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Build a Connected Factory

How the Internet of Things Enables a Smart Factory Floor

by Veronika Schmid-Lutz and Michael Cressman | SAPinsider, Volume 16, Issue 4

October 9, 2015

The rise of Internet of Things (IoT) and Industry 4.0 puts pressure on manufacturers to produce customized products efficiently and cost effectively, while creating a need to connect manufacturing processes to a system of record. Discover how SAP Manufacturing Execution helps allay this pressure by bridging the gap from the machine on the shop floor to the enterprise.


A product’s value to the consumer traditionally has declined over time as its usefulness waned. In today’s digital economy, however, data has changed the very definition of what gives a product its value. Smartphones and mobile apps have helped create an empowered consumer who has new expectations for greater customization and innovation, and a newfound connection with products and services. No longer static, data now has the power to transform a product into a personal extension of its owner.

With an embedded sensor, a product can collect information that can be used to track and optimize how the product is used. This is commonly referred to as the Internet of Things (IoT), a growing phenomenon in which internet-connected products capture data that tailors the product to a specific consumer. A self-regulating, internet-connected thermostat, for example, uses historical data to learn a consumer’s preferences and optimize its settings and performance accordingly.

This same concept of connecting people and data with technology also provides significant benefits to businesses. In manufacturing, this concept is known as Industry 4.0, and manufacturers are under pressure not only to produce devices with sensors for consumers, but also to change the very way products are made by capitalizing on the same technology. These organizations can become significantly more agile, increase operational efficiency, and deliver personalized products and on-demand delivery — without sacrificing quality or increasing costs.

A Lot Size of One

The power of connected devices and processes allows businesses to better respond to the changing nature of consumer demand. Customers now consider themselves to be a “market of one,” expecting specialized products customized to their needs. Manufacturers can respond by developing a “lot size of one,” which allows them to make customized products efficiently and cost effectively on the manufacturing floor with full automation.

Historically, this has been achieved with a reliance on human intervention, either by resetting numerous machines or adding staff to account for the increase in production that was needed to build varied products. Another option was to open more production lines or plants, with each producing a slightly different product. These options were costly, with neither easily scalable to allow for additional customization.

This has been the key challenge facing manufacturers: How can they mass-produce a configurable product without exorbitant cost increases, while also having to cope with shrinking delivery timelines? Consider, for example, the challenge of configuring a motorcycle to an individual customer’s specifications, with the next one coming down the line requiring different parts. Customer choice is no longer limited to the showroom floor — it now affects the shop floor as well.

Upstream and Downstream Intelligence

To fully capitalize on the benefits afforded by automation, organizations must be able to connect their systems with data that stems from where demand is created. Using manufacturing as an example, only by connecting manufacturing processes to a system of record can the business keep production humming while also optimizing inventory levels, ensuring regulatory compliance and traceability standards, and minimizing operational costs.

SAP Manufacturing Execution is the solution that bridges the gap between the machine and the enterprise. It is an execution layer that provides built-in machine intelligence and then carries this intelligence both upstream and downstream to support a manufacturer’s ability to arrive at a lot size of one.

On the shop floor, SAP Manufacturing Execution communicates with the product or part that is being built through a barcode scan, radio-frequency identification (RFID), or other built-in intelligence. By assigning a serial number to the part or product, SAP Manufacturing Execution recognizes the steps taken in the production line and informs each machine of this “to-build” recipe accordingly.

Throughout this process, SAP Manufacturing Execution can communicate with a back-end system such as SAP ERP to enable real-time updates and to provide a complete build record. This granular level of communication allows for a large number of product configurations without having to reprogram a machine or open a new line or plant, and an instantaneous build record provides complete traceability. This helps mitigate compliance or regulatory issues, and it also supports manufacturers with insights into operational efficiency.

SAP Manufacturing Execution provides built-in machine intelligence and carries it upstream and downstream to support a manufacturer’s ability to arrive at a lot size of one.

A Paperless Factory

When production is not connected to a transactional system of record, companies must undertake a heavy administrative burden by manually tying production processes into resource planning, procurement, scheduling, and other logistics. The execution and release of demand in accordance with shop floor production is a time-consuming yet necessary endeavor.

SAP Manufacturing Execution eases this manual burden because it receives all needed information, including production orders, bills of material (BOMs), routing information, inspection characteristics, and anything else it needs to transact and complete a build record. With this end-to-end closed loop, real-time information about the state of production can help drive efficiencies in warehouse and transportation management processes, as well as continually optimize inventory levels.

SAP Manufacturing Execution offers out-of-the-box integration with a back-end system that configures to the specific needs of discrete manufacturers with complex production processes, including companies in high tech, automotive, aerospace and defense, industrial machinery and components, and healthcare industries. For those extremely unique and differentiating processes that require additional functionality, an extensive application programming interface (API) library gives customers access to a sophisticated software development infrastructure to build solution extensions. And, for those organizations that do not want to be in the business of developing software, SAP offers services to develop, implement, and maintain individualized solutions that make that organization unique.

Learn More

Consumers want more value from the products and services they consume. They expect products to be configured to their exact specifications, innovation cycles to shrink, and superior quality from every purchase. Manufacturers are adjusting to these changing expectations by connecting their products, assets, and data, allowing them to make highly customized, high-quality, and innovative products at a reasonable cost so the consumer’s purchase is easy and delivers exactly what they want.

For more information about SAP Manufacturing Execution, visit

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Veronika Schmid-Lutz
Veronika Schmid-Lutz

Veronika Schmid-Lutz is Chief Product Owner for manufacturing at SAP SE, responsible for manufacturing products of SAP. She joined SAP in 1995 as a developer in manufacturing and has held various roles in solution management and delivery management.

Michael Cressman
Michael Cressman

Michael Cressman is Global Product Owner for SAP Manufacturing Execution at SAP SE. In this role, he is accountable globally for the success, quality, cost management, and delivery of the application while aligning with Chief Product Owner for manufacturing. Michael joined SAP in 2008 as a result of the Visiprise acquisition.

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