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Is Your Shop Floor Connected to Your Top Floor?

by Sudipta Bhattacharya and Johann Thalbauer | SAPinsider

July 1, 2004

by Sudipta Bhattacharya and Johann Thalbauer, SAP SAPinsider - 2004 (Volume 5), July (Issue 3)

Sudipta Bhattacharya,
Vice President, Manufacturing,
Application Solution Management, SAP

Johann Thalbauer,
Vice President, Supply Chain,
Application Solution Management, SAP

Q. Most companies report that their supply chains are becoming increasingly more complex — which isn't all that surprising given that they are contending with widely dispersed manufacturing, warehouse, procurement, and sales activities, along with more and more global and outsourcing issues. Are there practical means to curtail this complexity and the costs and inefficiencies that go along with it?

It's important to differentiate between the complexity of a supply chain network and that of the business processes you run to manage that network.

Supply chain networks are indeed incredibly complex. There is no getting around the facts: managing manufacturing while collaborating with suppliers and partners can be a complicated proposition; supply, demand, and operating conditions can be unpredictable; and global trade, government regulations, outsourcing, and market challenges all compound this complexity. With manufacturing nodes being pushed out to different locations around the globe, the pressures of integrating these nodes with the supply networks that connect them have never been greater.

This reality is not about to go away. We should brace ourselves for even greater complexity in managing such dispersed environments in the months and years ahead.

That does not mean, however, that the processes by which you manage these activities need to be complex. Quite the opposite — manufacturing and supply chain management processes need to be fully integrated, and those that can continually adapt will insulate you from that complexity.

Achieving this level of integration requires a holistic, rather than piecemeal, approach. In the past, everyone was clamoring for best-of-breed solutions and establishing processes to optimize activities at one specific plant or warehouse. The result of these point solution implementations was actually fragmented system landscapes, causing impasses that limit how far you can take this approach.

Taking a good look at all your manufacturing plants, suppliers, warehouses, and operations is the only way you can fully optimize capital assets and inventory turns. That's why you see such strong sales of SAP supply chain management solutions. We're the only one that can optimize what may now be fragmented portions of your manufacturing activities and the whole of your supply chain operations to achieve efficient, fluid, integrated, end-to-end management (Figure 1).

Figure 1
SAP Takes an Integrated, Holistic Approach to Supply Chain Management

Q. Won't moving an entrenched infrastructure with "fragmented" solutions to one that is integrated end-to-end prove costly?

First, let's be clear that "end-to-end" does not presume you've got SAP solutions running exclusively. Nor does it presume a big-bang approach to establishing integrated and interoperable processes.

You move there at the pace that's right for you, and since SAP solutions are built on the SAP NetWeaver technology platform, you have an infrastructure to integrate your solutions. (However, one of the reasons many customers select SAP solutions end-to-end is the total cost of ownership. It's a lot cheaper and easier to let SAP ensure integration among manufacturing, warehouse, procurement, finance, CRM, and other processes than to perform the integration yourself.)

There does appear to be widespread recognition that maintaining a fragmented infrastructure is much costlier than establishing an integrated one. For example, if you've got multiple factories that are neither standardized on the same software nor properly aligned with procurement, planning, and logistics operations, then coordinating business processes can be an expensive challenge. Uncoordinated business processes have a negative impact on business velocity and lead to latency across the supply chain.

Q. What makes "speed" such an elusive and important goal?

Given the rate of product commoditization today, the speed and quality of services is the only real differentiator available in almost every industry. However, fragmented business processes make speed an elusive goal, since they hinder sophisticated exception management and auto-mated business workflows that help performance.

Managing the velocity of business change today requires new levels of access to real-time manufacturing information, the ability to enable rapid, decentralized decision-making, and an unprecedented degree of collaboration. This is where workflows that connect the shop floor and the top floor — such as those covered in SAP's solutions for manufacturing (Figure 2) — become critical.

Figure 2
SAP's Rang of Manufacturing Capabilities Supporting Adaptive Manufacturing

Consider factory events such as machine breakdown, quality problems, or material non-availability, which are sensed by shop floor applications (MES or automation systems). To enable immediate resolution to these events, information needs to be propagated in near-real time through workflow-based applications to top-level (ERP/SCM) applications. Sensing an event on the shop floor is simply not enough — when resolving such events, you frequently need access to information within the supply chain and ERP applications, such as inventory levels, customer due dates, or supplier stock availability. It is such connectivity that helps lower process latency.

Given that you cannot optimize services at the expense of your margins, manufacturers' ability to turn over their fixed and variable assets quickly is key to driving down costs. One of the most important metrics for indicating speed of operations for manufacturers is return on assets (ROA). This metric, which measures the sales generated for every dollar of asset investment, is the product of profit margin and asset velocity. Any latency that is introduced into the supply chain impacts the velocity with which a company turns over its fixed assets (such as plants and machinery) and variable assets (such as inventory). Integrated business processes help minimize such latency.

Connecting the shop floor to the top floor enables information to be available at the velocity necessary to react and make decisions. Through seamless integration, the velocity is achieved while the total cost of ownership is actually lowered. Plus, the integration enables businesses to continue to collaborate with suppliers and customers, respond to opportunities in the marketplace, and quickly adapt to change.

For more information on SAP's solutions for supply chain management and manufacturing, including case studies, white papers, and the mySAP SCM Value Calculator, please visit

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