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Why Recovery Is 3 Times More Challenging for Manufacturers: How SAP Can Help Manufacturers Face Their Supply and Demand, Product Lifecycle, and Asset Management Challenges

by Chuck Pharris | SAPinsider

April 1, 2010

Manufacturing lies at the intersection of three axes: supply chain management, product lifecycle management, and asset lifecycle management. As each axis faces its own challenges in the re-emerging economy, manufacturers must deal with all of these challenges combined. Learn how SAP’s perfect plant approach—and its related solutions—can help manufacturers overcome challenges across all three axes.

Consumer and business behavior has undergone a fundamental shift in the last 18 months. Facing rapid declines in customer demand, companies have had to relocate, outsource, or even close down manufacturing locations. They’ve had to rethink and refocus their product lines. And they’ve had to reevaluate their investment plans, staffing levels, and presence in certain markets.

Companies’ first response to this sudden market change was to enact survival measures. In the manufacturing world, this meant an immediate focus on cash and liquidity, a rapid structural and organizational resizing, and a thorough rationalization of the products being manufactured.

Now, markets are stabilizing, consumers are spending again, and positive growth is returning to many economies. So manufacturers have new challenges to contend with:

  • How do we utilize our existing capacity to meet new demand? Rapid changes in demand are driving the need for more visibility and flexibility in manufacturing capacity.
  • Which products or product changes can differentiate us in the market? Companies are aggressively pursuing new competitive differentiators, which tend to increase product complexity.
  • How can we sustain lower production costs? As the recession turns to recovery, companies must continue ensuring efficient manufacturing execution and intelligent asset management.
  • How can we build and manage manufacturing assets in cheaper geographies, yet still access quality materials and skilled resources? Many companies are moving the ir manufacturing facilities to lower-cost locations, but must then deal with the challenges of constructing, maintaining, and operating in areas with less mature physical business infrastructures.
  • How do we ensure consistent quality across all our manufacturing locations? Products must be designed for manufacturability, and variations during the building phase must be fed back into the design phase in a continuous, integrated cycle.

In short, the re-emerging economy challenges manufacturers to deal with major shifts in three of their core competencies.

Fighting a War on 3 Fronts

Manufacturing lies at the intersection of three axes (see Figure 1): supply chain management, product lifecycle management, and asset lifecycle management. And since each area is dealing with its own challenges, manufacturing must deal with the multiplicative impact of all of these challenges while also balancing potential role conflicts.

Figure 1 Manufacturing lies at the crux of three key axes

To help manufacturers handle these challenges and close the gap between the enterprise and the shop floor, SAP introduced its perfect plant approach,1 which guides each axis to focus on planning, visibility, and execution. The goal is to foster closer integration among the axes and improve manufacturing.

Let’s dig into the challenges that each axis faces and uncover how SAP can help companies overcome them.

How Do We Bring Visibility to Supply and Demand?

Companies in the manufacturing industry have reaped the benefits of globalization, finding greater markets for their products, lower cost structures, and more flexibility in their overall business networks. However, the recent recession has exposed potential pitfalls of working on a global scale. Economic specialization has led to a tendency to consolidate manufacturing roles, meaning that certain countries handle the bulk of worldwide manufacturing, even if most of the consumption happens in a different country. It’s this integrated economy that enabled one banking and finance crisis to result in a worldwide plummet of demand for many industries.

The recent global recession has led to liquidated inventories, idled production capacity, and rapid growth in unemployment. Now, as the world’s economies recover, inventory supply chains are filling up again and consumers are opening up their purse strings. The increased demand, of course, requires increased supply. But rather than simply ramping up production rates and building up their materials, equipment, and human resources once again, manufacturers are asking themselves:

  • Can we meet these new production needs with our existing facilities and equipment?
  • Where do we need to shift materials and resources to support this increase in demand?
  • What impact will this have on transportation, tariffs, and lead times?

The key is to improve visibility so that manufacturers know exactly where and how their resources are being utilized in order to identify capacity, provide flexibility, and execute consistently. They must ensure smooth and accurate information flows in the supply chain and on the plant floor.

How SAP Can Help

SAP provides SAP Manufacturing Integration and Intelligence (SAP MII) — which includes manufacturing execution system (MES) and enterprise manufacturing intelligence (EMI) functionality — to help companies manage the supply and demand cycle.

SAP MII is a framework for the rapid delivery of composite applications for manufacturing. Running on a Web server, this product leverages the manufacturer’s existing investments in shop-floor applications and integrates that shop-floor data with enterprise information. As a result, SAP MII provides views of actionable data to streamline information flows and enhance decision support. SAP MII also integrates information and services, coordinates business process logic, and enables Six Sigma quality measures (see Figure 2).

Figure 2 SAP MII provides Six Sigma quality measures

SAP has also developed new composite applications that fit into SAP MII’s integration templates to further deliver value for customers. These new innovations include a family of applications that support batch manufacturing — including applications for order management, work instructions, quality management, and reporting. Another composite application focuses on overall equipment effectiveness (OEE) functionality, providing a framework for collecting OEE data and delivering comprehensive reports to drive continuous improvement of assets.

By providing an abstraction layer between plants’ solutions and systems and SAP ERP, SAP MII also makes each plant “look” the same to SAP ERP, allowing the solutions to integrate more easily. This enables companies to quickly connect new plants to the SAP ERP backbone, allowing a manufacturer to centrally manage master data, work from one version of the truth, and gain up-to-the-minute, accurate data from global supply chain and logistics systems.

We Need to Rejuvenate the Product Life Cycle — Can Manufacturing Keep Up?

Many manufacturers face increased competitive pressures, struggling to differentiate their products in an often-saturated market. With this differentiation comes increased product complexity. Consider the emerging electronic book market. As more and more products hit the shelves, companies are adding more complex enhancements, such as touch screens and wireless access, to maintain a competitive position.

Other issues arise when companies must rapidly re-tailor their offerings to meet a sudden market change. Consider the automotive industry. During the recession, many companies dropped less popular product lines and rapidly re-engineered remaining product lines to gain market share from declining competitors. When dealing with these kinds of product changes, manufacturers must constantly ask themselves:

  • Can we manufacture this product in this location?
  • Are we manufacturing to the current engineering design — and if we’re making changes on the fly, are we properly documenting them?
  • Can our current manufacturing capacity handle a new product?
  • How quickly can we deliver a new product to market?

Another disruptive trend that has grown out of recent market turmoil is a reversal of the innovation direction. Traditionally, mature economies and their requirements have driven the creation and adoption of new products and technologies. Only after these products had proven themselves in the market were attempts made to downscale the cost, features, or support requirements of these products to accommodate the needs of emerging markets.

But now, for many industries — the medical industry, for example — the model has flipped. A company might manufacture medical screening equipment that’s specifically designed for poor economies — it has simpler functionality, lower complexity, and fewer support requirements. Yet these products might also find adoption and market growth in rural medical facilities in more developed countries.

These variables strain manufacturers that have short product cycles and little supply and resource flexibility — and highlight the need to accelerate linkages between product design and manufacturing.

How SAP Can Help

To improve the process of designing products while keeping manufacturers’ strengths and restrictions in mind, SAP Manufacturing Execution (SAP ME) integrates with SAP Product Lifecycle Management (SAP PLM), enabling designers to identify relevant manufacturing locations or use effective planning to identify spare capacity within existing locations (see Figure 3). Since this integration enables manufacturers to track a product through the planning, design, and building phases, manufacturers can efficiently adjust their products and processes to meet quality targets or supplier availability and track and reconcile associated costs of the product design. This also improves insight into true product profitability, helps accurately identify continuous improvement areas, and allows better integration to subcontracted and outsourced manufacturers.

Figure 3 SAP ME contains work instructions pulled from SAP PLM

To combat challenges introduced by paper-based production and manual, error-prone data exchange between SAP ERP and shop-floor systems, SAP provides Execution Steps (XSteps) to help manufacturers effectively implement new products and product changes through consistent execution on the manufacturing floor.

XSteps are modules that describe the execution production process, provide reusable methods and parameters, and allow manufacturers to create event-driven electronic work instruction sheets that operate based on conditional logic. Using these sheets, an operator can document and confirm production steps, ensuring consistency. Manufacturers can also use XSteps to control and monitor data exchanges between SAP ERP and shop-floor systems.

By tightly integrating SAP PLM and SAP ME, and by improving the reliability of manufacturing execution steps, manufacturers will be able to more effectively manage product innovation.

How Do We Get the Most — and Best — Use Out of Our Manufacturing Assets?

The heart of manufacturing is its ability to effectively manage the company’s assets throughout their productive life. Yet many manufacturers find asset management more challenging in a renewed growth environment since new assets are being built in low-cost geographies with less-developed infrastructures and less access to materials and resources. This creates issues in material availability, spare parts inventory, and replenishment. To handle this, manufacturers must have an effective asset management system and good visibility into asset effectiveness. In addition, an aging and retiring work force is leaving behind a newer and younger workforce that still needs to achieve the same performance levels. This requires effective training procedures, easy-to-use processes, and clearly defined manufacturing steps.

In this challenging atmosphere, being able to more flexibly use assets is more important than ever since manufacturers need to maximize their existing production capacity, prioritize schedules to meet fluctuating demands, and coordinate maintenance of highly utilized assets to minimize production impacts. Enabling this flexibility requires reliable material availability and efficient maintenance planning that coordinates with production requirements.

When assessing assets, manufacturers must ask:

  • How can we lower the costs of building and maintaining key assets?
  • Can we ensure effective turnover of asset information throughout its life cycle?
  • Do our assets allow us to run at optimal efficiency?
  • If needed, can we easily ramp up our assets?

All told, new market dynamics have increased the pressure on manufacturers to coordinate the operation and maintenance of their assets within the value chain. Asset information must be effectively managed through the design, construction, and commissioning phases of new assets. Clear visibility into operational risk management KPIs and asset performance are important for safe and reliable operations.

How SAP Can Help

SAP provides a comprehensive solution for managing assets during their entire life cycle. SAP ME tracks what is produced, how much of an asset is used, and the associated performance of that asset or related products. The information gleaned from this assessment, along with built-in OEE reporting, allows manufacturers to effectively schedule maintenance. Also, by integrating data about scheduled and unscheduled downtime back into SAP Advanced Planning and Optimization (SAP APO), manufacturers gain visibility into true production capacity during the planning cycle to help assess true asset capacity (see Figure 4).

Figure 4 The production planning and detailed scheduling capabilities of SAP APO let users see their production capacity

SAP APO also contains innovations for managing subcontracting and outsourced manufacturing, allowing manufacturers to maximize their asset utilization. The solution’s subcontracting core provides a special procurement key, information about subcontracting purchase orders, the ability to issue components, and information about the goods receipt. The solution enables external processing for production planning orders with external operations and triggers for subcontracting requisition.

To improve maintenance, repair, and overhaul capabilities, the solution also provides rotables’ serial numbers and manufacturing parts numbers, enabling the effective coordination of repairs. The subcontractor planning functionality within SAP APO allows manufacturers to map subcontractors as locations on the supply network, provide for infinite planning requirements, and consider supplier capacity.

In addition, SAP’s supply network collaboration (SNC) functionality provides a collaboration tool that connects work orders to subcontracting paid orders between your company and the subcontractors’ systems, and enables message-based communication between the two.


Post-recession manufacturers must prepare for new innovations while remaining agile and streamlined enough to react to further market fluctuations. They must overcome the new challenges of their three core business axes: supply and demand, the product life cycle, and the asset life cycle.

To provide manufacturers with the tools they need, SAP has continually enhanced its perfect plant approach — and its related solutions and offerings — to provide tighter integration of the functionality within these axes, allowing manufacturers to gain visibility across their processes and more easily manage their assets and products. To learn more, visit

Chuck Pharris ( has over 15 years of experience in the manufacturing industries, driving sales and marketing at a large controls systems company, overseeing plant automation and supply chain management, and conducting energy analysis for the US Department of Energy’s research laboratory. He has worked in all areas of plant automation, including process control, energy management, and production management. He has also provided analysis and improvements in all aspects of a major petroleum company’s supply chain.Insert sidebar content here.

1 For more about SAP’s perfect plant approach, see “Implementing Your Perfect Plant Vision: The Business Process Perspective” by Vivek Bapat and Kara Glencross in the April-June 2009 issue of SAPinsider. [back

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