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Increasing Resilience, Profitability, and Sustainability in the Industrial Manufacturing Industry – Futurum Tech Podcast The Intelligent Enterprise Industry Series
by Daniel Newman | October 13, 2020

This episode of the Futurum Tech Podcast – Interview Series is the second installment of our newly launched Intelligent Enterprise Industry Series — done in partnership with SAP — where I will be speaking with advisors and executives across ten different industries on how they are focusing on furthering their intelligent enterprise story. I’m excited to welcome Gary Nelson, an executive advisor for the industrial machinery and components industry at SAP.

The Interconnected Industrial Manufacturer

SAP recently partnered with Oxford Economics to conduct a research study to identify how an interconnected mindset impacts organizations including how data has impacted the supply chain and ways organizations are building better workforces. The report includes findings from 3,000 senior executives, including 300 from the industrial manufacturing sector.

My conversation with Gary revolved around the following:

  • How companies that rely heavily on face to face sales are reacting to COVID-19 and preparing for the next potential disruption.
  • The ways customers can use different software systems to connect their entire enterprise.
  • How companies within the IM&C industry are improving collaboration across the supply chain.
  • Collaboration across the organization and with external partners is requiring more data.
  • The importance of integrating data not just internally but externally as well to drive insights and analytics when going to market.

Gary and I explored some of the findings of The Interconnected Industrial Manufacturer report that will have a big impact on the future. We only covered a few aspects of the report in our conversation. If you’re interested in a comprehensive view of the subject download The Oxford Economics report on the Interconnected Industrial Manufacturer here.

Listen to my interview with Gary here:

Disclaimer: The Futurum Tech Podcast is for information and entertainment purposes only. Over the course of this podcast, we may talk about companies that are publicly traded and we may even reference that fact and their equity share price, but please do not take anything that we say as a recommendation about what you should do with your investment dollars. We are not investment advisors and we do not ask that you treat us as such.

Transcript:

Daniel Newman: Welcome to The Futurum Tech Podcast. I’m your host today, Daniel Newman, Principal Analyst and Founding Partner at Futurum Research. Today we have an interview series podcast with SAP’s Gary Nelson, talking about industrial machinery and components in the digital transformation and the intelligent enterprise that is being built in that particular industry.

I’m really excited about this podcast today. It’s part of a series, so if you’ve been following The Futurum Tech Podcast and the Interview Series, we’re going to have 10 of these. If you like what you hear today, I’m just going to preemptively tell you to check it out. We’ve got podcasts on automotive, high tech, chemicals, professional services, all kinds of different industries, so if you’re in the middle of transforming your business, if you’re investing in hardware, software, analytics, AI, and tools, these podcasts are really interesting in terms of the application of tech for these industries, getting pretty specific, in helping you understand how technology can help drive your business forward.

All right though, without any further ado, I’d love to introduce our guest for today’s podcast, Gary Nelson. Gary, welcome to The Futurum Tech Podcast Interview Series. How are you doing today?

Gary Nelson: I’m doing great, Daniel. Thanks for having me.

Daniel Newman: Yeah, I’m always excited, we’ve done dozens if not more podcasts over the year, in partnership with SAP. I have always really admired the company’s focus on vertical we’re seeing across tech these days, whether it’s cloud providers, analytics providers, hardware, more and more lean on doing vertically based solutions, as industries that are trying to transform are looking for that relevant experience. SAP has a wealth of that experience in many industries. Yours, industrial machinery and components, is pretty specific, so I’m going to hit you up, because I did one recently with Tom Madonna, for instance, on automotive. We were able to talk about Tesla and Ford Motors, and different vehicles. I think the world gets that. What you’re doing is a little more specific, little more obscure, but very interesting. I want to make sure that everybody gives it a chance and spends some time with us here today.

First and foremost, introduce yourself. Tell us what it is you do at SAP that I haven’t already shared, and talk a little bit about IM&C, the acronym for the Industrial, Machinery and Components business.

Gary Nelson: Thanks Daniel. Well again, so I am Gary Nelson. I’m based out of our Chicago office. I’ve been in Chicago most of my life. Couple of years in Pennsylvania but primarily a South Side Chicagoan. With SAP for 19 years, in the ERP software industry since June 11th of 1984, so quite a long stretch of time. When I started with SAP, I was a solution engineer, a demo guy if you will. I demoed the product. In the last 12 or 13 years, I’ve been an industry executive advisor. I cover all of North America, and I spend 100% of my time with our, what we classify as industrial machinery and component customers. That would be high level classified as complex, discreet manufacturers.

If I were to explain a little bit to you, Daniel, I’ll give you some examples so that you can frame it, because these are not household names, but they make the machines that make the products that are household names. How does that sound?

You would have companies like Krones, K-R-O-N-E-S, in Germany that makes some of the world’s most sophisticated bottling equipment. If you’re sitting there drinking a bottle of Coke or Pepsi, or something, it might have been filled by Krones, but you wouldn’t know who Krones was.

Some of the robotics companies that are out there making cars and 77 ton presses that may bend metal for things that you buy, so this is not mouthwash. This is the machine that makes mouthwash. This isn’t toothpaste, if this stuff falls on you it will kill you.

Now, some of the ones that you might know, or you should know, like Caterpillar would also fall into that frame, so think about the big, heavy equipment, the agriculture equipment, rail cars and so on.

Daniel Newman: Very cool. Actually, I, first of all, was trying to figure out why I liked you from the beginning, but I’m also a Chicago native. I live in the west suburbs out here in Naperville. Been here my entire life, with the exception of a few years away at college, so naturally that’s a Midwestern thing.

Gary Nelson: Well I got to ask you then, because I don’t know if I like you yet. Cubs or Sox?

Daniel Newman: I’m a White Sox fan.

Gary Nelson: Oh my God, you’re my brother. Okay, very good.

Daniel Newman: Well, my father was a south-sider, and I always tell people, “It’s a birth right.” I never chose the White Sox, but I was just told from the time I was young.

Gary Nelson: That’s right.

Daniel Newman: This year’s good. It’s good fun. I haven’t followed baseball as closely in the last decade as I did when I was little, typical little boy. Social media’s distracted me, but it’s been fun, especially with all the lock downs, getting back to sports. I’m watching more sports than I’ve ever watched, because there’s nothing to do. We could have a whole conversation on that. We’ll come back, do that offline, Gary.

Gary Nelson: Yeah, we’ll table that one, but go Sox.

Daniel Newman: Another thing, just listening to you talk, I’ve been through some of these manufacturing facilities. You mentioned … I’m drinking a bottle of soda, or whatever, and it is pretty darn impressive. I’ve been to a few breweries, big breweries in the Milwaukee area, for instance, that I’ve gone through. Been through some significant manufacturing facilities that build automotive vehicles, and those machines are pretty darn impressive.

A lot of what we’re hearing about these days, by the way, are related to automation, robotics, AI. We think about robots, those are the actual robots that have entered our world. There’s, of course, the software robots, which you guys to as well, but when we’re talking about … It’s the one that puts the door on the frame of the vehicle seamlessly, or the one that, as you said, puts the cap on the ketchup tube, and then seals it off, and is able to hundreds or thousands of these an hour, and is able to do this at a rate that humans couldn’t possibly do. These are the robots that our world is experiencing. It sounds like you’re intimately involved in working with companies that are facilitating these technologies.

Gary Nelson: Yes, robots fall under my purview, so anybody from Kuka to Amron, to Yaskow. I don’t want to leave anybody out, because they’re all my customers, but just to give you an example of how widespread this has become, Daniel. In Central Illinois, the automotive guys are familiar with a company called, Rivian. Rivian is going to be making electric delivery trucks for Amazon. There’s a big buzz about it. They took over an automotive plant that had closed down in Normal, Illinois. It might have been Bloomington, anyway they’re next to each other, but the thing is there’s 500 robots in it, 400 employees.

It’s really important if you’re going to be competing with the world labor markets, with some of the efficiencies that need to be had, let the robots in. You might be familiar with something called a cobot, which is a collaborative robot, where the human works with the robot to get the job done, maybe the heavy lifting is done by the robot and motor skill work is done with the human, so it’s pervasive.

Daniel Newman: Yeah, my most recent book was called, Human Machine, and we focused a lot about the augmentation that robotics is going to play, whether that’s AI or automation, or full robotics. I always love watching some of the viral videos of Boston Dynamics, where they show some of their robotic technology that they’re building. Yes, robots are becoming more human over time, but we’ve got a long way to go. There is a great human, machine partnership in terms of leveraging the soft skills and the intelligence of people, and the emotional intelligence with the speed and power, and intelligence and automation that can be done by a machine.

Let’s dig in a little bit. I’ve just got a couple questions for you on the industry. They’re going to be pretty specific.

Gary Nelson: All right.

Daniel Newman: Some things that came to mind for me. First of all, in your business, I’d love to understand how companies are able to configure, order, engineer to order, B2B, in a B2B environment, so in a … Let me rephrase that. In a configured order, an engineered order, B2B environment that heavily relies on face to face sales, how are they preparing for the disruption right now, because a lot of the companies you work with, they are, they’re very traditional. They’re old school businesses. They’ve got to be experiencing a shift right underneath their feet. By the way, COVID had to have a really big impact in the way they’re engaging with customers.

Gary Nelson: Yeah, COVID brought to light a few of the weaknesses. Some companies were better prepared than others in the topics you just mentioned, but most of the companies I deal with now are looking hard at it. The Oxford Economics Report verifies that, so I was glad to read that the things that I heard from my customers were validated by 3,000 survey respondents. I think they said about 11% of them were ready to collaborate with all the different business processes.

The issue is we are in fact B2B. We’re business to business, so you don’t get online and go and buy a, I don’t know, a press, a steel press. Order it, comes to your house. They’re dealing with other businesses in the channels, based on face to face time. Most of these companies don’t compete on cost. They compete on features and customer intimacy. If you’re going to go spend a half a million dollars on a piece of equipment, you want it to run. You’re worried about overall equipment effectiveness. You want it to have the latest, greatest features to be able to produce the complex parts you’re producing and so on.

It’s a very heavy face to face. The COVID really brought to light that this is a problem, so you see a lot of companies now are working on a sales customer type platform, where they can do something like CPQ, configure price and quote, a little more automated fashion. Customers can go on, pick features, pick options. When they’re done, everything is validated and passed to manufacturing.

They’re looking at doing things like service parts, or retro fitting machines on a virtual world, with 3D visualization, versus having a sales rep show up. That requires collaboration across all of the different business units. SAP talks about a macro process, and I mean super macro process called, Design to Operate. You could think of it more as design to service, depending on your business model, but that means that the engineers have to design a product, which basically is the beginning of the digital twin, or the digital thread, if you prefer that term. They handover to planning, where they plan for the parts they need to make. Hand it to manufacturing, all the way down to where they put the machine together, test it, it runs. Break it down, send it to the customer, commission it, run it for years and years and years, and eventually decommission it.

Having a single, common, digital thread through the entire life of that product is critical, and more and more companies are concerned about this because of that. It might not be all the face to face interactions, but they want to be able to look at the digital twin, see where the machine is, know what version of the software its running, etc.

Daniel Newman: Yeah, it’s really interesting, and I know there’s an Oxford Economic Study that SAP commissioned.

Gary Nelson: Yep.

Daniel Newman: I’m going to share more about this, and I think you probably have a few data points in your presentation, as I was reading through some of the notes that you had ahead of the show, and it said something along the lines of like, about 18% of companies across the board right now fully understand that all connected supply chain right, marketing, sales, service, supply, procurement, and then in the industry you’re in, or the manufacturing, industrial machinery components, it’s about half that, or 11%. I thought that was an interesting data point. It brought two things to light for me.

One is that the overall business world is still slow in terms of fully transforming. It’s like we hear about public cloud proliferation, but only about 20% of workloads are there. It sounds to me it’s similar here. Companies talk a lot about eliminating silos and creating information that flows through the organization seamlessly, but there’s still a long way to go. I’m guessing that’s probably what you spend a lot of your time working with these IM&C companies on is how do you use all the different software technology systems to really connect all these things.

Gary Nelson: Exactly, and Daniel it’s coincidentally, I was on a call before I joined you here today, with a customer who was talking about how when they started a million years ago, back when I started in this, it was MRP2. It became, it was a single plant solution, it became an enterprise solution, and became ERP, and grew and matured under those principals. However, today’s economy is a networked economy, so you need to collaborate with your suppliers. It’s not necessarily sending a purchase order, or even an EBI message. You’ve got to do some collaboration.

Collaborating with the customers. Collaborating with your employees, whether they be a contingent workforce, or whether they be internal employees, so there’s a lot of things that now have to have an outside of “the four walls of the enterprise,” and customers are working very hard to tie all that together.

It is interesting, the adoption rate to the fully integrated area are relatively low but the customers all see the value in it, so they’re moving hard in that direction.

I will say this about the industrial machinery and about my customers, you asked me to explain who I deal with in the beginning of this. A lot of people would think of industrial machinery as an old smokestack, rust belt stuff that’s going on, that they’re lagers with technology. There’s nothing further from the truth. They just don’t spend money on the shiny new toys.

Some of the companies that have led the world, an internet of things have led the world in telemetrics and so on, they’re industrial machinery companies. Mining companies have been putting sensors on that equipment for 20 years. We think we invented it, when we came up with some of the stuff 8, 10 years ago. We didn’t, the industrial companies have been doing it for a long time.

Daniel Newman: Yeah, and so with all this in mind, let me just jump forward a little bit here, because you are, as I said, working side by side with these companies, so what are the steps? I think this answer, actually for our audience, is twofold. For IM&C and manufacturing companies, it fits right in your wheelhouse. This really, like I said, according to the data it seems to be almost every company could benefit from this question. For IM&C and companies in general, what are the steps they’re taking to really build this resiliency across functions?

Gary Nelson: It’s usually in a couple of different flights. It’s not always global understanding across the enterprise. I’m going to talk about the two most important ones, or the most common ones I see. Again, I believe that this Oxford Economics Report supports that, based on the percentages I saw, and that is supply chain planning has become, has come to the forefront. People have been doing supply chain planning for a long time. There’s been suites of tools to do it for a long time, but those tools are sometimes, in this case, outdated for what has to happen, so we need to deal with the networked economy.

For example, let’s go back to the pandemic. In some cases, I think industrial machinery might have been a little better prepared for this than some other industries because they were already dealing with the China, the tariffs and the trade wars and things like that, so a lot of them were, the sources for some of their materials were all of a sudden disrupted by the trade wars, so they started looking for alternate supplies.

If we take that to the pandemic stage, consider that is exactly what happened. The supply chains were completely disrupted, and folks had to find alternate sources. To be able to do that in a model, very rapidly and create multiple simulations, using very sophisticated, mixed integer, linear programming, or auristics and algorithms, very, very important. It’s not as simple as exploding a bill of material or a bill of distribution in the old DRP days, so that’s one of the places that people are looking to, getting a better understanding of the supply chain, the risks involved, and alternative measures that can be taken should something like this occur. It’s just a matter of when the next disruption comes. It’s not a matter of if.

Then you’ll also see, as I mentioned earlier, how do we get a little bit of a better handle on our collaboration with our customers in a scenario where maybe we can’t get to see them as much as we want, or where we can do it much more cost effectively, yet still get the customer what they want. Still meet the needs, keep them happy, delight the customer, all those great things, but it doesn’t necessarily have to be always a face to face meeting.

I see the sales, customer centricity and segment on one sales platform, as well as the overall supply chain intelligence and simulations being the two biggest places that the customers are looking at.

That said, we still have smart products. We have industrial internet of Industry 4.0. We have a lot of other things that are going on that companies are working on. I’m just saying a little bit more from the pandemic. Those are the two things that exacerbated, I think for most companies is the customer interaction and the supply chain.

Daniel Newman: Yeah, I’m seeing so much right now too, investment in schema and creating data that can flow across systems more seamlessly. There’re different vernaculars used. In the case of customers, you’re hearing more about CDPs, but you’re also just hearing about common data, models that can be used for, like I said, for creating this consistent schema across apps.

Gary Nelson: Sure.

Daniel Newman: I think that’s where a lot of energy is going, because that way when you create that commonality across the data, all the systems that you’re deploying can leverage and benefit, and see, and use the same data. I think that’s going to be the key. The thing about that is, and I want to be really clear, is it’s much easier said than done. That’s where the industry, and companies like yours, Gary, at SAP are so critical. It’s companies like yourselves, companies like the integrators that you work with, that can really go in and help.

Again, just because you have the data, and you’ve created consistent schema, companies have so much technical debt and so many different systems, and upgrading is a process. It doesn’t happen overnight, but that’s the opportunity. That’s the opportunity is to take all those systems and make them work cohesively, because you have data, a repository, a warehouse, a system, an enrichment. You have AI. You have all these things happening concurrently that’s making it really useful for everyone in an organization.

By the way, and to my last question Gary, and I’ll let you address what I just said hopefully in this question, because I’m sure you’ve got some thoughts, but it’s not just within the four walls of your own company. All the things I just mentioned, part of the reason this becomes so important is because systems have to work and feed information outbound. You have a supply chain, customers. You have partners, you have warehousing, you have suppliers up the stack, down the stack. You have horizontal.

Gary Nelson: Contract manufacturers, yeah all kinds.

Daniel Newman: So many though, and I’m just saying so many systems were built, and this reminds me of collaboration like, “Yeah, that leading technology worked great if everybody was from the company, but as you bring people from six, seven companies concurrently on different computers, platforms, web browsers, it took a lot to make it work.” Similar here with business software.

Gary Nelson: Absolutely, and matter of fact, just to add a couple of comments, I think that if I were to look at the last several implementations of companies that have replaced their aging Legacy systems with the Intelligent Enterprise from SAP, I would say that half of the time is getting the data right. I know that sounds a little bit crazy, but anybody who’s dealt with it would not argue with that fact. Right when you think you got everything right, and you got it all clean and everybody’s on one system, and life is great, then mergers and acquisitions happen. It’s never a stable environment, so Daniel yes, if we could come to some way of having a standard language to go across these things, it sure would be great, but I expect to retired or dead before either of those two things happen.

Daniel Newman: What’s the joke, breaking technology since forever? It breaks culture, it breaks technology. It’s a great way to grow. It can be extremely positive and powerful, but at the same time there’s so many components, jokes aside, to making a merger and an acquisition win. Collaboration is important, and there is some really interesting data, by the way, in that Oxford Economic Study that actually digs into the different industries and the ability to fully implement collaborative technologies. I think in your industry it was about a 5th of companies.

Gary Nelson: Yeah that’s right.

Daniel Newman: I think globally, you’re actually a little bit ahead in this area.

Gary Nelson: Yeah.

Daniel Newman: About 13%. Cross data sharing also doing just a little better, 16%, but there’s just a long way to go. I hear all these numbers, 20%, 10%, 13%, and I just think 80 plus percent of businesses have a long way to go.

Gary Nelson: Yeah, and I think you’ll find if you dig into that a little bit, they all recognize the importance of it, and 32% of them described it as somehow extremely difficult to do. I don’t know what extremely difficult is but yeah, it’s a strategic plan for a company to get to what SAP refers to as the Intelligent Enterprise, and the Intelligent Enterprise means outside the enterprise, collaborating with a number of external partners. It doesn’t happen overnight, but it also can happen in how do you eat the elephant. It can happen, and what we like to try to do is identify where the money is. Let’s get the first one done. It pays for the second, so we have a value engineering team that helps identify where the low hanging fruit is, and then hopefully it becomes self-funding.

Daniel Newman: I think you make a great point. It’s a nice way to wrap this all up, is that the elephant that is digital transformation, that is moving towards what SAP likes to call the Intelligent Enterprise, is gradual. You can intensify it. You can accelerate it, and as processes and culture are refined, you can move faster, but the idea that you’re just going to flip a switch, that you’re going to buy one piece of software, or that you’re going to implement one new set of hardware, and you’re going to transform is probably the first thing that business leaders need to remove from their mind, is that it is even remotely that simple. I think most get it.

Gary Nelson: Yeah, they get it.

Daniel Newman: I think the endowments, as they’re making investments they’re like “We’re transforming.” Well again, it’s a process and you have to be patient. There’s going to be two steps back, three steps forward. Sometimes you’re going to make a bunch of steps forward, and then you’re going to come and run. It’s like putting a puzzle together. You’re going to run into the wall and you’re going to have to go backwards a step in order to get back on track. You know what? It’s interesting. It’s exciting and it’s an opportunity for companies in your industry and every other industry to really differentiate themselves.

Gary, I want to say thank you here, for spending some time with me on The Futurum Tech Podcast Interview Series. Any last thoughts? I’ll give you the mic, the 30 second, last thoughts mic before I take us home.

Gary Nelson: Well first of all, I enjoyed this conversation, and I would tell anybody out there, if they want to continue this one on one, to just let me know. I do this all the time, and get more specific than we can here. The end of this, I would say that we just scratched the surface on some of these things, Daniel, and you know that, but this Oxford Economics Report that we talked about, I thought was extremely insightful and very, very useful to get your head around it.

Like I said, I’ve had conversations with customers for a long time, and I had a pretty good idea where these trends were, but it was empirical. I didn’t have any hard stats on some of this, so I would encourage anybody out there to get a copy of this Oxford Economics Report and take a look at it. It’s not super heavy reading, but it’s super enlightening.

Daniel Newman: Well I tell you what, I’ll do a little quick call to action for you, so for everybody out there that enjoyed this conversation, first of all, like I said, there’s going to be more of these podcasts with the SAP industry executives. We’re really excited to breakdown the digital transformation that’s going on across so many of these different businesses and these different industries, and to learn about how it’s unique and how it’s similar. Like I said, there’s going to be more than 10 of them.

This Oxford study, I’m going to throw in the show notes. I’ll put a link to it, so go ahead and click on that link, download the report. It’s full of really interesting data. You heard me and Gary rattling off stats throughout this episode, but we really appreciate you tuning it.
Like I said, hit that subscribe button. Hit us up on Twitter. We’d love to hear from you at Futurum Research. Otherwise, for now, for this episode, I got to say good-bye, but we’ll see you really soon on another episode in The Futurum Tech Podcast. Later.

 

 

Daniel Newman