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Optimizing Resources Amid Increasing Scarcity

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We’ve reached an inflection point. The world’s resources are growing scarcer and supply and demand curves are colliding. Resources have seldom been more tightly constricted. Nations and their people …

We’ve reached an inflection point. The world’s resources are growing scarcer and supply and demand curves are colliding. Resources have seldom been more tightly constricted. Nations and their people are feeling the tightening grip of constrained water, energy and raw materials. Demands on resources and infrastructure are escalating, as the global middle class rapidly emerges to what will be 5 billion strong in just 15 years. Meanwhile inside organizations across all industries and geographies, the increasing scarcity is having a major impact on supply chains and operations.

Companies face new economic realities where the hard-hitting pressures from the global economic downturn have not eased. The demands have increased and they are coming from all sides. While customers demand immediate and unwavering satisfaction, boards and shareholders call for better oversight at all organizational levels. And the growing complexities and volatility of supply chains make meeting those demands all the more difficult.

In order to respond to these economic challenges, enterprises large and small need to maximize their inputs and optimize their operations. This means continually identifying underused capacities and squeezing every scrap of value from what they already possess. It also requires a supply chain that is better able to predict supply shortages, reduce risk wherever possible and respond to unexpected change.

Organizations must master the art of doing more with less if they hope to survive against today’s global competition and the challenges tomorrow unfolds. Forward-leaning companies will take advantage of the global marketplace, new cultural mindsets, and novel and disruptive technologies, like 3D printing, analytics, cloud computing and machine-to-machine (M2M) connectivity. Businesses must respond quickly and decisively to rising resource constraints. The fact of the matter is enterprise efficiency and resource optimization are no longer nice-to-haves—they’re core competencies.

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  • 1. Conversations on the Future of Business Deep Dive: Optimizing Resources Amid Increasing Scarcity Uncovering Your Hidden Abundance futureofbusiness.sap.com
  • 2. Conversations on the Future of Business Optimizing Resources Challenges By 2050 more than 40% of the world’s population will live under severe water stress. Source: Organisation for Economic Co-operation & Development 2
  • 3. Conversations on the Future of Business The Low-Hanging Fruit Has Fallen We hear about it, but we don’t always see it. We know it’s happening, but we might not yet feel it. The world’s resources are growing scarcer. Supply and demand curves are colliding. And organizations large and small will need to respond—quickly, decisively—if they hope to survive. It’s occurring at the macro level, where nations and their people feel the tightening grip of constrained water, energy, raw materials. A rapidly emerging global middle class will number 5 billion in just 15 years, escalating demands on resources and infrastructure. But it’s also taking place inside organizations, across industries and geographies. There are fewer easy opportunities. Companies face new economic realities, ongoing and increasing globalization, shifts in culture, and disruptive new technologies. Enterprise New Economic Realities Organizations have been hit hard by the global economic downturn. Markets changed overnight. Even as companies recover and move forward, the pressures haven’t eased. Enterprises large and small need to maximize their inputs and optimize their operations. No longer able to thrive on the status quo, they must continually identify underused capacities and squeeze every scrap of value from what they already possess. efficiency and resource optimization are no longer nice-to-haves. Today, they’re core competencies. 3 Don Tapscott, Best-Selling Author and Business Consultant, on Resource Scarcity
  • 4. Conversations on the Future of Business The demands come from all sides. Boards and shareholders insist on better oversight at all organizational levels. Volatile supply chains call for a better ability to predict supply shortages, reduce risk wherever possible, and respond to unexpected change. Customers demand immediate and unwavering satisfaction, never mind the complexities of your supply network. Ongoing Globalization Globalization is neither future trend nor past event. Rather, it’s ongoing and omnipresent. All companies, large and small, compete on a world stage. You need to go head to head with nimble startups and entrenched behemoths—regardless of the limits of your resources or your resourcefulness. Likewise, you must source materials, components, and expertise from wherever in the world you can find them—or your customers demand them. And you need to choreograph these interdependent parts to perfection, bringing together each piece of your operational puzzle at the exact time and place it’s required. Such interconnectedness injects unprecedented risk and uncertainty into your business strategies and outlook. Nearly two-thirds of companies have a risk management program for their supply chain. But almost half say the program isn’t effective. Deloitte, 2012 4
  • 5. Conversations on the Future of Business Cultural Shifts New Technologies It’s not only your business that has changed. New Novel technologies are breaking down beneficial mindsets are emerging that influence how compet- barriers and disrupting previously reliable itors and even customers design, create, source, processes. New capabilities such as 3D printing and deliver products and services. This is exempli- allow startups and even consumers to produce an fied by the “maker” movement, which is disrupting increasingly sophisticated array of products—for big manufacturing with global cottage industries. themselves and for your former customers. Around the world, thousands of unexpected Machine-to-machine (M2M) connectivity automates entrepreneurs are combining traditional skills and empowers competitors with more cost-effec- with new technologies to produce products— tive operations and innovative new capabilities. and muddle markets. Mobility and cloud computing connect your At the same time, nontraditional competitors can arise overnight. Whether it’s an Amazon selling competition and your customer base—while leaving Denis Browne, Head of Imagineering for SAP, on the Future of Manufacturing you scrambling to come up with a response. groceries, a PayPal disintermediating banks, or a Bayer marketing direct to consumers, new rivals can suddenly render your market unrecognizable. “The biggest challenges companies are facing are twofold. One is about volatile markets. The second one is about growing logistics complexity.” Hans Thalbauer, Senior Vice President, Supply Chain Management, SAP 5
  • 6. Conversations on the Future of Business Optimizing Resources Opportunities cloud apps can reduce energy consumption 30 % Businesses running and carbon emissions by 30 percent or more. Source: Accenture 6
  • 7. Conversations on the Future of Business An Embarrassment of Riches While resources have seldom been more tightly constricted, organizations have never had as many weapons in their armories to battle the 21st-century constraints. In fact, in the very challenges that confound processes and magnify risk lie the opportunities that can carry you forward. From more productive strategies to more porous op- Forward-leaning organizations are responding to in which privately owned but underused assets are erational boundaries, from new consumer mindsets the new economic realities with innovative new rented to others precisely when they’re needed, to mind-bending new predictive capabilities, compa- strategies. They’re investing in advanced analytics yielding revenue for the owner, cost savings for the nies have at their fingertips the right thinking and the to predict supply shortages and see when, where, renter, and greater resource efficiency overall. robust technology to optimize resources and results. and how to reduce supply risk. They’re also experi- New Economic Realities menting with collaborative resource consumption, Organizations that master the art of doing more with less will be positioned to compete today and poised to respond as tomorrow unfolds. The moment competitors are hardest squeezed is the time for you to take bold action that will pay long-term dividends. “Supply chains are being transformed in many ways. They won’t be chains in the future. They’ll be networks.” Don Tapscott 7
  • 8. Ongoing Globalization Cultural Shifts Factories no longer need to be constrained by place Global markets mean a world of opportunities. New ways of thinking and operating can is everywhere, where if you want something you Organizations can build globe-spanning networks reinvigorate your company and open new markets. to bring together functions, suppliers, partners, and Smart companies will leverage new attitudes and customers. Business networks unleash unprece- approaches to find competitive advantage. founder of WikiHouse, an open-source project for The maker movement, for example, is leveraging everywhere, then the design team is everyone.” dented insight, innovation, and alignment. Participants can find the tools and information they need. Solve old problems and uncover new insights. Reach new customers and markets. Automate inputs and processes for cost savings and greater agility. or time. “We’re moving to a future where the factory technology such as 3D printing and computer numerical control (CNC) to transform manufacturing paradigms. This disruptive force can allow companies to forge new relationships with Companies can also access global talent, sourcing customers, offering customized, on-demand expertise wherever they can find it and bringing that products or spare parts. knowledge to bear wherever they need it. They can develop their own human capital or connect with it externally. Platforms like Kaggle have allowed companies from Facebook to GE to source expertise on predictive modeling and analytics. Services like don’t necessarily have to buy it. You can download it, adapt it, or print it at home,” says Alastair Parvin, designing and building houses. “If the factory is New Technologies Transformative technologies form the armature of the new model of resource optimization now taking shape. 3D printing, for example, is having a It’s also enabling communities of co-innovation, with established companies, startups, and producer-consumers, or “prosumers,” collaborating to design and build products to meet new demands. YourEncore have helped companies from General massive impact on a broad range of industries. It will give consumers new power to influence design and delivery of the products they want. And it will provide manufacturers with speed, scale, efficiency, and opportunities never before possible. Wiki- Mills to Procter & Gamble bring together virtual teams of experienced professionals to address key operational challenges. “It’s necessary for companies to understand the demand. What is the demand, where is the demand, how can you replenish the customer in order to fulfill the demand.” Hans Thalbauer 8
  • 9. Conversations on the Future of Business House, for instance, offers a library of 3D models for residential buildings that are shared under a creative commons license. Users can download files and actually print parts of a home-construction kit. Home Depot: More Efficiency, More Profits M2M, meanwhile, is allowing organizations to automate processes, lower costs, improve safety and customer service, and reach new markets. There will be 50 billion connected devices by 2020, according to telecom giant Ericsson. Through this Internet of Things, consumers will connect products to the Internet for continual monitoring and control. Industrial firms will deploy low-cost sensors to manage equipment and avoid unsafe conditions. While manufacturers will monitor the entire length of the supply chain for better resource use, greater visibility, lower risk, and improved delivery. Home Depot’s tagline is “More Saving, More Doing.” That’s exactly what the home-improvement giant is achieving in its own operations. With more than 2,000 big-box stores and a busy website pulling in $4.5 billion of income on revenues of $74.75 billion in 2012, the company’s gross margins jumped 35 points in Q3 2013. Threequarters of that gain can be pegged to better supply chain efficiency, says CFO Carol Tomé. 9 Over the past five years, Home Depot has constructed a network of rapid-deployment warehouses, Tomé told the Wall Street Journal. The intent was to more efficiently stock shelves and deliver goods like generators and snow blowers in response to weather events. The approach seems to be working: The facilities process more products per hour, both incoming and outgoing, than past facilities, the company says. For its next act, the company is opening 1-million-square-foot direct-fulfillment hubs to serve its online business. The new centers should lower shipping costs and speed delivery. It’s that kind of optimization of resources that’s spelling success for the DIY leader.
  • 10. Conversations on the Future of Business Finally, in-memory computing, Big Data, and predictive analytics mean you can forecast better and run supply chains leaner and with greater accuracy. The ability to capture all data inputs, from customers to machines to markets, and analyze that data with unprecedented capacity and speed, means you can understand your supply and demand to a degree never before possible. With in-memory computing and sophisticated analytics, you can identify resource constraints before they have a negative impact, foresee new customer demands as they’re still emerging, and communicate new insights throughout your value chain to respond faster and more precisely than the competition. “With the Network Age, we have real-time systems that instantly analyze and evaluate what’s happening and enable us to respond infinitely more quickly. We have mobile computing that takes technology, and power, and information, and the capability of collaboration right up to front-line workers.” Don Tapscott 10
  • 11. Conversations on the Future of Business “On the one hand we have growing scarcities. On the other hand we have growing overcapacities.... We can start to use the overcapacity that exists to reduce our consumption of physical resources.... This is an opportunity to shift the way that we manage resources to a real-time, interactive, and collaborative model.” Don Tapscott 11
  • 12. Conversations on the Future of Business Optimizing Resources Imperatives 6 10 By 2030, out of people will be living in cities. 12 Source: World Health Organization
  • 13. Conversations on the Future of Business The Needle and the Haystack In the past, organizations gained a general view of how resources might influence operations, but without the specificity to respond at the right place and time. Or, they could home in on individual inputs, but they lacked big-picture visibility to recognize how those factors might affect their overall business. Today, organizations must see both the needle and competitive advantage. It will also be the the haystack. The forest and the trees. The detailed differentiator you can present to partners, data points that let them fine-tune processes in customers, and even end consumers. real time, plus the broader sweep of supply and demand to steer their business on the right course. To achieve that goal, companies need to adopt new strategies, learn new lessons, leverage new networks, apply new technologies, and embrace the new change. That new strategic paradigm requires a change in mindset. Companies will need to be increasingly creative in how they optimize resources. For example, rather than treat all intellectual property as proprietary, you might invest in an IP portfolio, part of which you own and protect, and part of which you Make the Strategic Shift share with others. Sound far-fetched? In the face of To achieve success going forward, organizations will GlaxoSmithKline has taken the position that need to recognize the fundamental importance of optimizing resources amid increasing scarcity. Lean operations and flawless supply chains are no longer tactical targets; today, they’re strategic imperatives. Resource optimization will not only bring you fundamental challenges in the life sciences industry, clinical-trial data should be placed in a shared online space, or commons, so that pharmaceutical companies can cooperate on basic research and then compete on drug delivery. Other industries will likely explore similar models. 13 Hans Thalbauer, on Supply-Chain risk.
  • 14. Conversations on the Future of Business Find Your Inspiration Society is increasingly aware of resource limitations. The green movement, for example, has led companies to re-examine their operations and find ways to do more with less, to the benefit of both the community and their own bottom line. Now, new models are emerging for optimizing resource use. Airbnb is an online service that allows individuals to rent unoccupied living space to short-term lodgers. Zipcar is a car-sharing company that enables its 800,000 members to reserve transportation by the hour or the day. Creative organizations will take lessons from these models and apply them to their own operations, whether to improve internal processes or to offer new products or services to customers. Companies now have an opportunity to lead rather than follow in collaborative consumption and other resource-optimizing innovations. “In supply chain management, it used to be very much a push principle. You produce, you push materials and products out to distribution centers, and try to sell what you have out there. [Today] requires a completely different model for how companies run their supply chain. It requires a pull mechanism. It requires that you have a good understanding of the demand. It requires that you have a very good mechanism to respond to demand.” Hans Thalbauer 14
  • 15. Conversations on the Future of Business Leverage New Networks Apply Untapped Technologies Embrace Continual Change The network effect is all about expanding value: A broad range of new technologies enables Resource optimization, like business itself, is the more nodes, the greater the network’s worth. companies to optimize resources like never before. dynamic. What’s necessary, what works, what will But you have to be part of the network to reap its And the truly exciting aspect of these innovations is help carry you into the future never stays the same. rewards. that they’re not just the promise of the future. Neither the scarcities you face nor the solutions for Indeed, they’re already being put into action by hedging against them, neither the demands you see leading organizations around the world. from customers nor the innovations that position Network technologies make it possible to extend and interconnect supply chains and processes. you to meet them, will remain still for long. As network density increases, so do network resil- New robotics and manufacturing technologies ience and value. Best-run businesses are amplify the automation of M2M connections. One As more organizations recognize the value of leveraging mobile and social platforms to connect example is a cost-effective robotic innovation called optimizing their resources, the bar will be raised. people and functions. The payoffs include a redou- Baxter. Capable of a broad range of repetitive tasks, Your competitive advantage today will be table bling of resources, faster innovation, and a greater the device requires no programming and can be up stakes tomorrow. Likewise, new technologies and ability to serve markets. and running in hours or less. networks will spawn new models and markets, M2M and cloud computing in particular will Mobile and social platforms make your people and revolutionize supply chains, resource management, your partners more efficient and connected. They and more through the ability to sense and respond also help link the entire length of the value chain, to customer demand and market changes in real from raw-material producer to end consumer. Smart time. By allowing the monitoring and management companies are finding ways to apply these technolo- of connections among people, devices, and systems, gies to outsmart their competitors and outdeliver on the Internet of Things is making previously hidden their promises to customers. information instantly visible—and creating a new resource in its own right. Finally, in-memory computing, cloud computing, and advanced analytics let you better manage resources and forecast short- and long-term events and conditions. A growing number of companies large and small are taking advantage of these game-changing technologies to instantly analyze, evaluate, and respond—to supply risk, customer demand, and more. 15 altering your operating and competitive landscapes. You’ll need to continually adapt and innovate. The organizations that can do so effectively are rare indeed. But in the face of increasing scarcity, it will be the only way to optimize resources—and to survive and thrive.
  • 16. Conversations on the Future of Business Learn More • Conversations on the Future of Business • Conversations on Optimizing Resources • SAP Center for Business Insight • SAP Business Innovation Blog: Optimizing Resources © 2014 SAP AG or an SAP affiliate company. All rights reserved. No part of this publication may be reproduced or transmitted in any form or for any purpose without the express permission of SAP AG. The information contained herein may be changed without prior notice. Some software products marketed by SAP AG and its distributors contain proprietary software components of other software vendors. National product specifications may vary. These materials are provided by SAP AG and its affiliated companies (“SAP Group”) for informational purposes only, without representation or warranty of any kind, and SAP Group shall not be liable for errors or omissions with respect to the materials. The only warranties for SAP Group products and services are those that are set forth in the express warranty statements accompanying such products and services, if any. Nothing herein should be construed as constituting an additional warranty. SAP and other SAP products and services mentioned herein as well as their respective logos are trademarks or registered trademarks of SAP AG in Germany and other countries. Please see http:/ /www.sap.com/corporate-en/legal/copyright/index.epx#trademark for additional trademark information and notices.