Digitizing the Extended Supply Chain Hans Thalbauer Senior Vice President, Extended Supply Chain December 2015 Supply chains are complex as they are – so, why on earth would we want to extend them?

Reimagine $ Business models Business processes Work Let’s start with an example: The consumer industry is heavily investing in 3D printers for production. This does not stop at printing plastic but it also includes printing food. A well known pasta producing company is testing exactly that. Now let’s assume that the 3D printers will not be part of a production line in a plant but distributed in restaurants. The end consumers, like the two women here in this picture, will be able to order their specific pasta, for example gluten free and with cherry taste and the pasta will be directly printed and cooked in the kitchen of this restaurant. Sounds simple, but the business model, the business processes and the work for the pasta producing company will totally change. Here is why: The scientists in the company need to predetermine which combination of flavors and ingredients can and should be allowed for the pasta to still be healthy and tasty. Demand is not determined by a forecast, but by signals that are sent by the printers Replenishment needs to be done on the same day to avoid any stock-out situations Manufacturing is producing semifinished products and ingredients without the need to put it into fancy packaging Distribution is not with a full truck load, which typically would be used in a retail store scenario, but it’s much like a last-mile distribution with small vans driving from restaurant to restaurant The printer needs to be maintained to avoid any technical issues. The printer sends signals to the equipment manufacturer who will be able to predict maintenance and can send service technicians when necessary This example shows quite nicely, that the digital transformation for extended supply chain means: Customer centricity Individualization of products Resource scarcity Sharing economy Let’s take a closer look at these four digital priorities

Customer centricity The introduction of omnichannels has led to increased complexity in supply chains. Typically for every channel, like retail stores, Web, mobile, and social, a separate supply chain needs to be established. Channels like Web, mobile, and social have in common the need to introduce high-speed supply chains with same-day delivery processes. This requires a much more detailed understanding of the demand, and the forecast can not be aggregated anymore. Demand sensing – predicting demand instead of using statistical forecasting methods – is much more accurate. So, customer centricity means omnichannels, demand sensing, and same-day delivery

Individualized products Customer centricity Individualized products And customer centricity goes even further, because I want to order goods specifically designed or customized for me. Personalized solutions and products are everywhere. It’s not just designing my own sneakers. I can also configure my own car, personalize my own drinks in vending machines, and even print my own personalized keychain, phone cover, or chocolate bar. For R&D and engineering, this means to build product platforms and design product variants on this platform. Manufacturing becomes demand driven, and at the most extreme level, it means production with a lot size of 1. In the case of 3D printing or additive layer manufacturing, we can even imagine digitized inventory. So, individualized products means many product variants, lot size 1, and digitized inventory.  

Individualized products Customer centricity Individualized products Sharing economy To meet the business needs, we need to leverage the sharing economy to enable collaboration across departments, companies, products, and assets. Networks, and networks of networks, will be the platform on which successful businesses innovate, collaborate, grow, and continually evolve – at both speed and scale: Consumer and supplier networks – Streamline collaboration and information sharing Manufacturing networks – Work together to improve production and design Asset networks – Optimize asset usage by collaborating on technical data, real-time insights, and predictive maintenance Product stewardship network – Exchange sustainability data efficiently through online communities Logistics networks – Connect with logistics partners to optimize transportation fulfillment needs

Individualized products Customer centricity Individualized products Sharing economy And we need to meet these demands at a time when the shortage of resources around the world, both labor and materials, is a major factor for all businesses and the supply chains that support them. The need for raw materials such as water, minerals, oil, and gas are key components to many supply chains, and the natural resources are becoming increasingly harder and are expensive to obtain as demand exceeds supply. An increasing population places heightened pressure on our finite resources and calls for environmental responsibility. And sustainability is becoming a lens through which businesses are judged by consumers, the workforce, society, and investors. To meet these challenges, companies need to build sustainability into processes and work to ensure that finite resources can be reused and recycled. Resource scarcity

Digital core Resource scarcity Sharing economy SAP S/4HANA Workforce and resources Suppliers and logistics Digital core SAP S/4HANA To summarize, there are four digital priorities companies are using to transform their extended supply chain: Drive customer centric processes and real-time customer and market visibility Deliver individualized products by harnessing real-time insights, new business models, and the Internet of Things Take advantage of the sharing economy to enable collaboration across departments, companies, products, and assets Build a sustainable organization that is cognizant of the scarcity of labor and natural resources Products and assets Customers and markets Individualized products Customer centricity SAP HANA platform

Simplify the increased complexity with SAP Design Operate Plan Produce Deliver Respond Networks Address the digital priorities with best-in- class cloud applications Digital core Simplify and innovate the digital core with S/4HANA across the extended supply chain SAP S/4HANA With SAP solutions, you can simplify, connect, and enable processes along the extended supply chain. Design for sustainable product innovation to win market share while meeting regulatory and quality requirements. Plan with demand-driven business processes that integrate strategic, financial, sales, and operational goals. Respond and orchestrate supply by sensing and capturing real-time demand and supply data and responding profitably in a timely manner. Produce using agile and automated manufacturing processes to help ensure full visibility and transparency of internal and external manufacturing operations. Deliver through integrated logistics and order fulfillment processes to get the right product to the right place at the right time. Operate and manage all assets to lower risk, improve safety and quality, and improve return on assets. SAP can help you digitize your enterprise, and we offer guidance at each stage of the process: strategy alignment, opportunity assessment, road map, value realization, and governance. To find out more, call your local SAP representative. SAP HANA platform