D4M 2023 Year-End Review Part 2

Alan: So, before we move to the next topic, let me just do a quick poll for three topics; gentlemen, on a scale of one to 10 (with one being not important at all and 10 being one of the most important things), how would you rate your client experiences this past year on cloud computing and/or moving to the cloud?

Eric: Well, I can give you a couple of examples. Long and short of it, it’s all over the place!

Eric: First example: we have a client that is automotive company that has some of the largest operations in the United States and is under Asian ownership. They were totally reluctant to go to cloud; period.

Eric: But – this year – they had difficulty maintaining their on-premises infrastructure, which helped them to re-evaluate that stance.

Eric: So, yeah. The reality is that a manufacturing company can be very good at doing manufacturing, but if your focus is on that alone, you are no longer very good at maintain your information technology infrastructure along with any number of technology issues that could come up – whether its security challenges that exist, or the growth capacities that they need to address immediately from one day to another, etc.

Eric: If somebody suddenly says, “Okay, we got a contract for building batteries in tremendous volumes,” and they need to increase the size of production or “buy a different company and merge with another company, and they need to implement certainly very large amounts of applications.”

Eric: That’s my first example based on one of our customers.

Eric: But, again, it’s a mixed bag. One customer we have – very naturally – made the decision to go to cloud for all their IT infrastructure with no effort, another customer completely rejected it saying “I do not want to talk with you about that particular application because that was not ready for cloud.”

Eric: I will say that – whether people want to change or are prepared to change -the interest to adopt is there; in fact, I would say it’s tending to be more between the seven and ten – in terms of interest – to go to cloud. The industry is driven in that direction; even the critical systems for the execution in manufacturing are evaluating strongly to go into the cloud – even though it’s a critical system for execution of the shop floor.

Alan: Interesting! It sounds like it ranges from a one to a 1 to a 10!

Alan: You mentioned critical systems moving to cloud which is another innovation, or certainly a mega trend, that we’ll be discussing in a in another segment; especially, as it relates to shop floor.

Alan: Raj, what about you? What are you seeing from your customers? From a 1 to 10, what is the general cloud adoption rate for all applications that you’re seeing for your customers? What’s your gut feel?

Raj: I would say we are very similar to what Eric was saying. I have seen drastically varying reactions from my customers; some of our customers started out as a 1 and ended the year as a 10.

Raj: But for me, the biggest hurdle for the companies to adopt cloud in their manufacturing process is the education aspect. Generally, clients have always been wary about cloud computing because of security or any number of other reasons.

Raj: But nowadays, as companies educate themselves more and more regarding cloud computing, they are now beginning to show interest and are willing to try it out in one or two applications first before they do the entire infrastructure.

Raj: But, like Eric said, it fluctuates wildly in terms of adoption; there are companies who are very savvy in this and they move their entire infrastructure into cloud; there are companies who are in between who are trying out. But, at the end of the day, I definitely see the trend going in the direction of cloud computing.

Victor: Alan – in my case – it is always a different story in Mexico because we very much depend on the corporate decisions, which, often makes us one step behind the industry trends. In Mexico, we follow the trends of the headquarters; so, then, if the headquarters are moving into cloud, we move into cloud.

Victor: But, the reality is in Mexico cybersecurity has been one of the most pressing topics right now because – even though somebody may want to move to cloud computing – they need to make sure that everything is secure, that every single process can be relied upon to get what they need and nobody else can see what they are doing.

Victor: So, cybersecurity has been a trending topic right now.

Victor: Now obviously, echoing what everyone else has said, we are going to move to cloud – because that’s the decision the industry has made. But, cybersecurity is a top priority. And then, there are some companies that are thinking of cloud in a “hybrid mode” – like, some activity shall be on site and some others can be on the cloud. So, that could be the trend for the next few years.

Victor: But since I said, we are one step behind; so, what I can tell for Mexico, we’re moving into cloud, cybersecurity must come first, and then, like Raj said, making sure that all the skills are there for the people to make sure that this thing is going to work, it’s a must. That’s my experience in Mexico right now.

Chuck: Alan, I would say that – similar to what everyone else said – lots of discussion and interest, low adoption though initially, but it reminds me of ERP/

Alan: And that’s endemic and in the manufacturing market while there’s a lot of advances and manufacturing from a systems adoption perspective, do you agree that it lags a little bit behind other industries?

Chuck: Oh, absolutely. But, the way I would describe it is that cloud is the next big thing, right? I’m reminded of conversations back when ERP was new and exciting; but, regarding integrated solutions, a lot of people are saying, “Oh, I don’t know about that.”

Alan: I don’t show your age, Chuck!

Chuck: “I would never see us moving to an enterprise solution because our custom solutions fit like a glove.” It wasn’t until people got educated on what it would cost due to the lack of integration and the cost of lack of standardization that made people go, “oh my gosh! We have to move on this!”

Chuck: And then, there were people saying they’d never use the Internet. “We’ll never use the Internet to access any applications. It’s not secure, yada, yada,” same thing!

Chuck: I remember it took around 20 years after the creation of the Internet to really start moving applications and accessing applications on the Internet and – to me – cloud is the next big thing that will take time to evolve and have people move, but it’s.

Chuck: It all comes back to education, right? CIO always start off by saying, “oh, I’m concerned about security, because I have my own data center and I have control.” And after a while they realize – through conversation and education – that they aren’t nearly as secure as they think they are and that there are only 1 cyberattack away from total disaster!

Chuck: And so, people are starting to get more comfortable with cloud adoption and just realizing that applications are being commoditized to a degree, right? And so, we’re seeing that evolution occur and it’s just taken longer than a lot of people would have predicted. But, those same people predicted ERP to come quicker, the Internet to come quicker and to me, cloud is no different.

Alan: I was at the Sapphire event when S4HANA was first introduced as the replacement for R/3 and I remember the general buzz then was “never!” [laughs] But, obviously things change and adoption rates lag; although, I’m sure some industries advance quicker than others. But, technological innovations often have us moving in one direction, certainly and, understanding those trends and then how to be in the wave, as opposed to getting crashed against the rocks; I think that’s pretty important. Certainly, this slow adoption rate is something that you guys must deal with day to day.

Alan: So, before we get too far, we’ve been discussing this for a while, but let me shift the focus just a little bit and let’s look ahead to 2024. What emerging trends or developments do you anticipate in the realm of digital transformation for manufacturers?

Alan: What are we going to be talking about next December – when we look back at the year? Are there specific technologies or strategies that you believe are going to gain prominence in the coming year?

Alan: Raj, why don’t you go first here.

Raj: In my opinion, I think the momentum that we have gained in 2023 will not only continue in 2024, but it’s definitely going to increase. Now that the pandemic and supply chain concerns are in the rear view mirror, we can now expect more investments coming in 2024 towards digital transformation.

Raj: Of course, the CIOs, CEOs, etc., have to be careful when evaluating each investment to make sure that every dime that they’re putting towards this, there is a maximum business value towards that.

Raj: The cloud adoption and cloud computing and generally moving towards cloud is going to increase in 2024. And I know Jean-Yves was talking about AI and machine learning. Many companies have now realized that AI is true and machine learning is really adding value to their business.

Raj: So, all the AI and ML based tools – which basically are pretty standard in S4 – those tools are going to be implemented and they’ll start getting the value out of it.

Raj: Another place where I see there’s going to be more investment is in connecting devices; particularly, in the manufacturing space where every machine is going to be connected to every other machine because they are seeing the data being centralized and there is a maximum value they can derive by having a big data with all this AI and ML algorithms, they’re able to derive all the analytics they want to measure the performance of the manufacturing operation.

Raj: In one more point that I think it’s going to be trending is on the supply chain side; particularly many of our SAP customers today are investing more and more in the overall supply chain, which includes the manufacturing and all the inbound and outbound logistics.

Raj: So, from a manufacturing perspective, the digital manufacturing SAP Digital Manufacturing product is gaining momentum. A lot of our customers have been asking us to propose give a proposal to for implementing DM because it has a very strong insights, (which is called DM insights) that is giving a huge value for them. PLUS, all the additional modules like extended warehouse management, transportation management, etc., all of these, I believe, that many companies are going to be implementing them in 2024.

Chuck: To build on what Raj was saying, I think there’s 2 components that are going to emerge. The first of them is clear and we have seen before; the other one, we are hearing from our customers and people might be surprised by it.

Chuck: The 1st thing is, AI and machine learning is driven – or, should I say, is driving – data accumulation and data clarity.

Chuck: What I mean by that is that I think that there is still going to be a wave of warehouse applications occurring, because to me, that’s a logical step. Once you go from the transactional data to organize data at a corporate level into a potential, “data lake” of some sort, right? Where you can really do AI. So, you got to have all that data for machine learning. So, I think people are going to realize that they may be behind the 8-ball in terms of being ready for AI and being ready for machine learning. So, I see a lot of that potentially occurring.

Chuck: The other area that may surprise you is that, we’re big on template and template rollout, which drives standardization, which drives cost effectiveness for an application, etc. Well, we do that well at the enterprise ERP level.

Chuck: But, we’re starting to be asked to look at standardizing in the MES and MOM space. So, that’s an area that does not have a lot of standardization; granted, there’s a lot of activity and growing, and it could use some level of standardization. Otherwise, it’s going to be very costly to try to drive the customer, the plant, and the floor together to be able to communicate and affect each other.

Chuck: So, those are the two things that I have been thinking about and discussing with some of our customers.

Alan: Eric, how about you? What are you seeing?

Eric: I think that 2024 will be a milestone for the manufacturers that have been suffering a supply chain disruption that didn’t allow them to put a full speed in the digital transformation in the last four years either due to COVID, the work interruption of the canal or China a war commercial war with the rest of the world, etc.

Eric: We have some key customers that basically say the decision is, “okay, we are getting control of that supply chain disruption – or at least learn how to handle that.”

Eric: With more and more of our customers saying that, I personally think that in 2024, we will see some very interesting investment in those initiatives for converting their manufacturing operations in a more automated data collection for a more data driven model (instead of the transaction driven one).

Eric: Therefore, they will need to have a manufacturing operations, management systems, and they will need to improve in their advanced planning systems, not to mention, they will need to improve the transactions that comes in and out from the ERP side.

Eric: Then it is huge because whoever has been in the manufacturing, they have seen that those top five that (sometimes is three times per day to get) to find where the material is or where the material goes! It’s very difficult to drive that one without data; not to mention very expensive.

Alan: And, of course, data is expensive! Most manufacturers, I believe, see a 10 time increase in the volume of production data when they add automated data collection capabilities – like with MES. It’s no longer, in most cases, dependent upon manual entry – so, you have sensors that are populating those data fields with the increased frequency and the ability to be able to do it? It’s huge amount of data!

Alan: But, with that huge amount of data, if you have the systems to organize it and to evaluate it – the tools to do that and the AI to learn from it – it represents a huge paradigm shift in the way a lot of manufacturers (heavy manufacturers) currently operate.

Eric: And I want to add to your comment, data is expensive, but it’s more expensive to the operation and the supply chain not to have the data for making the right decisions.

Alan: Yeah, like Chuck was talking about before, you have customers wanting to see, essentially, production data and customers -to his point – seem to be driving that trend and companies are responding.

Alan: I will say that, even though there’s a huge amount of data, there’s also ways to deal with it using cloud, data lakes and certainly leverage AI in that process to really drive a significant value from it.

Eric: Yeah, I predict that in 2024 executives will start is asking the question again and say, “how can I resolve the getting the real time data of Where the customer order data is sitting in front of what is my manufacturing capacity data and then the execution of that and the material of that and all those constraints that exist in the manufacturing operations,”

Eric: I think that it is a good trend to digitalization, as Raj mentioned at the beginning of the call, is becoming mandatory, not only just strategic for the future. Hell, the change is even more mandatory when you have limitation of more constraints in getting material on time, or people on time to operations to make, to build the parts, then you need, we need to be more efficient!

JY: Alan, Eric – just to add to that – the whole transition to S/4Hana is (in that perspective) a huge enabler because obviously getting to S/4 it opens the door to digital manufacturing.

JY: The foundation for BI is even stronger than it was. EWM to name this one as well. That transition, I think, is by itself an accelerator for corporation, because if you take a path where you might want to go best of breed for this, best of breed for that, it’s much, much longer, and you may never get there.

JY: So, I think it all together creates momentum and reasons for corporation to invest into S/4Hana because that will unleash the fully integrated system as well as integrated data. I think that – by itself – is could justify the transition to S4 globally.

Chuck: And, at the end of the day, data is what drives AI; heck, data is what drives machine learning. You don’t have a choice; you have to have that data!

Chuck: The other comment I wanted to make was I attended the digital summit of SAP a few months back, and I like the way they are incorporating AI into their tool set. They’re not coming up with this big, crazy, magical solution that nobody understands.

Chuck: They’re really applying it at a use case level. So, it’s no different than MRP – that looks at orders and looks at inventory and looks at stock levels of materials and tells you what to order – it’s the same thing only on steroids now. This is because you’ve got integrated logistics systems that have loads more data, that are able to look at a lot more data to make better decisions and that’s really what’s happening.

Chuck: So, I saw some pretty cool use cases in one of their war rooms in Newtown square.