Mike Lackey, Global VP of Solution Management for LoB Manufacturing at SAP, joins SAPinsider Studio at the SAP SCM 2016 event to discuss how IoT and digital business is transforming the nature of manufacturing. Natalie Miller, SAPinsider: Hi, I’m Natalie Miller with SAPinsider and we’re at the SCM, CRM, and IoT event in Las Vegas and I’m joined by Mike Lackey who is the Global VP of Solution Management for LoB Manufacturing at SAP. Hi Mike. Thanks so much for joining me today. Mike Lackey, Global VP of Solution Management for LoB Manufacturing, SAP: Hi Natalie. Thanks for having me. Natalie: So I wanted to start today just by telling the viewers a little bit about your role at SAP. Mike: Sure. So I head up solution management for our line of business manufacturing. It means kind of what it says: I focus on the manufacturing solutions in SAP’s portfolio of products that drive value for our manufacturers. I just have to say, I have a terrific job. I get to work with a lot of very innovative customers that are driving direction in our solutions where they want to go in business and my job is to take it back to the company and making sure that our products and solutions that we’re delivering are in line, are helping these customers achieve their business goals. So it’s a pretty interesting job and it’s pretty rewarding when you see SAP actually helping customers, not be competitive today or reach their goals today, but two years, five years, even ten years down the road. Natalie: The big theme this week at the conference is digital transformation. Can you talk a little bit about the changes you’re seeing in the manufacturing industry in terms of internet of things and this transformation? Mike: Sure. It’s a terrific time right now for the industry with this digital transformation. Business networks are making customers accessible in larger volumes than ever before. Manufacturing is a key component of that business strategy for digital transformation and our customers have to start planning for it. Some of the changes we’re seeing include internet of things (especially the industrial internet of things), 3D printing, and big data are some of the most disruptive technology that I’ve ever seen in my 30 years of manufacturing that are allowing companies to rethink the way they do business and rethink their business models. One of the things we’re seeing in manufacturing is this mass production is going away. What we’re seeing is mass customization, the market of one. Nobody wants to compete on price; they want to compete on value. And the way they can add value is to deliver individualized products – what you want, tailored for you, so that you feel ‘I’ve got something that says who I am.’ And even in the industrial space, the lot sizes are becoming very much smaller and companies are having to gear up their manufacturing to support that. One of the other big things is innovation. Every day you turn on the TV or you get some type of Tweet about innovative products and solutions coming out. The thing is, the one that gets there first really creates the market. So from a manufacturing standpoint, getting that innovation into the products and getting that innovation out to the customers is what’s going to create the market leaders. So that’s a big, important thing that’s happening in manufacturing and IoT is allowing our customers to collect more data than ever before and what we’re doing is not just collecting the data but making it actionable data. It’s taking that data and saying ‘what does that mean to my business? What does that mean to my process? What does that mean to my ability to service my customers? What does it mean to my ability to meet my demand?’ So tying all that information together with our SAP HANA Cloud Platform, whether it’s on-premise or in the cloud, we’re able to do that. It’s about actionable data, not just collecting data. So that’s some of the things we’re seeing. New business models: instead of selling you products, sell you products as a service. Competing in the digital world: just think about it – we have the largest business in the world with SAP Ariba and Concur. If you’re a customer of ours, especially of manufacturing and I connect you to that SAP Ariba network, you have access the day you’re connected in to over 1.5 million new customers. What if you get 2-3% within the first 60 days? Can you handle that? Are you prepared for that digital world where there’s not this conversation, this inter-relationship? The value is the data and the content that you present and your ability to deliver to those customers in the digital world. And that’s what our customers – they may not be ready for it today – but that’s what we’re all discussing and planning for. And that’s my job here at SAP to make sure that SAP is in step with these customers and make sure that happens. Natalie: For some of those early adopters and successful companies that have already gone down this road, how are they seeing value and achieving ROI? Mike: Everything has to be with a business goal in mind, right? I have to get that return on investment. Throwing technology into your processes for the sake of throwing technology doesn’t lead to increased productivity; it actually decreases productivity. You have to have a clear business goal in mind and the goal is to solve a business problem. The customers who are early adopters, we have seen them go from six or seven plants to a single production line, making seven different products customized with over 1,500 options for their customers – they’re driving value. They’re seeing their sales go up. They see their profitability go up. They’re seeing their costs decrease because they’re able to deliver value to their customers and they’re becoming customers for a lifetime here. We’re seeing customers that innovate, especially with industrial internet of things. It’s not just looking at one piece of equipment; it’s looking at the 40 pieces of equipment from 12 different vendors that are inside my four walls of my global operations or my plant and saying ‘how do all of these tie together to help me deliver on plan, deliver quality solutions, and control costs?’ So what we’re really seeing is that when you do take advantage of the technology that is out there and tie it into your enterprise systems – we hear a lot of this OT-IT convergence, operations data with enterprise data, when you can tie what’s going on in the shopfloor with your customer data, supplier data, inventory data, material data, your cost data and you tie this all together with your as-built data and your as-designed data, you’re adding a lot of value to your customers and you really understand your business which allows you the ability to transform the way you do business today. So the customers who are early adopters are seeing a lot of the returns, they’re seeing their position in the market grow, and I think that’s the end goal. Natalie: Can you talk a little bit about machine-to-machine capabilities and how companies are using that and then what the next step is beyond that? Mike: Sure. I kind of laugh sometimes because here in manufacturing, we’ve been collecting big data for a long time. I’m not so sure we’ve been able to take advantage of all that big data and what I’m most excited about SAP with our SAP HANA platform we’re making that a reality. But we’ve also been able to connect machines; that’s not the hard part – connecting machines to machines. It’s understanding how a machine tied to another machine, how they interact with one another, and taking the data that you may have 12 machines in a line, what does the data at machine 12 mean to machine 2. But it’s not just connecting the machines; it’s taking the data from the machines and connecting it back up. Connecting it back to your enterprise systems, say ‘what does it mean to my ability to deliver value to my customers? What does it mean to my customer experience? What does it mean to my costing?’ Also taking that data at the machine level and being able to present it out to the customers or to these new business networks – that’s where I’m adding the value. I used to think it was collecting the order and getting it down to manufacturing as soon as possible. I was wrong. It’s capturing the customer’s requirements and getting it to the machines into that layer of automation in a way that it understands, and in a way as soon as possible. That’s how you’re going to deliver on those customers or even exceed those customer’s expectations and that’s where we are at SAP and that’s the way we’re thinking and that’s where we’re really investing to make that a reality. Natalie: Can you elaborate on those investments and what are SAP’s plans to bring new innovations to the solutions to support these next steps? Mike: The big thing for me and all solution owners at SAP is that we’re driving the SAP HANA platform into our solutions. All of our solutions in manufacturing support SAP HANA. We are also working very hard to not only have that on-premise and taking advantage of that platform – and this is an exciting time at SAP that we’ve got a platform that all solutions are developing to – but also being able to take not only our applications but the data we’re collecting and putting it into the cloud. So an on-premise strategy with a cloud strategy gives our customers the flexibility to change the way they do business. And internet of things: making our systems not only talk to sensors because you get a smart sensor and a smart device that turns into a smart product, making sure that we can connect to those smart products, those smart machines, those smart production lines, and collecting that data, making it actionable and turn it back into what our customers are doing. We’re also working with a lot of partners. There’s a lot of things today that you can put at the edge. When we talk about the edge of IoT, the connectivity that can improve performance. We think about cloud performance and we think in seconds. In manufacturing, our customers want us to collect data, analyze it, and take action in 100 milliseconds. So they’re pushing us to exceed their expectations so those are the areas we’re really investing in and taking advantage of all this terrific technology that’s coming out of SAP and working with a lot of the key partners. One of our values at SAP is our partner ecosystem to really drive value to our customers. Natalie: What’s some advice you can share with our listeners for companies who are evaluating their infrastructure and looking at these solutions in terms of digital transformation and IoT? Mike: The first thing you have to do is understand what your business goals are. Like I said, implementing IoT or collecting big data without understanding the end goal is not going to lead to success. It’s a start but it’s not going to lead to success. It’s a start but it’s not going to lead to success. I sit down with a lot of customers and they say ‘tell me what you’re doing IoT?’ and I’ll turn around and ask ‘well, what are your business goals?’ and it’s a quiet moment, that awkward pause between us and the customers, but that is key: understand what you want to achieve. We have a major logistics customer that’s getting into manufacturing with 3D printing. They don’t want to become a manufacturer but they’re trying to protect their logistics business. So they looked at their end goal of growing their logistics business and they start looking at creative ways outside the box. 3D printing is changing the way you manage a supply chain, it’s changing the way you can do manufacturing, and they’re getting into 3D printing farms just to protect their core business. That’s a different business model. They had an end goal and they got creative and innovative and what that means. So best advice I would talk with customers is understand where you want to go: where’s your business today? Where’s your business going to be in two years, five years, and even ten years? And look at what’s happening in the market. This digital transformation is happening and if you don’t get on this train now, you’re going to get left behind. Business networks are growing. I mean, I look at the younger generation – how many sales are going on at Amazon or on the network? You don’t walk into the stores anymore. They’re the buying power of the future and business is that way as well. Taking advantage of these business networks simplifies, gives you more value, and we’re seeing that happen. So companies are thinking today ‘how do I go from that brick and mortar, that blue collar, that number one in the market, brick and mortar, to leaders in this new digital economy?’ Those are the kind of decisions that our customers are talking about and they’re talking with SAP and say ‘how can you help me get there?’ And that’s why we’re talking so much about digital transformation, computing in the cloud, internet of things, that digital world. Natalie: Great, well thanks so much, Mike. I really appreciate your insights today. Mike: Natalie, thank you very much. Natalie: Again, this is Natalie Miller with SAPinsider and we’ve been talking with Mike Lackey of SAP.