Paradigm Shift in Industry
Dresden, 22 February 2001 --
Industry is facing a paradigm shift. Whereas in the past it was the much praised economies of scale that, thanks to a high degree of automation, dictated a make-to-stock approach -- a forecast driven production for stock -- the current situation calls for production with continuous feedback between manufacturing and the market with a view to demand-driven supply of goods. Such a "make-to-demand" business model depends critically on highly targeted information flows. The requirement signal must be tapped as early as possible and reflect the target group needs as closely as possible, i.e. as close to the end consumer as possible.
Modern IT and global communications ensure that this requirement signal is fed into production planning and is implemented in output. Communication and co-operation between market participants are becoming much more important than they used to be, when the customer or consumer was generally treated as an unknown "black box" or at best, as a statistical model. But as new as the tool may be, the motives have not changed at all: while in the past decades automation and rationalization were looked upon as wonder weapons, today e-business has triggered a new round in the everlasting struggle to further optimize business and take productivity to ever new levels. The Internet has thus become a run-of-the-mill feature of the modern economy. The excitement rises when one looks at the impact and potential development scenarios that arise from the rigorous application of IT and Internet technology to business processes in today's industrial setting.
E-business as the Basis of the Virtual Company
What happens in an industry that has distributed production to a large number of different partners, as is the case in the automobile industry? As recently as the 60s and 70s the depth of production was still very high in this sector, i.e. the components necessary for the finished product were mainly produced by the company itself. At the beginning of the 80s, driven by the continuous cost pressure, the industry began to concentrate on its core competencies. Smaller production units were outsourced to small and medium sized enterprises (SMEs). Today the core competence of a manufacturer lies largely in development, marketing, quality assurance, and final assembly. Most of the other functions are now dealt with by any number of SME subsuppliers. And this trend is set to continue. According to a study entitled "Auto 2000," produced by the German Automobile Association (VDA), over the next few years further value added stages through to development and production of entire subassemblies and components will be shifted toward subsuppliers. This, however, calls for changes across the entire value added chain and process-oriented integration with shared planning and coordination of all business processes, including suppliers and subsuppliers, leading to a networked association or a so-called "virtual company." Logistics will then become the core competence of a virtual company.
To what extent the business processes of various companies along the value added chain can ultimately be harmonized depends on a number of specific factors. The most important of these is the number of partner companies to be connected in the e-business links. As long as the number of external links remains manageable, specific adaptation and parallel running of several B2B connections remain feasible. Once the number of interfaces gets out of hand, however, it makes more sense to bundle them into one of the sector-related electronic marketplaces. The advantage is obvious: only one standardized interface needs to be administered and business processes can be networked automatically with all the other participants in the marketplace. The degree and nature of the electronic business process coupling are, however, dependent on the circumstances and characteristics of production.
Optimization Potential at the Planning & Execution Level
And what is the situation facing SME automobile subsuppliers like now? The degree of automation in manufacturing has continued to increase over the past few years. Here the potential for rationalization has been practically exhausted. The goal now is to use information technology to avoid plant downtime, slack periods, and organizational production interruptions, to shorten retooling periods, to optimize cycle times, to ensure quality, and to minimize start-up and commissioning problems. Cost transparency is thus one of the main criteria. The central management ratios here are, for example, production times, idle times, waiting times, and also output, machine and plant utilization, and production bottlenecks. These have to be processed by the systems at the planning & execution level as quickly, precisely, and flexibly as possible. Of course, they need interfaces that allow them to access all the relevant information, data, and settings of the machines. Many machines now have such interfaces and enter the machine data into databases, thus automating the otherwise very labor-intensive manual data evaluation. But frequently non-standardized application software is used, which sooner or later will have to be adapted to suit the new technologies. When expansion investment is planned, this often entails very expensive implementation and increases the complexity of the system. An answer to this problem lies in standardization and modularization. Optimization must be applied to the entire process. The core element is the central data platform. All the involved systems, such as SAP, the fine-planning desk, PDA (production data acquisition) and MDA (machine data acquisition) components, supply and obtain their data exclusively to and from this central data platform. This opens up simple possibilities for expansion, minimizes interfaces, increases reliability and production dependability, simplifies data backup, maintenance, and archiving, and at the same time reduces the volume of data to be transferred.
The commercial element and the rough production planning are handled at the corporate management level. This is responsible for materials management and commercial functions. The furthering of data is then coordinated by the central data platform. This increases flexibility in changing production schedules, vastly improves resource planning and transparency and increases the ability to analyze raw data. A company is now in a position to increase output by up to 20% without any addition to existing resources (human/material), i.e. only by optimal production planning.
Application Service Providing as the Basis for Standardization
The suppliers' business processes can be found again and again along the process chain. They are the same for all suppliers and can be mapped electronically, provided with sector-specific knowledge and made available via a network to all the suppliers involved. Here the benefits of Application Service Providing (ASP) make their presence felt. The suppliers select only what they really need and save the cost of an IT infrastructure in their own company. Siemens I & S administers entire software applications centrally. The customer pays only for the time and application actually used. It is important not to lose sight of the overall business process when it comes to the IT functions to be provided via ASP. Starting from customer relationships, all the process stages, such as sales, engineering, production, administration, procurement, and the interfaces to subsuppliers must be taken into consideration. Technological knowledge, product requirements, and quality on the one hand, process knowledge relating to production, procurement, and sales on the other hand, are the indispensable requirements for a successfully mapped business process.
"Foundry House" -- a Modular IT Toolbox for SMEs
Let us take a look at the situation in the metal casting industry as an example for the SME subsupplier sector. Foundries are SME operations with 50 to 1,500 employees and have made less use of IT systems and applications than, say, the steel industry. This is largely due to the relatively high costs of running and administering IT systems and the lack of cost-effective, sector-specific and integrated software solutions. A holistic solution in the IT field is for many companies a jump start from 0 to 100. Nevertheless, the ability to deliver material just in time (JIT) is a key evaluation factor for assessing automobile subsuppliers, and demands an end-to-end information flow across all links in the logistics chain and also workflow-controlled business process administration and processing.
The Foundry House now provides such companies with the appropriate knowledge and tools. The IT environment is completely outsourced and is accessed by the foundry via a dedicated line or a Virtual Private Network on the Internet. Operation and user support are handled by the provider. The foundry does not need to hire any IT specialists of its own. In the past, providers restricted their offerings to the provision of the basis systems. The responsibility of the actual application function was still borne by the user. The Foundry House takes the concept of ASP one step further by including the sector-specific functionality in the offering. For the foundry this means that it can either access the sector-specific application in the conventional form with a locally installed IT infrastructure, or use it via the Internet. Both models are determined by the company's view on information security and financial investment.
The Foundry House offers this functionality in the Workplace for a vertically integrated mapping of the foundry business processes with interfaces for horizontal integration to facilitate supply chain management. These interfaces are linked to the marketplace.
Vertical integration includes the combination of the production level (instrumentation and control) with the production management level (manufacturing execution) and the commercial data processing (ERP: Enterprise Resource Planning). The result of this integration is the ability of connected systems to exchange and process data between the levels involved in the planned and executed business processes.
Horizontal integration involves the connection of systems at the same level (such as manufacturing execution systems in two plants of the same company). Horizontal integration in terms of supply chain management goes beyond this and involves the connection of systems across company boundaries (e.g. the ERP systems of two different companies).
In the central IT Workplace the foundry workforce can call up all the functions for procurement, sales, production planning, and logistics as part of its resource planning process. Also available are all the necessary functions from the MES level, such as production planning, production data acquisition, quality assurance, labor management, and maintenance management.
The application software necessary for planning and controlling the production process is located on a central host computer. Similarly, all the data are stored in a central database. This database has security features for the user's information and allows only authorized access. At the foundry, PCs with browser functionality are installed that can access the central computer via a dedicated line or a Virtual Private Network.
In addition, the Foundry House offers foundry companies, their customers, and suppliers a communication, information, and trading platform. The Information Exchange provides news, metal prices, press releases, job market, invitations to tender, training programs, and discussion platforms for non-protected content, addresses and contacts for various aspects of interest in the sector, and also an invitation to get in touch. The information exchange is public and can be accessed without any authorization requirements.
The knowledge database is the foundry company's reference book. It offers technical information for foundry companies, their customers and suppliers. It includes material such as technical standards, engineering and commercial information tailored to foundry requirements, discussion platforms, materials databases, supplier and equipment vendor database, virtual training courses, general and specific work and safety instructions. The knowledge database has selective and graduated access protection. Fee-based information, such as standards publications, is supplied against invoice or paid for using a micro payment procedure.
The Marketplace offers each foundry company the opportunity to promote itself, present its products, and store queries. The processing of transactions with a cross-company information model (supply chain), auctions, salesforce support, after-sales service and much, much more are also possible. The marketplace too has selective and graduated access protection.
Overall, it can be said that the aforementioned challenges of information technology -- realized in the Foundry House -- are not an issue restricted only to foundry companies, but apply to the entire SME sector and especially to the subsupplier industry. Our goal is thus to port this idea to other sectors once the foundry project has been brought to a successful conclusion, so that the entire SME sector can be opened up. We are well aware that this approach creates dependencies, that the provision of seamless availability of the described IT functionality is mission critical for the SME organization. Only a company with the appropriate infrastructure and a widespread service network can meet these requirements. This solution will therefore boost the competitiveness of our SME customers.
