Manufacturing industry: “Driving digitization forward despite crises”

International crises, supply bottlenecks and strong competitive pressure on a global scale are putting the German manufacturing industry under increasing pressure to act. In this interview, Nils Tinnermann, Head of Sales Manufacturing Industry at SAP Germany, and José Iglesias, Head of Sales & Business Development at IBsolution, explain how companies are managing their business transformation and creating the conditions for innovative, sustainable and lasting growth.

Leverage the smart potentials in the manufacturing industry

What is meant by the buzzword “Industrial Manufacturing 4.0”?

Nils Tinnermann: The term refers to the alignment of the entire manufacturing industry with the principles of Industry 4.0. Fundamental concepts for the connectivity of people, processes and machines via the Internet of Things have already existed for many years. However, given the volatile framework conditions to which manufacturing companies are subject, it is now time to take the topic further in order to manage aspects such as cost pressure, resilience, and sustainability. SAP’s Industry 4.NOW program aims to achieve connectivity based on real-time data. This forms the basis for individualized products, flexible, automated factories and proactive, performance-based control of plants.

What challenges do companies in the manufacturing industry currently face?

José Iglesias: One of the dominant topics at the moment is certainly the digital transformation in general, or the switch to SAP S/4HANA in particular. It is also a matter of creating a consistent customer experience for companies. Customers expect consistent information – regardless of which channels they use to contact the company. Equally relevant is the transformation of business models toward a stronger service orientation. Instead of selling machines, the focus in the future will be more on renting them out and on usage-based billing. The regulatory framework is provided by legal provisions such as the EU Taxonomy Regulation and the Supply Chain Due Diligence Act. Companies must find ways to cope with the turnaround in energy policy and climate change, as well as ensure greater resilience in times of pandemic or crisis.

What (technological) prerequisites should companies create now to ensure future success?

Nils Tinnermann: To ensure their competitiveness, companies need to act in a flexible, agile and cost-optimized manner. They can do this by not only collecting data end-to-end, but also evaluating it in real time and making informed decisions on this basis. Industry 4.0 enables precisely this data-based approach along the business processes.

Extensive process automation has a positive impact on costs. If processes are controlled end-to-end and have a high level of standardization, technologies such as artificial intelligence can be used to eliminate manual steps and optimize processes. A typical scenario for this is predictive maintenance.

The prerequisite for flexibility and agility is a strong understanding of the processes and interrelationships within the company’s own manufacturing operations, but also across the entire supply chain. Companies can only react flexibly to unforeseen events such as the days-long blockade of the Suez Canal last year if their transport networks are maximally transparent and simulations are run, for example.

How do manufacturing companies best approach their business transformation?

José Iglesias: We recommend a top-down approach at three levels. At the strategic level, the overarching corporate goals are relevant, as is the question of whether there is a digital strategy that can guide the business transformation. It must also be clear where the future value drivers are and which KPIs are to steer the company. Risk management also plays an important role.

The tactical level deals with the envisaged target architecture. Of importance is not only the master data quality available in the company, but also the possible decision for a process-oriented organization. As the term business transformation suggests, the change is to be driven by the business departments. It is therefore important to schedule the relevant experts for the project and, if necessary, to relieve them of day-to-day business. In order to carry the changes into the company and empower the employees, the topics of change management and people enablement are of decisive importance.

The actual implementation of the transformation takes place at the operational level. Depending on the approach, it is advisable to analyze the current processes and define the target processes. The next step is to work through the individual subprojects to ensure rapid success.

What role does sustainability play in this context?

José Iglesias: Current challenges such as the turnaround in energy policy and climate change require a stronger strategic orientation toward sustainability. Added to this are regulatory requirements, such as the EU Taxonomy Regulation or the Supply Chain Due Diligence Act, as well as the Sustainable Development Goals of the United Nations as political objectives. Banks and financial investors are also increasingly demanding convincing sustainability concepts before they approve corresponding funds. Sustainability must therefore become a management issue and find its way into the strategic planning of companies.

Where does the German manufacturing industry stand in international comparison and what are its particular strengths?

Nils Tinnermann: Global production networks mean that the German manufacturing industry has to contend with the same challenges as companies from other countries. Currently, supply bottlenecks for electronic components, high raw material prices and the war in Ukraine are having a particularly negative impact. At the same time, German companies can rely on a strong foundation in the form of a well-trained workforce and effective political regulations. For example, the short-time working allowance has helped the German manufacturing industry get through the Corona crisis well, despite losses.

The pandemic has also made companies aware of the importance of digitization. It is now at the top of the agenda for many companies. Here, after some experimentation in the area of Industry 4.0, among others, it is important to take the next step and achieve scalability. It is also crucial that digitization initiatives continue to be driven forward despite acute crises and challenges and do not come to nothing.