Manufacturers are constantly having to adjust their plans more quickly, offer more personalized products, and implement new business models. But how does the next-generation software SAP S/4HANA Manufacturing fit into their IT landscapes?
Per-Henrik Addicks, principle enterprise architect on the IT architecture advisory team within SAP Business Transformation Services, has been exploring this question since late 2016.
During past implementations of SAP ERP in the manufacturing sector, those involved had to make rough estimates of what a daily material requirements planning (MRP) run would be able to handle. Then came SAP ERP on SAP HANA, which improved performance in various scenarios — the planning of complex products within a 14-day window, for example. For many companies, however, the signal to move to a modern logistics platform didn’t arrive until October 2016 in the 1610 release of SAP S/4HANA, which was optimized for SAP HANA from the ground up.
The “Convergence Movement”
The innovations pertain not only to the heart of manufacturing, but other layers, as well. SAP moved production planning, which is handled by SAP Advanced Planning and Optimization, back into the core of SAP S/4HANA, while demand planning through SAP Integrated Business Planning was shifted into the cloud. This switch, which Addicks calls a “convergence movement,” eliminated the need for an interface to SAP Advanced Planning and Optimization and meant that master and transaction data no longer had to be loaded back and forth.
Tangible Benefits in Manufacturing
Addicks sees many advantages in this approach:
- Quarterly updates: Since demand planning now takes place in the cloud, companies can profit from the quarterly updates released for SAP Integrated Business Planning. This doesn’t affect any core processes and further enhancements can be implemented on SAP Cloud Platform.
- Real-time analysis: In the past, data had to be extracted and analyzed in SAP Business Warehouse. This is now handled in a single step. Thanks to immediate notifications regarding problems on the production line and the related causes, manufacturing departments can now take swift action in response.
- Lot size one: “In the future, manufacturing will be about making custom-configured goods with the efficiency of repetitive production,” Addicks reports. To make this possible, the system needs to offer transparency and accommodate changes even at the most advanced stages of the process.
- Simulation: What would happen if a planner changed a number of parameters in a given production process? SAP S/4HANA can simulate production scenarios based on precise specifications. In terms of time frames and level of BOM detail, the possibilities are virtually endless. “We used to have to rely on empirical values,” Addicks points out.
New Business Models Making Smaller Service Requests Possible
Many manufacturers have begun supplementing their product sales with services. This business in solutions is helping companies generate small amounts of revenue from a large number of individual instances of use, instead of large amounts from the sale of individual products. Every minor repair order has to be billed, for example, and the period in which a machine is used needs to be tracked in painstaking detail. A front-end transaction platform receives the request at hand, be it a repair order or a purchase of spare parts. Once the information is collected in the back end, a technician is dispatched and the services in question are billed.
“In the past, you’d purchase a machine based on a contract that included a lot of different items,” Addicks explains. “These days, you see smaller individual transactions all the time.”
A High Level of Transparency in Enhancements
If you ask Addicks, not many manufacturing companies are still considering whether to move to SAP S/4HANA Manufacturing, it’s more a question of how. Maintenance for older SAP ERP systems is scheduled to expire in 2025. With this deadline looming, companies are looking to switch to the new platform, but with as little effort as possible. For Addicks, who specializes in translating business processes into IT applications, this is a remarkably poor source of motivation. His focus is on increasing not only the acceptance of transitions like these, but the utility they bring to companies, as well.
“Companies on the cautious side, for example, start by moving one BOM level or one production island from SAP ERP to SAP S/4HANA,” Addicks offers. This enables them to gain some initial experience with the new software and a better understanding of how enhancements will be managed through the cloud going forward. Logic programmed in Java or ABAP is to be developed on SAP Cloud Platform, where the core of the software — SAP S/4HANA — can access it. “This offers companies a great deal of transparency with regard to which and how many custom developments they’ll be able to use,” Addicks says.
The software’s core functions are not going to be changed, after all; additional enhancements will simply be employed as needed through the cloud.
Choosing Between a Fresh Start and a System Conversion
Meanwhile, companies will need to choose their own paths to this new age of manufacturing. This is why Addicks typically starts by conducting a study that can take from a few weeks to several months depending on the desired level of detail.
“The goal is to identify the best possible approach based on the target IT landscape at hand and give the customer specific recommendations on implementing it,” he explains.
The resulting road maps can vary considerably. Some decide to make a clear commitment to standardization and largely limit their efforts to migrating master and transaction data, the transformation approach. Here, making employees believe in the new processes and involving them right from the beginning of the project is crucial with respect to change management. While those who opt for a system conversion, which comes with the option to continue using many tried-and-true enhancements, don’t face this challenge as much, Addicks thinks they miss out on the real utility of SAP S/4HANA Manufacturing.
Of the several hundred SAP S/4HANA projects initiated in the manufacturing industry, nearly half have already gone live. Many other companies, from large, long-standing SAP customers to SMEs that have only just started using its software, are assessing and planning their transitions to and use of this new platform.