Soccer team in a huddle

Heiko Flohr on Industry 4.0

April 18, 2014 by Andreas Schmitz

The economic potential of Industry 4.0 still cannot be quantified. But one thing is clear: There will be a whole host of new business models, says Heiko Flohr, chief product owner at SAP.

Industry 4.0 has been part of our day-to-day lives for some time already – with cars that show us how fast we should drive so that we don’t have to stop at a red light, machines with sensors that recommend replacing the crankshaft shortly before it breaks, and smartphones that analyze our pulses, calorie consumption, and number of miles while running, and then compare them with our peer group. The challenge is not in finding new solutions, but in driving those that not only are useful but also offer financial incentives. Heiko Flohr, a graduate in industrial engineering, thinks about use cases and puts together new products in his capacity as chief product owner at SAP.

SAP NEWS: Mr. Flohr, machines soon won’t be able function without software. However, has this already happened?
HEIKO FLOHR: Well, we haven’t reached this stage just yet. It’s obvious that the Internet has developed tremendously in 30 years. At the start, universities communicated with each other, then people communicated in social networks. And now machines are beginning to converse with people.

…And the amount of software in machines is currently increasing dramatically!
That’s right. Look at the latest cars. It’s almost as if customers don’t care whether the engine was made by VW, BMW, Mercedes, or Toyota: Increasingly, automobile manufacturers are differentiating themselves from their competitors through the entertainment components and electronics in their vehicles. And for a long time now, car manufacturers have been appearing at entertainment trade shows such as the Consumer Electronics Show (CES) in Las Vegas and not exclusively at automotive exhibitions. Machine tools now look like gaming computers. We estimate that there are around 50 billion machines in the world, and far fewer computers or cars. Machine inflation has only just begun.

50 billion machines, far fewer cars

However, the prerequisite for this is having enough exciting uses for the machines – and that these uses can be turned into hard cash…
There’s currently a trend whereby an increasing number of the machines no longer belong to the customer. At the end of the day, the machines’ services determine their value and business potential. Let’s take a look at the idea of connected cars. You want to go to the theater in town. There aren’t many parking lots. In such cases, it’s good to be able to reserve a parking spot in advance, even if it costs a few dollars or euros. However, to do this, quite a lot of information needs to be coordinated. Where is the car? Is it realistic that you will be able to get to the parking lot in time, considering the amount of traffic currently on the roads? Is the owner of the car creditworthy? All this information needs to be procured and brought together, and then the right decision needs to be taken based on it – at lightening speed. At the port of Hamburg, in northern Germany, truck drivers already know before they enter the port whether the ship that will be transporting their goods is already there, or where they can park or take a break until it’s time to embark. And they can do this without causing any congestion. It appears obvious that the new smart port is serving not only the truck drivers well, but also the entire port logistics. But it it’s not yet obvious who benefits most from the service. Is it the freight forwarder, the port operator, or the administrator of the parking lots? The business model hasn’t yet been fully thought through. And this is the case with many of these new business models.

Various parties now have to work together to launch a joint product. In this case, maybe it’s the service for trucking companies, which – thanks to exact logistics information – enables smoother loading and unloading…
The special thing here is that a number of parties involved benefit from the new technology. It’s a kind of “win-win-win” situation. In principle, this is a nice change compared with the mindset we had previously. However, the “solution provider” mindset hasn’t even sunk in properly yet with the developers of the new solutions. It’s often the case with Industry 4.0 approaches that three important questions are not answered: Who operates the solution? Who pays for it? And what happens if it doesn’t work as it should?

This means that, above all, Industry 4.0 suffers from nobody feeling responsible for the business models?
Industry 4.0 is a recent development and too young to suffer from anything. The technical options are there. Machines and the Internet can be hooked up. Mobile devices can be easily managed and integrated. What’s more, the machines provide a wealth of data. So much data, in fact, that agents are deployed – known as enterprise streaming event processors – to filter out the most important information. Some cars, for example, already have GSM sensors installed. This is because the manufacturers are assuming that, one day, there will be more good business models that could use local information. Of course, with SAP HANA, SAP provides a key in-memory technology that can be deployed optimally in these new business networks, enabling large volumes of data to be filtered rapidly – to the customer’s advantage.

SAP HANA can be deployed optimally in new business networks

People love to compare. We’ll soon have plenty of business cases!
Sports apps use this technology to make precisely this benchmarking possible. By entering my age and gender, for example, I can find out how fit I am compared with my peer group – in other words, compared with all the other people of my age and gender who go out running with this app. Of course, there are also work-related scenarios where such applications are indispensable. For example, geo-fencing can be used to keep employees away from danger zones using electronic devices. With “wired-up” jackets worn by oil platform workers, an alarm goes off immediately if a worker goes overboard, for example.

These applications are highly specialized. What ways are there to systemize the search for business models?
The logic is always the same. Innovations build on each other, and they do this in three stages. First of all, there’s the technology. And for the technology, we need applications. Then, the applications’ services bring added value for the customer.

For the sake of simplicity, let’s take the example of a robotic mower that automatically mows two hectares of lawn to a cutting height of five millimeters (or around 0.2 inches). Using GPS, it could automatically calculate the ideal route, avoid obstacles, and so on… The technology already exists. Applications are implemented. Just the “real” services are still missing…
This is precisely where we start thinking about creating services that will ultimately add value. For example, it might be best to mow the lawn at a certain humidity, or we could calculate recommendations for fertilizing the lawn based on how dry and what color the grass is. In the end, an application is good that reduces costs and increases revenue. However, because we can’t say which business models will be developed for Industry 4.0 in the coming months and years, it’s difficult to calculate Industry 4.0’s economic potential.

Industry 4.0: We need services with added value

In which applications and scenarios can you already see genuine added value today?
I believe predictive maintenance is an entry scenario for Industry 4.0. Here, machines are equipped with sensors that gather data to reliably forecast when components start showing signs of fatigue and need replacing. As a result, machine downtimes can be calculated and minimized precisely.

Smart logistics is also very exciting. The pilot project at the Hamburg port shows what’s possible when congestion is avoided and delivery vehicle movement is optimized in the port area.

Smart manufacturing is another subject that I think has great potential. Motorbike manufacturer Harley Davidson, for example, offers customized bikes as serial products. Various types of these cult bikes have already been planned. In principle, customers can collect their bike six hours after they ordered it, and they’ll be ready to roll. The entire supply chain is highly integrated – from configuration through to the shop floor. Once the order has been placed, the salesperson in the shop and the OEM have a copy of it. No one needs to enter the same order again.

3D printing is definitely interesting, too, as Nike recently demonstrated with trainers. Although whether these trainers are just as well-cushioned and waterproof as conventionally manufactured shoes still remains to be seen. This is just the beginning of a series of fascinating future business models that are still very much a mystery to us today.

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