Being new to “blogging,” I am delighted to share my thoughts on SAP’s thought leadership ideas for the Industrial Machinery & Components (IM&C) industry. Today’s blog is about The Solution Provider Network. At SAP, we strongly believe IM&C companies are moving from a mindset of simply selling products and services to a model of solving customer problems and adding real customer value.

If we look at the current IM&C environment, we can boil the ocean down to three main challenges:

1. Emerging economies are rapidly changing the competitive landscape. Places like China, India, Russia, Brazil, etc. are now filled with companies competing for your customers. For most IM&C manufacturers, this simply wasn’t the case a few short years ago. China’s IM&C production is growing 24% per year and is likely to overtake Germany in the next 1 to 2 years. The machinery and equipment sector in China is now the country’s second largest industry after the textiles producing industry. IM&C companies clearly face increasing competition from emerging markets like China and need to find a way to differentiate themselves to remain successful.

2. Despite the fact that the world economy is improving, increasing prices for raw materials and component parts are eating up any cost savings driven by increased efficiency or reduced waste. A recent Industry Week and the Manufacturing Performance Institute survey of 668 manufacturing plants showed that maintaining profit margins is a significant challenge. Maturing home markets, increasing energy costs, and proliferating IP piracy are all eroding margins.

3. And probably the most significant challenge: customers are continually demanding greater value and competitive advantage from the machinery and equipment they purchase. In a recent study done by Manufacturing Insights, manufacturing companies mentioned that Quality now is the top customer priority. The definition of total value in the eyes of the customer has expanded greatly over time. It’s not just about price and delivery anymore. Customers are demanding: faster innovations, broader solutions, higher ROI, and greater uptime across the overall equipment lifecycle.

a. Faster product innovations
b. Broader solution offerings
c. Higher return on investments
d. Greater machinery uptime

So, given increasing competition, shrinking products, proliferating customer expectations, what’s an IM&C manufacturer to do?

At SAP, we believe a transformation to the Solution Provider Network (SPN) model is the key to continuing success in IM&C. The SPN concept means delivering turn key solutions to your customers. Not just selling machinery and components but providing the aftermarket service, support, financing, information sharing, and other value-added services beyond merely selling the original equipment.

Deloitte recently reported that the average profitability of service and spare parts operations is more than 75% higher than the margins for original equipment. ABB Systems AG, an SAP customer significiantly reduced product piracy, lowered inventory 12%, and improved customer satisfaction by delivering a holistic Sales & Service Solution.

So what exactly is an SPN?. Ultimately, an SPN is a collection of ecosystems used to generate even greater competitive differentiation and even higher customer value. The SPN includes all the supplier, customer, manufacturing, and distribution members of the value chain, including industry standards bodies and coalitions. The Solution Provider Network is a powerful ecosystem of “virtual organizations" that cuts across all individual domains, resulting in true collaboration and real innovation amongst all constituents.

To reach the Solution Provider Network state industrial machinery manufacturers can leverage the flexibility and adaptability of the Business Process Platform from SAP. By offering world class applications and technology infrastructure combined with the largest community of customers and partners in the world, SAP can help manufacturers evolve toward the SPN model. A perfect example of leveraging ecosystems is the Industry Value Network. By aligning our customers, industry-specific expertise from SAP, technology platform, system integrator partners, and independent software vendors though an enterprise services oriented architecture, SAP can offer holistic, thought-leading solutions specifically designed for the IM&C market. The combination of the Business Process Platform and the Industry Value network is a perfect example.
Let’s take a look at remote machine diagnostics to illustrate the power of the Solution Provider network.

Leveraging embedded machine intelligence by gathering performance specs from key customer operating environments can accomplished by using remote diagnostics capabilities provided by SAP endorsed business partner Questa. Fully integrated with SAP’s applications, Questra’s analytics provide ideas for design improvements and provide remote management services spanning the entire lifecycle of a machine. A thought-leading, cutting-edge capability like remote diagnostics helps create new revenue models through maintenance, spare parts, and service opportunities, and ultimately, delivers higher value to your customers.

Next generation processes that are open, leverage industry standards, and have a broad set of integration functions delivered through enterprise Services Oriented Architecture are the drivers behind the Solution Provider Network ideal.

Several world class IM&C companies are currently on the Service Provider Network evolutionary path with SAP. Here is a representative sample of these companies and what they’ve accomplished on their journey:

KAESER KOMPRESSOREN
• 23% reduction in average subsidiary inventory
• 8 to 1 headcount reduction of global spare parts planners

SCHUMACHER ELEVATOR
• 89% revenue improvement over 6 years
• 24 months to achieve ROI

NIBCO
• 29.5% to 87.0% increase in perfect orders
• 60% to 99% increase in on time delivery performance

NEXPRESS
• $1M in on-going annual operating cost removed in 16 weeks
• 50% reduction in Demand Planning/MRP costs

Real numbers from Real SAP customers on their way to transforming themselves from simply selling products to solving problems and adding value.

Increased competition from emerging markets, shrinking margins, and proliferating customer demands are all very real challenges in today’s IM&C market. By leveraging the capabilities of business process platform, Industry Value Network, and SAP solutions, manufacturers are embracing the Solution Provider Network model today.

This thought-leading transformation of the IM&C industry can deliver exceptional customer value, meet or even exceed proliferating customer expectations, maximize profitability, and provide significant competitive differentiation.