Leading in Digital Manufacturing

INTERNAL
William Newman – Strategic Industry Advisory & SAP Point of Contact, Automotive
July 13, 2017
Leading in Digital Manufacturing. Overcoming Challenges
During a Time of Disruption in the Automotive Industry

2INTERNAL© 2017 SAP SE or an SAP affiliate company. All rights reserved. ǀ
Automotive manufacturing moves to mode 2
Mode 0 Mode 1 Mode 2
Manual work
processes
and limited
automation
Automated work
processes, worker and
instructional inputs, and
machine response
Machine learning and feedback
processes, machine inputs,
machine or digital response and
service, and worker monitoring

Enabling a new level of manufacturing complexity
… with the challenges of even
greater connectivity as the
industry moves to transportation
as a service (TaaS).
Building passenger vehicles is
more complex and connected
than ever before …
(do it for me (DIFM) instead
of do it yourself (DIY))
Self-diagnosing
“smart” parts
Vehicle electrification
Connected
component
platforms
Advanced
safety
systems
Partial autonomy or full autonomy
Light weighting or
higher EPA standards
Smart service parts
Vehicle serviceability
(do it for me (DIFM) instead
of do it yourself (DIY))
Aftermarket
(design for service)
Digital vehicle
services

A dual need in manufacturing: Optimization and integration
Source: McKinsey (2016)
“Despite a shift toward shared mobility, [traditional mode 1-built] vehicle unit sales will
continue to grow, but likely at a lower rate of about 2 percent per year.”
Mode 1 Mode 2
Integrate and
scale additive
process
manufacturing
predictive
modeling, and
consistency
of process
and business
operations
Improve
boardroom-to-
plant-floor
visibility and
shop-floor-to-
enterprise
integration
to increase
flexibility
Maintain
tighter quality
controls
across
broader and
more-complex
manufacturing
processes
(material
processes and
connected
platforms)
Create greater
operational
efficiencies
with integrated
planning and
monitoring
controls
Reduce line
downtimes,
lower
inventory and
component
stock-outs,
and improve
the overall
working
capital of
operations
Use
distributed
manufacturing
to map global
demand
and regional
demand
plans,
eliminate build
silos, and
create greater
material
purchasing
economies
Leaders need to optimize and
build flexibility into the current operating model …
… while continuing to advance
systems, processes, control, and integration.

Digitizing Operations improves Finance KPIs
Fewer late shipments and
expedited orders
70% Operational improvement from
increased optimization and
maintenance processes
54%
Lower overall total
manufacturing costs
10%9% Reduction in inventory
carrying costs

The essential traits of effective digital manufacturing leaders
Successful purchasing
leaders understand that
they must acquire the
needed digital capabilities
and realize those that
aren’t yet developed within
their team.
Digital leaders need to move to a
cycle of continuous delivery and
improvement, adopting methods
such as agile development and live
beta, supported by Big Data
analytics, to increase the pace of
innovation. To continually improve,
digital leaders must continue to
experiment.
Effective digital leaders
challenge everything,
including the status quo
and the historical norms
that they have learned.
“I’ve never seen the speed of change as it is today … if I could go back 10 years, I might have done
some things earlier.”
Millard Drexler, J. Crew Group, Inc., commenting after missing what might be the biggest trend of all – how quickly technology would change the retail industry.
Competitors with high-tech, data-driven supply chains can copy styles faster and move them into stores in a matter of weeks.
Acquire
capabilities
Challenge
everything
Be quick
and
data-driven
Be
unreasonably
aspirational
Ring-fence
and cultivate
talent
Follow the
money
Be obsessed
with the
customer

Achieving real-time manufacturing visibility
Machine
layer
Manufacturing
execution
system (MES)
Enterprise resource
planning (ERP):
Product lifecycle
management and
production planning
Supervisory control
and data acquisition
(SCADA) and
human–machine
interface (HMI)
Io-link
Green field Brown field
Internet of
Things (IoT)
Device
Supplier
Digital twin
Asset intelligence network
Data
Data
Gateway
Electronic
data
interchange
(EDI)
Engineering and manufacturing bills of
material (EBOM and MBOM) release accounting
Manufacturer
Operator

The value of real-time manufacturing to leadership
How to achieve perfect order fulfillment
How to keep a factory service promise
How to determine the total cost to serve
How to improve
machine performance
and availability
How to reduce
defect per unit
Head of
Production,
Planning and
Control Head of
Manufacturing
Head of
Maintenance
Head of Quality
Information at the fingertips!

SAP software unlocks real-time manufacturing visibility
Challenges Digital Manufacturing Benefits
Connecting production systems
to core business processes with
comprehensive visibility
1 Operational technology
2 Overall equipment effectiveness
23%
99.5%
15%
30%
Improvement
in OEE2
First-pass
Yield
Increase in
Product
Throughput
Faster Order
Creation
Traceability
Product
Network
Augmented
Reality
Connected
Assets
Smart Data
Streaming
Plant
Connectivity
IT and OT1
Convergence
Rapid
Innovation
Manual
Processes
Extreme
Variability
Quality
RequirementsLot Size One

Visibility coupled with leadership action delivers improved key performance indicators (KPIs)

SAP customer success: Bosch
SAP and Robert Bosch GmbH have partnered to integrate Bosch’s platform and SAP’s back-end
software to connect vehicles, manufacturing tools, and equipment such as forklifts. The aim is to
process large quantities of data for IoT applications in real time.
Database and platform technologies form the fundamental building blocks for new solutions in the IoT. SAP will distribute these new innovations to its customers,
partners, and users by leveraging open standards and architecture with our partners at Bosch.
Unique Value Proposition
Bosch has deep experience
in sensors for manufacturing,
automobiles, and
connectivity. Automotive
leaders can combine these
sensors SAP’s expertise in
IoT applications to generate
new forms of revenue.
Future Goal
Extend the Bosch IoT
platform to support
initiatives in automated
and connected driving.
Optimal
Real-time decisions on the optimal
supply chain path for every parts order
Viable
Automatic quantification of the financial
viability of 3-D printing compared to
traditional procurement or
manufacturing options (tax calculations,
shipping costs, and bills of material)
“In order to make even better use of the major potential that connected industry holds, international companies must
cooperate more closely than before, and they must base that cooperation on open standards.”
Dr. Volkman Denner, CEO of Robert Bosch GmbH
Key Benefits
▪ Bosch IoT services will be
available on SAP Cloud Platform
▪ Multidevice connectivity
▪ Secure and efficient connectivity
for vehicles, manufacturing
machinery, and tools

SAP customer success: National Electric Vehicle Sweden
Sales of electric vehicles are predicted to reach 41 million by 2040 – almost 90 times the levels
seen in 2015. National Electric Vehicle Sweden AB (NEVS) plans to be at the forefront of this new
world of connected mobility.
NEVS integrated its legacy systems with SAP software globally to enable a quick start of production in its existing Swedish plant as well as a new plant in China. With a
robust and unified IT infrastructure for its order-to-delivery chain, NEVS could support car manufacturing and integrated financials and procurement across countries.
NEVS turned to SAP S/4HANA and gained financial and operational visibility and transparency, with integrated systems covering processes from incoming order to
delivery of the car, providing users with greater visibility and control from beginning to end.
Robust
IT platform to support global expansion
Unified
Groupwide business processes
Modern
Order-to-delivery process chain
“Understanding all aspects of the cost of development from end to end is crucial, and SAP S/4HANA offers many
advantages we can capitalize on. After all, being in tune with the marketplace – and adjusting your cost base
accordingly is invaluable.” Conny Janson, Vice President IS/IT, National Electric Vehicle Sweden AB
Key Benefits
▪ Integration of new Chinese plant with full
performance transparency
▪ Transformation into a modern manufacturing
business prepared for growth, machinery, and
tools
▪ Integration of legacy systems to enable quick
start of production in the Swedish plant
Key Success Factors
▪ Blueprinted order-to-delivery chains
across all plants
▪ Leveraged SAP Fiori apps to simplify
approval processes

SAP customer success: United Parcel Service
SAP and United Parcel Service, Inc. (UPS) are working together to connect the manufacturing
floor to the customer door. By implementing 3-D printing additive technology in its distribution
centers, UPS has become one of the largest and economical automotive spare parts makers in
the world.
By integrating extended supply chain solutions from SAP with UPS’s additive industrial manufacturing and logistics network, SAP and UPS plan to enable companies
large and small to access on-demand manufacturing at the touch of button, creating new opportunities to streamline their supply chains and get products to market
more quickly and cost-effectively.
Speed
Increased speed of manufacturing
and logistics
Safe
Higher safety and quality of products
and services for consumers
Open
Environment has open standards and
architecture
Key Benefits
▪ Direct digital manufacturing
and on-demand industrial
network
▪ Right-size inventories and
lower short-run production
costs
▪ Reduced time for new-
product introduction and cost
of innovation
Key Success Factors
▪ Digitalization and simplification of the production-part approval
process through SAP software
▪ Greater number of industrial 3-D print–ready production parts that
can be approved and certified and then ordered through UPS’s on-
demand 3-D printing manufacturing network
▪ Full integration into manufacturing and procurement processes
supported by SAP software
▪ Seamless routing of the order to UPS for production and delivery

Next steps: How to achieve real-time
manufacturing visibility
Where are you today?
What unrealized capabilities
exist?
For each unrealized capability:
▪ What is the value of the capability?
▪ What is the risk of success of achieving the capability?
▪ What is the investment needed to achieve the capability?
▪ Are there internal customers and suppliers of the capability outside
of the manufacturing function?
Outputs:
▪ Capability value, risk, and investment evaluation
▪ Capability maturity road map
▪ Capability detail

Connected
Shop-Floor
Visibility
Manufacturing
Execution
Optimization
Live Assets –
Predictive and
Condition-Based
Maintenance
Predictive
Quality
Management
Production
Order
Optimization
Example: Capability maturity road map and value, risk, and investment
evaluation
Capabilities Description
Connected Shop-Floor Visibility
Improve shop-floor visibility and control along with standard and automatic data
collection from shop-floor systems and creation of consistent reporting across sites to
drive performance improvements, develop standard benchmarks, and improve cycle
time to resolve issues.
Manufacturing Execution
Optimization
Use a manufacturing execution suite centered around the shop floor to connect
enterprise resource planning (ERP) order information to the shop floor in real time to
deliver routing, execution control and enforcement, genealogy tracking, quality control,
and reporting.
Live Assets – Predictive and
Condition-Based Maintenance
Leverage the sensor and condition data of connected assets and capabilities (like
machine learning) to optimize maintenance strategies and identify and prevent
equipment failures before they occur.
Predictive Quality Management
Leverage data, data science, and algorithmic capabilities to identify and head off
quality issues before they occur.
Production Order Optimization
Benchmark the optimal production process and leverage this benchmark to optimize
production runs in real time.

Example: Connected shop-floor visibility
Baseline Reduce manufacturing direct labor cost: Labor cost
includes the cost of labor that is primarily involved with
producing a specific product.
Baseline Value x,xxx (thousands of dollars)
Potential Improvement x,x%–x,x%
Potential Benefit x,xxx–x,xxx (recurring –thousands
of dollars)
Baseline Reduce manufacturing direct material cost:
Material cost includes the cost of material that is
directly used in the production of products.
of dollars)
Baseline Reduce manufacturing overheads cost: Overhead costs
include any other costs incurred in factory
except direct materials and direct labor.
of dollars)
Baseline Reduce scrap value: Cost of parts or materials wasted in
production plus the cost of fixing defective products.
of dollars)
▪ Selected subprocess: Responsive manufacturing – improve operational efficiency
▪ Solution enabler: The SAP S/4HANA Enterprise Management solution provides a
role-based, KPI-driven solution for users over a material requirements planning (MRP)
cockpit based on the SAP Fiori user experience.
▪ Solution enabler: SAP S/4HANA Enterprise Management enables
continuous improvement by designing quality in to products. It supports closed-loop
inspection planning in compliance with industry standards.
▪ Solution enabler: SAP S/4HANA Enterprise Management supports a user-friendly
and quick-search capability to search material numbers for tracking material data to be
used in different processes.
▪ Solution enabler: SAP S/4HANA Enterprise Management prepares, executes, and
monitors quality inspections in areas such as purchasing, production, and sales. It
provides new SAP Fiori apps for recording and tracking inspection results and defects.

Wrap-up
We Covered
▪ Visibility coupled with leadership action
deliver KPI improvements
▪ The approach to investigating the impact
of the capabilities of SAP software on your business
Next Step
▪ Set up a meeting to:
– Provide details on the capability analysis process
– Describe time commitments from your team and our team
– Collaborate on an output delivery timeframe

Leading in Digital Manufacturing

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