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The Internet of Things Is Coming — Are You Ready?

Exclusive Interview with SAP’s Thomas Ohnemus and Michael Lynch

by Thomas Ohnemus and Michael Lynch | SAPinsider, Volume 16, Issue 3

July 14, 2015

As the supply chain transforms into product and demand networks, one of the most significant drivers of change is the Internet of Things. Enterprises have more devices connecting and sharing data than ever before — and can derive real business benefits by properly harnessing this data. SAPinsider spoke with SAP’s Thomas Ohnemus and Michael Lynch to learn more about the revolution that is under way, and how businesses can best join it before they are left behind.

 
Q: Beyond connecting products, what does the Internet of Things (IoT) mean for the enterprise?

Michael Lynch: At a fundamental level, IoT is about the digitization of the planet, and there is no doubt that in just a few short years there will be sensors everywhere. Appliances, cars, vending machines, clothing — everything will be connected. For the enterprise, we are seeing the potential for IoT to be an agent of transformation in any industry. Savings due to improvements in manufacturing and supply chain management, and productivity gains across businesses, are palpable and provide a clear incentive for companies to explore how to reap these benefits.
 
The first step toward capitalizing on everything IoT has to offer is to jump on the sensor bandwagon and connect your products. Collecting product data is an important first step, but the tangible benefits come from gaining insight from that data. SAP differentiates itself by taking that sensor data and connecting it to core business processes and networks. If the data lives as a peripheral process, it will not drive true insight. Integrating it with the core of the business is what allows a company to reexamine its business model and reimagine how it engages with its customers.

Thomas Ohnemus: This potential to transform the business is why you’re hearing people refer to IoT as the 4th Industrial Revolution. The digitization of the planet isn’t a technology step change; digitization of formerly manual business processes is a dramatic change, similar to how one-click purchasing is replacing cash transactions.

Q: How can companies leverage the insights gleaned from connected products?

Lynch: There are three maturity phases to leveraging IoT to transform the business: connect, transform, and reimagine (see Figure 1).

Figure 1 — Internet of Things technologies enable new business models and require rethinking of traditional processes; SAP helps translate new business realities into new business strategies with the introduction of product network and demand network approaches

 
First, what does it mean to connect a product? Take the example of a company that used to sell compressors but now sells compressed air as a service. It’s imperative that your compressor is always operational, or you don’t have a product to sell and you’re failing to deliver on your contracts with customers. Sensors on compressors can track issues pertaining to current or upcoming maintenance, supply, replenishment, and connection needs, and anything else required to sustain that constant flow of compressed air — and keep customers happy.
 
The second phase is what a business does differently with the insights it gains from the connectivity. Will you route trucks differently, modify service level agreements (SLAs), or offer more strategic pricing? Collecting the data without actually acting on it fails to really capture the transformative nature of IoT.
 
The third phase, reimagine, provides the greatest IoT opportunity, but is still in its infancy in relation to the IoT phenomenon overall. This is not just about improving your product or service, but is also about completely changing a business model or product offering based on customer needs. One example is a major North American apparel company that has reimagined itself as a lifestyle partner. By starting to connect its products to a fitness app, consumers now engage with the company more as a personal fitness coach than as the clothing retailer of the past.

Ohnemus: The apparel company Michael mentions is a very good example that illustrates that data in and of itself isn’t the key to value, but rather it’s what you do with that data that matters. Whichever phase a company happens to be in on its IoT journey, the importance of an enabling technology platform that turns insight into action cannot be overstated. SAP stands out with SAP HANA as a real-time database that offers standard and predictive analytics tools that leverage sensor data to forecast what’s around the next bend (see Figure 2). 
 
The benefits of SAP HANA as a real-time database don’t end with analytics, however. Mobility is central to the platform, allowing a business to collect and provide data anywhere at any time. The technology platform also must have an intuitive, modern user experience (UX) to deliver on new insights, and this is the value-add of SAP Fiori.
 
When IoT is infused into more and more of a company’s core processes in the coming years, it is also worth taking into account the integral value that SAP HANA delivers with the next-generation business suite, SAP Business Suite 4 SAP HANA (SAP S/4HANA). The redesigned and redeveloped business suite and its applications are optimized specifically for SAP HANA. Where IoT is concerned, this means the ability to get the right products to the right customers smarter and faster. It makes no sense to have connected products if it takes days or weeks to act on real-time information, and by making SAP HANA a core part of SAP S/4HANA, SAP is serious about providing every part of the business with the capability to make decisions on real-time information.

Figure 2 — How SAP solutions address the changing supply chain and the Internet of Things

 

Q: What is the role of connected business networks?

Lynch: In what is quickly becoming an always-connected digital economy, connected business networks are critical. SAP’s commitment to networks is unmatched; the elements of our business network portfolio, including Ariba and Fieldglass, play a significant role in deriving the maximum benefits from having connected products.
 
With Ariba, for example, procurement can be integrated with a connected product’s performance. Going back to the example of selling compressed air as a service, if a sensor detects a part that is faltering or is due to fail soon, it can signal in real time that it’s time to order a replacement part so service is uninterrupted. This triggers the sourcing of the product, via the Ariba Network, to find a supplier that can deliver the part on time and for the best price.
 
Fieldglass offers this same real-time, dynamic comparison for contingent labor, predicated on how a connected product or group of connected products is performing. Perhaps personnel can be shifted from one location to another, or a trained mechanic needs to be at a particular site.
 
SAP is also developing concepts where companies will be able to share certain data about items, such as repair records, to rate or compare vendors, providing opportunities to perform analyses on a larger data set than one’s own company.

SAP’s commitment to networks is unmatched; the elements of our business network portfolio play a significant role in deriving benefits from having connected products.

Q: How does IoT factor into the extended supply chain — manufacturing, research and development, service, and so on?

Ohnemus: We’ve discussed the maturity phases and the enabling technology platform, and that’s a great framework. But when you peel back the layers, there is a lot more to what it means for a business when products become intelligent.
 
From the manufacturing perspective, this is referred to as Industry 4.0, and cars coming off the assembly line today are a perfect example of how things have changed just in the last decade. Ten years ago, a car was a vehicle that moved you from point A to point B. Today, cars have a significant amount of software and generate lots of data. But this data isn’t just for a customer’s interest, it offers tangible benefits. A connected car can offer savings to the consumer in any number of ways, from lower insurance, to real-time route information that improves commutes, to recommended repairs — the list goes on.
 
What does this mean for manufacturers? They must design cars differently, as most innovation today in the automotive industry is, in fact, happening with software. Right from the beginning, manufacturers must incorporate software into design drawings, and this extends to service, upgrades, and other improvements that change more quickly than innovation in a front quarter panel. This is a sea change in the overall manufacturing value chain, and it will become more pronounced over time as physical parts, electronic parts, and software parts all have to work together as a single unit that represents a product at the very end of the chain.
 
These changes also affect the underlying business processes. So, where in the past research and development, manufacturing, and service worked independently, these departments must now work seamlessly together to provide the speed of innovation from idea to market as well as to satisfy customers who are much more empowered than ever before. This concept applies to delivery as well as production in the form of executing against real-time market demand with individualized products.

Q: How is SAP helping organizations benefit from machine-to-machine (M2M) communication?

Lynch: M2M communication is extremely valuable for organizations that are operating many assets and communicating lots of data between them and computer systems, whether in the cloud or on premise back in the office. One issue is that if these systems get bogged down by too much data, processes can slow and productivity can be lost.
 
Advanced stream processing is a technology that exists on the edge of IoT. It’s an engine on an industrial PC or gateway that analyzes the incoming data stream and prevents non-critical data from unnecessarily using dedicated bandwidth. Conversely, it can make instant calculations to tell a machine what to do. For example, if a construction site has two heavy cranes operating in close proximity that are suddenly too close, or their trajectory is offline, advanced stream processing can determine this and change course.
 
This is unique because most IoT companies lack that level of intelligence processing. SAP has this capability in the cloud and on premise. For manufacturing or warehouse management, or — as the construction example illustrates — collision detection, on-premise intelligent stream processing is important because sub-second or millisecond response time is often needed, and stream processing in the cloud has the possibility of being too slow.
 
We’ve spent a lot of time discussing how IoT entails much more than merely connected devices and appliances, and this is another often overlooked component. But it’s part of a broad-base solution that allows companies to move past what it means to connect something. It’s not about what you’re connecting — it’s about the value proposition that this new capability can provide, and SAP has the broadest portfolio to reach that value.

Advanced stream processing analyzes the incoming data stream and prevents non-critical data from unnecessarily using dedicated bandwidth; it can make instant calculations to tell a machine what to do.

Q: What is your response to those who might argue IoT is a passing fad, or that it’s best to adopt a wait-and-see approach?

Ohnemus: This really is a revolution that’s taking place. We’re clear with our customers that they don’t have the luxury of sitting around to wait and see what’s coming. Everyone can see from their own personal devices that the pace of technology change is leaps and bounds faster than it has ever been, and this is not going to slow down or reverse direction. Business models are disrupted very quickly, and the sooner an organization recognizes this and takes the proper steps to be out in front of the oncoming change, the better they’ll be prepared for it.

Customers are letting us know that they see change on the horizon, or that they have ideas about how to enact change in their own industries. We’re excited that the SAP portfolio and extended supply chain model are ready to help them meet that change head on.

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Thomas Ohnemus
Thomas Ohnemus

Vice President of Solution Marketing for Extended Supply Chain and Service Industries
SAP


Michael Lynch
Michael Lynch

Global Co-Lead, Internet of Things
SAP



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