Hanover Pictures of overcrowded container ports, such as those seen in Los Angeles or Shanghai, have not been uncommon since the outbreak of the corona pandemic. Again and again, unforeseeable individual events such as lockdowns or the blockage of the Suez Canal cause companies to lose track of their supply chains. One result is dramatically increased freight rates – and disappointed customers who have to wait months for their delivery.
Providers of software for intelligent supply chain management promise a remedy. Although this cannot be used to rectify faults such as a stuck container ship, it can mitigate the effects.
The end-to-end digital networking of production facilities, inventories and logistics flows is intended to help buyers, plant managers and dispatchers to keep track of: where is which product available when – and which location must be supplied when so that production does not come to a standstill?
Supply chain management (SCM) is a lucrative business for providers who mostly come from the tech sector like SAP or from the industrial sector like Bosch and Siemens: Market researcher Gartner expects spending on software to increase by an average of 2025 after currency adjustments 14.3 percent to $31.8 billion, with cloud services playing an increasingly important role.
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“We expect that because of the war there will be more momentum in the short term – despite the cost pressure,” says Gartner analyst Bettina Tratz-Ryan.
There are several reasons for this boom. On the one hand, the supply chain law and the European directive for sustainability reporting require companies to create transparency about logistics and production.
Risks in the supply chain are increasing
On the other hand, the corona pandemic and the war in Ukraine have ensured that there are more and more “unknown variables”, as analyst Tratz-Ryan puts it: Sometimes suppliers fail, sometimes container ships get stuck, sometimes prices for transport rise . Digital technology promises transparency – and thus predictability.
In the end it was hardly available. In a recent survey by the consulting company Boston Consulting Group, which was published on Tuesday, around 44 percent of the 1,500 production managers surveyed stated that supply chain risks are currently one of the biggest challenges for ongoing operations. More than one in four expects that the planned capacity utilization of their own plants will not be achieved in the next three years.
>> Read also: Risks in the supply chain are increasing
“The biggest problem for companies is the lack of transparency in the supply chain,” says SAP board member Thomas Saueressig, who is responsible for product development. This complicates both long-term planning – for example when ordering parts that are ordered months in advance – as well as short-term production. The manager does not expect the situation to normalize quickly. “The ‘New Normal’ is constant crisis management,” he says.
The Walldorf-based software group wants to support its customers in this. Saueressig uses an example to illustrate the vision that SAP is pursuing with its SCM software: if a container ship is stuck in a traffic jam in front of a port, a company should be able to analyze exactly how this affects production. At which locations are the components planned and for which products? Which customers should therefore expect delays?
SAP is number one worldwide
“Companies can use this knowledge to optimize margins,” says the manager. If individual parts are scarce, management can, for example, give preference to orders with a higher contribution margin – or make an alternative offer to those customers who have to expect delays. This is what is needed right now: “The focus on profitability has increased in these difficult times,” explains Saueressig.
This is a lucrative business for SAP: The demand for various products for logistics and production has recently grown significantly, says Saueressig, without giving specific figures. According to the analysis house Gartner, SAP is number one worldwide for SCM software, and its market share rose to 27.8 percent in 2020.
Depending on the task, the challengers are providers such as Oracle, JDA and Blue Yonder. Companies like Bosch, some of whose software starts at the level of individual machines, are also present. At this year’s Hanover Fair, the industrial group is again showing new services for its Nexeed manufacturing platform, which can be used to improve performance on the production lines themselves, but also to link production data with inventories and logistics services.
With the “Track & Trace” service, which Bosch has had in its portfolio for some time, the platform can use sensors to record the location and condition of individual packages and evaluate them collectively. On this basis, disruptions can be identified early on, allowing dispatchers to optimize their planning.
The industrial group bundles its software for production and logistics under the name “Nexeed”.
(Photo: Bosch)
The Bosch Group has now connected more than 120 company locations to the platform. In addition, Nexeed is used in more than 80 customer projects.
The software also helps to optimize energy consumption: With the help of artificial intelligence, the platform controls the energy requirements of 1000 machines and compiles information from production and logistics, weather data and energy prices – and based on this gives management recommendations for action.
BSH simulates the supply chain with a digital twin
In 2017, the Bosch home appliance subsidiary BSH launched a group-wide program to completely reorganize planning and logistics processes, including the associated IT. The basis is a cloud service from SAP. Today, BSH simulates its own supply chain with a so-called digital twin.
“It’s about the following questions: What happened, why did it happen, what will happen?” says the BSH manager responsible, Michael Huber. The virtual model should provide answers: “You need simulation skills, you have to think in scenarios.”
If, for example, a container with essential components is late, BSH can now identify the problems in real time – and, if necessary, reschedule production, reports Huber. In addition to history, the group also uses external factors for its sales forecasts, such as the development of energy prices or major events such as the World Cup: when beer sales increase, refrigerators are also in demand.
“There is no miracle weapon against the disturbances of the last two years – nobody survived without damage,” emphasizes Huber. “But we’ve been in a much better position as an organization thanks to our work since 2017.”
More: Shared factories and machines on a subscription: This is how companies avoid the efficiency trap.