Adding Value from Machine to Machine

June 15, 2004 by admin

The objectives of the forum, namely of recognizing and improving the efficiency and effectiveness of cross-enterprise processes and developing concrete solutions, were promising: the organizer, the Institute for Business Informatics at the University of St. Gallen, told the 165 participants from German-speaking countries that cost savings of up to 45 percent were possible. This potential should be exploited by controlling processes directly from “machine to machine”, as Klaus Mühleck, CIO at Audi AG, put it. “Our greatest challenge is the mapping of process chains,” stated SAP executive board member Peter Zencke in his presentation. “Purely routine work is eliminated,” according to Zencke, and “Employees only intervene in processes to handle exceptions or resolve conflicts.”
From a technical point of view, Zencke’s perspective leads to a multitude of processes that are integrated and implemented via Enterprise Services Architecture (ESA) on the SAP NetWeaver platform. All people, information, and systems within a business processes are merged in structured form and the solution is created in the form of services to be provided. This is true regardless of whether the people and information involved are internal or external, or whether the systems are from SAP or another vendor. “This means that we integrate people and provide tools that a business administrator can use quickly and easily,” Zencke continued.
The new software generation from SAP separates business logic and user interface. “Because that reduces the costs,” according to Zencke. SAP NetWeaver connects cross-solution standards with processes on a portal that integrates the employee and becomes his or her workplace. The SAP board member outlined four areas that lead to added value within the value chain:

  • Productivity increases as routine work is eliminated and employees can concentrate on the business process.
  • The real time analytic becomes a driver for employee activity, as it continuously tracks the performance of a process on a role basis.
  • Process efficiency increases as the processes can also be controlled on a cross-enterprise basis even in heterogeneous system landscapes.
  • The technology provides the flexibility to modify processes without the need to change or upgrade the solution.

Towards the network organization

Audi CIO Mühleck described one example from everyday life at his company. A designer dials into the car manufacturer’s interaction portal in order to revise the design of a headlamp. The external specialist completes the process step and then enters the order directly in the Audi user department system. “We are very successful with this,” stated the CIO. The group is in the process of changing from a Taylorian organization to a network organization. Mühleck continued, “Let me make a recommendation: take on virtual forms of organization and use value chains. You will be successful, and will convince your employees with successes.” 90 percent of all innovations at the Ingolstadt-based automotive company are achieved with the use of software.
Peter Bauer, executive board member of Infineon Technologies AG, presented another new technological development for the creation of cross-enterprise networks. Like those who came before him, the representative from the semiconductor industry spoke in favor of process control from “machine to machine”. In his opinion, RFID can free up considerable potential in the value chain. Compared to barcodes, the data stored on RFID tags is read without contact and at 10 times the speed. Manual intervention or input is hardly required. This leads to a much higher degree of quality assurance. In international goods trading, a proof of original is also needed at all times. SAP maps the infrastructure for reading the RFID tags in SAP NetWeaver.
Dr. Christine Legner from the Institute for Business Informatics at the University of St. Gallen summarized the current trends in value chain optimization. She reported the increased bundling of services from individual providers. The background to this was explained as the demand for a wider range of performance. Consequently, providers should market their own and others’ goods, and control all processing measures. The merging of products and services right through to leasing is desirable in order to ensure the maximum benefit on the customer side.

Solution approaches from the workshops

At the end of the event, the participants in the workshops presented in turn their approaches to solutions that resulted from their two-day consulting sessions. The purpose of this exchange was to develop scenarios for quick wins. The working group involved with the subject of information management kicked off. The group members evaluated the SAP NetWeaver product as meeting the demand situation. The team arrived at this opinion for two main reasons: the control of cross-enterprise processes for example in project management, and identity management in order to use joint components together. This team saw added value from the new SAP technology through lean process control, flexibility in implementation and application, and the high added value following the creation of networks.
Some of the working groups were meeting again, some were created anew, as in the case of the group from the automotive industry and suppliers. Here, the participants quickly came to an agreement about the potential to be exploited in the value chain. Process costs need to be reduced, the quality of products and services increased, and process times shortened. The participants outlined a plan of steps to achieve this. The first step involved assessing the process for creating a product, in order to subsequently optimize the supply chain.

Removing breaks in media

The “Defense” working group worked with participants from industry and the armed forces on – in their own words – high maintenance effort and low planning reliability and forecasting options. Quick wins were located in IT support. A number of media breaks that result from various stand-alone solutions and interfaces should be removed. The German Armed Forces, for example, is currently in the process of doing just this with a comprehensive SAP solution – with the strategic aim of achieving greater efficiency in the supply chain.
The “repair logistics” working group outlined the challenges in its industry with the key words: increase in customer satisfaction and cost optimization for manufacturers. The service providers for repairs under guarantee want to counter the cost burden with lean solutions along the supply chain and a high degree of connectivity between individual partners. They also considered absorption costing, which takes account of costs for crossing borders, packaging, and employees in addition to the pure repair costs. Consumers should benefit from the high level of connectivity, because they are then able to look at the stage their products have reached in the process.
The participants from the “seamless customer service” working group regarded the basis for future success as the integration of customer requirements and product and service information. This should provide consumers with a higher degree of transparency and quality, as they can quickly and easily call up information and services for their products and signal their requirements. Manufacturers should secure added value through higher customer loyalty and the possible cost reductions achieved from a more transparent demand situation.

Using scale effects

The “sourcing in the financial industry” working group formulated its expected value chain potential in figures. Financial service providers carry out 80 percent of all processes internally. According to the participants, whole segments of the value chain could be outsourced here. However, the customer must still be loyal to the bank. The team regarded the challenges as the standardization of processes and products. However, this hardly exists at the moment. The bankers presented two scenarios for benefiting from future scaling effects. First, large banks could implement scales and standardization and offer these to smaller banks. Second, the fusion of banks would have the same effect. The US market is currently moving in this direction – the concentration of several institutes under the umbrella of a large bank.
The University of St. Gallen itself also wants to organize the value chains for customers, students, and business as efficiently as possible. In order to make deals more easy to understand and compare, the Swiss university is counting on international standards. “We are positioning ourselves globally and at a high level. In our understanding, business informatics means recognizing the potential of technologies for companies and offering support for implementing these technologies, in order to add value. In short, we want to make business engineering accessible,” stated Prof. Dr. Hubert Österle. The university funds itself almost 100 percent from business. In a comparison of the chairs for business informatics in German-speaking countries, St. Gallen is very practically oriented. “We need pure research, but also practitioners. The mix is the decisive factor,” says Österle. He warns of Americanization, which he believes would lead away from practical relevance in research and teaching. The Third Value Chain Forum is planned for next year.

Franz Waizmann

Franz Waizmann

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