficiently integrated into the supply chain to deliver an effective, timely response to change. Factories continue to operate as "black boxes" within very localized environments. They typically do not have adequate, timely status information on the external events that affect their own operations and costs, nor are they able to easily transmit information into the supply chain. This promotes uncertainty that frequently results in manufacturing and supply chain inefficiencies, especially as the luxury of inventory in supply chain pipelines continues to diminish.

So while recent gains in stripping out inventory have been phenomenal, the process has also led to fragile supply chains that must be backed by a more responsive approach to manufacturing. The ability of a factory to profitably replenish the supply chain while dynamically responding to unpredictable change is termed "adaptive manufacturing."

Manufacturing's Role in the Adaptive Enterprise

To be adaptive, companies need manufacturing capabilities that deliver:

An integrated ERP solution for managing manufacturing with associated workflows that enable closed loop operations

A manufacturing integration platform to connect manufacturing processes with enterprise and supply chain processes

Role-specific dashboards that enable decision support for production personnel to deliver on their performance goals

Adaptive manufacturing — the ability of a factory to profitably replenish the supply chain while dynamically responding to unpredictable change

The Challenge: Turning Real-Time Shop Floor Data into Enterprise-Ready Information

To enable efficient operations, you need visibility into factory operations that deal with information such as:

  • Real asset utilization and overall equipment efficiencies — How effectively are the capital assets performing?

  • WIP (work in progress) status across plants — Where is the WIP, and what is the value of the WIP currently on the shop floor?

  • Manufacturing efficiencies and yields — What is the value of increased material and labor conversion efficiencies?

  • Causes and sources of downtime — What is the increase in expenses due to downtimes and related expedites and overtimes?

  • Quality measures — What incremental value does adhering to quality on the shop floor create?

  • Maintenance issues — What are overall machine availabilities and equipment effectiveness?

Much has already been accomplished in building point solutions to collect the data needed to improve quality, increase efficiencies, and reduce operating costs on plant floors. The challenge is to combine these disparate buckets of information into a meaningful framework that enables informed decision-making. A combination of gut feel and labor-intensive, paper-based production reports is not adequate. Data must be gathered in a consistent, meaningful, and contextual way across the plant and throughout the enterprise. Only then can accurate, relevant data be disseminated to, and analyzed by, the appropriate users, from the COO to the production operator.

But there are two primary hurdles to effective information dissemination:

  • The multiple tiers in the information flow, without the existence of any established standards, that currently exist within manufacturing (see sidebar)

  • The complete lack of any technology platform that can integrate all these layers in a single cohesive framework to enhance manufacturing operations

This is where SAP's enterprise solutions and SAP NetWeaver technology platform can help companies make the most of their data collection and manufacturing operations monitoring, with systematic workflows to manage the manufacturing events that occur on the shop floor, and technological ability to economically move information from the shop floor into the ERP system.

The Three Layers of Information in Your Manufacturing Environment

Today, three distinct tiers of information flow exist within manufacturing enterprises. Each level includes its own applications and networking requirements, and integrating these different levels has been an expensive proposition.

The Automation Layer is responsible for accumulating real-time data. This tier includes high-level devices — namely PLCs (programmable logic controls) and DCSs (distributed control systems) — that run the HMI or SCADA software. Together, they provide a real-time view of the manufacturing process, plus a user interface through which to control the process. A control network such as ControlNet or Ethernet interconnects the machines, linking PLCs and DCSs to each other as well as to HMI and SCADA applications. These applications collect real-time data and in some cases pass it to the enterprise tier (ERP layer). SAP applications do not replace any segment of the automation layer. Instead, they leverage the real-time information and alerts that are sent up from the automation layer to the enterprise layer.

The MES Layer posts data to the ERP application. The MES (manufacturing execution system) is a plant floor system that acts as a middle layer between the enterprise and automation tiers. It monitors adherence to manufacturing procedures on the shop floor, typically receiving data from the automation tier and then posting this data. The MES layer is responsible for real-time alerts on quality, maintenance, rework, etc. It also tracks completions, material/labor usage, and quality and lab data. Many manufacturing companies have some form of an MES, either homegrown or from specialized vendors, that feeds information to the ERP layer.

The ERP Manufacturing Layer tracks inventory and materials, creates the manufacturing plans, issues the necessary work orders, and determines the costs associated with the manufacturing processes. In addition, this layer also manages the activities around Manufacturing Planning, Manufacturing Execution, Quality Management, Maintenance Management, and Environmental Health and Safety. As manufacturing needs continue to get complex and factories demand a tighter and less expensive integration between the applications across and within plants, the ERP layer increasingly is providing many of the capabilities that the MES layer delivered.

SAP's Solution

The fact of the matter is that the quicker your SAP system gains access to the information that emerges from the shop floor, the faster actionable steps can be taken. Only when the SAP system has access to shop floor data can this data be transformed into information that will drive significant, meaningful improvements within the enterprise. With mySAP ERP, the SAP NetWeaver platform, and SAP's services-oriented applications,1 enterprises can effectively and economically manage workflow and support the flow of information between the shop floor and the rest of the business.

SAP Integrates the Factory with Comprehensive Workflows

With real-time shop floor data informing business decisions, the SAP system can make information available via a role-based user interface — typically a portal (see Figure 1).2 From here, a user can, for example, make sure stock is available in inventory, determine which customer orders still need to be met, or check on the pace of production, capacity utilization, and availability. Rather than bouncing from application to application or system to system to be able to initiate the necessary workflows, the user has a central point of access to initiate workflows, no matter what application or system is providing the information on the backend.

Figure 1
Leveraging Technology and Applications to Enable Manufacturing

Consider what happens when a piece of equipment goes down during a production cycle: the automation layer detects the stoppage and sends an alert to the MES system, which in turn alerts the production supervisor and requests immediate problem resolution. The problem is that most workflows stop there; this equipment failure is treated as an isolated event when, in the age of real-time business, it has repercussions up and down the entire supply chain.

This problem can only be fully addressed when the event is absorbed into the SAP system, so that subsequent steps can be initiated. For example, an SAP system could automatically initiate these steps in the case of equipment failure, for a comprehensive workflow:

  • Create and dispatch the maintenance work order. For work to begin, the work order can be sent automatically to the mobile device of the maintenance supervisor. Simultaneously, the system can check on availability of spares in inventory or determine if parts need to be ordered or expedited.

  • Identify the potential for lost production. Equipment downtime is associated with lost production. Based on "mean time to repair" information received from the maintenance supervisor, the system can immediately analyze the potentially lost production and the impact on inventory levels — and, if necessary, overtime can be scheduled.

  • Identify the potential for lost or delayed orders. Along with the updates in the inventory stock, the system can analyze customer orders for any that could be missed or would be delayed, so the appropriate information can be conveyed.

  • Locate alternate sources to meet the customer order. If necessary, the system can locate alternate suppliers or search for substitute products to meet customer commitments.

  • Inform suppliers. By determining the impact on raw material inventory, you can avoid excess stock and raw material buildup by informing suppliers to hold back shipments.

SAP Provides the Technology Platform to Enable Real-Time Manufacturing Operations

Such a comprehensive approach requires a platform that allows companies to provide role-based views (such as SAP's new Plant Manager desktop, as shown in Figure 2), integrate various applications and systems, run manufacturing analytics, and enable collaboration inside and outside the organization. At the same time, companies must also minimize use of "expensive" custom adapters. They need a technology platform that takes a standards-based approach to communication and interfaces, thereby lowering the total cost of ownership.

Figure 2
The Startup Page of the Role-Based Plant Manager Desktop

The Enterprise Services Architecture (ESA) technology framework is designed to support these requirements by basing communication, development, and design on established and emerging Web services standards. SAP NetWeaver provides a technical foundation for implementing ESA so that underlying applications rely on reusable services rather than on various backend connectors (see "How Web Services and ESA Support Manufacturing Workflows"). In addition to the openness and reusability of a service-oriented approach, enterprise-ready Web services allow for more dynamic exchange among backend applications without affecting the functionality across multiple applications. For example, when a piece of equipment goes down in a factory, the signal is first captured by a PLC that could push the alert to SAP through an OPC (OLE for Process and Control) connection. The ERP system would then distribute the alert based on defined service-based rules to various other SAP and non-SAP systems.

The sidebar below provides some specific examples of how the SAP NetWeaver platform supports manufacturing enterprises in each of SAP NetWeaver's key capabilities.

How SAP NetWeaver's 7 Key Capabilities Directly Support Manufacturing

Some of the key abilities provided by SAP NetWeaver to enable manufacturing are:

  • Enterprise Portal Infrastructure — This capability can deliver unified, personalized, and role-based user access. While many roles for employees and managers are available now, the first role designed specifically for manufacturing, Plant Manager, will be shipped with mySAP ERP 2004.

  • Collaboration — Collaboration promotes dynamic communication in permanent and ad hoc teams or communities within and across manufacturing facilities. Using SAP NetWeaver's collaboration features, you can share schedules for subassemblies between manufacturing locations to enable synchronous production.

  • Multichannel Access — With multichannel access, manufacturing personnel can connect to enterprise systems through voice, mobile, or radio-frequency technology. For example, a maintenance request order can be dispatched to the maintenance supervisor's mobile device. This capability is provided through SAP Mobile Infrastructure.

  • Knowledge Management — Knowledge management, available through mySAP Enterprise Portal, provides content management capabilities with integrated search, taxonomy, classification, publishing, and related workflow processes. Looking through the shift logs written up by production supervisors over the last three months, for example, you can share best practices across plants and capture the knowledge built over years of experience by the plant personnel.

  • Business Intelligence — This capability enables users to integrate, analyze, and disseminate relevant and timely information — for example, to analyze the capacity utilization trends over the last three months to identify patterns of best practices. This is provided through SAP Business Information Warehouse, a component of SAP Business Intelligence.

  • Master Data Management — This capability promotes information integrity across a business network in a heterogeneous IT environment. It is provided through SAP Master Data Management (SAP MDM). For example, SAP MDM ensures that parts and subassemblies being manufactured internally and sourced from outside are all similarly recognized.

  • Integration Broker — This capability enables XML/SOAP-based communication between application components from various sources and vendors. With SAP Exchange Infrastructure (SAP XI), you can connect SAP ERP to other manufacturing applications on the shop floor to access real-time information, and then dispatch alerts and events to portal views.


The degree of adaptivity that manufacturing organizations achieve is directly dependent on their ability to leverage various backend applications designed to run on an integrated technology platform. Such platforms will enable role-based views that will be easy to maintain and modify due to a modular structure that separates frontend capabilities from backend applications. This platform will also provide sophisticated frontend capabilities, like event management, analytics, collaboration, and knowledge management, as well as create a web of XML connectivity within and across manufacturing locations. Such capabilities to drive adaptive manufacturing are no longer an option — they are a necessity.

How Web Services and ESA Support Manufacturing Workflows

A systematic workflow would require a number of steps across multiple applications and systems. But the role-based views shown back in Figure 1 rely instead on a collection of standards-based Web services rather than on a collection of different backend applications requiring custom adapters.

Service-oriented applications, such as portal-based Self-Services in mySAP ERP, are designed based on the principles of Enterprise Services Architecture (ESA). The services-based approach set out in the ESA blueprint allows for more dynamic exchange of backend applications without greatly affecting composite application functionality. This enables ease of use, as normal boundaries between underlying applications can be ignored. It also supports greater accessibility for various roles over a variety of channels and drives ease of use by shielding the end-user from the complexity of various backend applications.

SAP today has one of the most complete footprints of manufacturing solutions, encompassing manufacturing planning, execution, and asset management, including maintenance, visibility, and quality management. These are all available within the ERP system and are tightly integrated with other business applications like SAP SCM, SAP PLM, and SAP CRM.

In addition to the application's breadth, the SAP NetWeaver technology platform is a significant differentiator that ties SAP and existing customer applications together to lower TCO and provide capabilities like advanced knowledge management, preconfigured and customizable analytics by leveraging SAP Business Information Warehouse, sophisticated master data management, and connectivity within and across manufacturing locations by leveraging the SAP Exchange Infrastructure. This is all in the process of being backed up by configurable role-based views for manufacturing personnel that will enable intelligent decision support to further drive production efficiencies and ease of use across multiple applications.

1 For more information on the Enterprise Services Architecture, see "When Does a Web Service Become an Enterprise Service? An Introduction to the Principles of Enterprise Services Architecture (ESA)" by Franz-Josef Fritz in the April-June 2004 issue of SAP Insider (

2 The requirements for this type of SAP system are the 2004 release of mySAP ERP, which includes SAP NetWeaver 2004 and its components, as well as the Plant Manager role and the Self-Services features mentioned in this article.

Sudipta Bhattacharya joined SAP in 2002 and is currently Vice President of Manufacturing (Application Solution Management). Sudipta came to SAP after a year at i2 technologies, where he managed the post-implementation value engineering practice. He has spent eight years with several companies of the Tata Group in India, managing manufacturing operations and the international business operations of Tata-Rallis Limited. Sudipta holds a bachelors degree in Chemical Engineering. He also holds masters degrees in Manufacturing, Chemical Engineering, and Operations Research and an M.B.A. in Finance and Operations Management.


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