Deep dive optimising resources

Conversations on the Future of Business
Deep Dive: Optimizing Resources
Amid Increasing Scarcity
Uncovering Your Hidden Abundance
futureofbusiness.sap.com

Optimizing Resources
Challenges
By 2050 more than 40% of the world’s
population will live under
severe water stress.
Source: Organisation for Economic Co-operation & Development
2

We hear about it, but we don’t always see it. We know it’s happening, but we might not yet feel it.
The world’s resources are growing scarcer. Supply and demand curves are colliding. And organizations
large and small will need to respond—quickly, decisively—if they hope to survive.
It’s occurring at the macro level, where nations and
their people feel the tightening grip of constrained
water, energy, raw materials. A rapidly emerging
global middle class will number 5 billion in just
15 years, escalating demands on resources
and infrastructure.
But it’s also taking place inside organizations, across
industries and geographies. There are fewer easy
opportunities. Companies face new economic real-
ities, ongoing and increasing globalization, shifts in
culture, and disruptive new technologies. Enterprise
efficiency and resource optimization are no longer
nice-to-haves. Today, they’re core competencies.
The Low-Hanging Fruit Has Fallen
New Economic Realities
Organizations have been hit hard by the global
economic downturn. Markets changed overnight.
Even as companies recover and move forward, the
pressures haven’t eased. Enterprises large and small
need to maximize their inputs and optimize their
operations. No longer able to thrive on the status
quo, they must continually identify underused
capacities and squeeze every scrap of value from
what they already possess.
Don Tapscott, Best-Selling Author and Business
Consultant, on Resource Scarcity
3

The demands come from all sides. Boards and
shareholders insist on better oversight at all
organizational levels. Volatile supply chains call for
a better ability to predict supply shortages, reduce
risk wherever possible, and respond to unexpected
change. Customers demand immediate and
unwavering satisfaction, never mind the
complexities of your supply network.
Ongoing Globalization
Globalization is neither future trend nor past event.
Rather, it’s ongoing and omnipresent. All compa-
nies, large and small, compete on a world stage. You
need to go head to head with nimble startups and
entrenched behemoths—regardless of the limits of
your resources or your resourcefulness.
Likewise, you must source materials, components,
and expertise from wherever in the world you can
find them—or your customers demand them. And
you need to choreograph these interdependent
parts to perfection, bringing together each piece
of your operational puzzle at the exact time and
place it’s required. Such interconnectedness injects
unprecedented risk and uncertainty into your
business strategies and outlook.
Nearly two-thirds of companies have a risk
management program for their supply chain.
But almost half say the program isn’t effective.
Deloitte, 2012
4

“The biggest challenges companies are facing are twofold.
One is about volatile markets. The second one is about
growing logistics complexity.”
Hans Thalbauer, Senior Vice President, Supply Chain Management, SAP
Cultural Shifts
It’s not only your business that has changed. New
mindsets are emerging that influence how compet-
itors and even customers design, create, source,
and deliver products and services. This is exempli-
fied by the “maker” movement, which is disrupting
big manufacturing with global cottage industries.
Around the world, thousands of unexpected
entrepreneurs are combining traditional skills
with new technologies to produce products—
and muddle markets.
At the same time, nontraditional competitors can
arise overnight. Whether it’s an Amazon selling
groceries, a PayPal disintermediating banks, or a
Bayer marketing direct to consumers, new rivals
can suddenly render your market unrecognizable.
New Technologies
Novel technologies are breaking down beneficial
barriers and disrupting previously reliable
processes. New capabilities such as 3D printing
allow startups and even consumers to produce an
increasingly sophisticated array of products—for
themselves and for your former customers.
Machine-to-machine (M2M) connectivity automates
and empowers competitors with more cost-effec-
tive operations and innovative new capabilities.
Mobility and cloud computing connect your
competition and your customer base—while leaving
you scrambling to come up with a response.
Denis Browne, Head of Imagineering for SAP,
on the Future of Manufacturing
5

Opportunities
Source: Accenture
30% Businesses running cloud apps can
reduce energy consumption
and carbon emissions by 30 percent or more.
6

While resources have seldom been more tightly constricted, organizations have never had as many
weapons in their armories to battle the 21st-century constraints. In fact, in the very challenges that
confound processes and magnify risk lie the opportunities that can carry you forward.
From more productive strategies to more porous op-
erational boundaries, from new consumer mindsets
to mind-bending new predictive capabilities, compa-
nies have at their fingertips the right thinking and the
robust technology to optimize resources and results.
New Economic Realities
Organizations that master the art of doing more with
less will be positioned to compete today and poised
to respond as tomorrow unfolds. The moment com-
petitors are hardest squeezed is the time for you to
take bold action that will pay long-term dividends.
An Embarrassment of Riches
Forward-leaning organizations are responding to
the new economic realities with innovative new
strategies. They’re investing in advanced analytics
to predict supply shortages and see when, where,
and how to reduce supply risk. They’re also experi-
menting with collaborative resource consumption,
in which privately owned but underused assets are
rented to others precisely when they’re needed,
yielding revenue for the owner, cost savings for the
renter, and greater resource efficiency overall.
“Supply chains are being transformed in many ways.
They won’t be chains in the future. They’ll be networks.”
Don Tapscott
7

Ongoing Globalization
Global markets mean a world of opportunities.
Organizations can build globe-spanning networks
to bring together functions, suppliers, partners, and
customers. Business networks unleash unprece-
dented insight, innovation, and alignment. Partici-
pants can find the tools and information they need.
Solve old problems and uncover new insights. Reach
new customers and markets. Automate inputs and
processes for cost savings and greater agility.
Companies can also access global talent, sourcing
expertise wherever they can find it and bringing that
knowledge to bear wherever they need it. They can
develop their own human capital or connect with it
externally. Platforms like Kaggle have allowed com-
panies from Facebook to GE to source expertise on
predictive modeling and analytics. Services like
YourEncore have helped companies from General
Mills to Procter & Gamble bring together virtual
teams of experienced professionals to address key
operational challenges.
Cultural Shifts
New ways of thinking and operating can
reinvigorate your company and open new markets.
Smart companies will leverage new attitudes and
approaches to find competitive advantage.
The maker movement, for example, is leveraging
technology such as 3D printing and computer
numerical control (CNC) to transform
manufacturing paradigms. This disruptive force can
allow companies to forge new relationships with
customers, offering customized, on-demand
products or spare parts.
It’s also enabling communities of co-innovation,
with established companies, startups, and produc-
er-consumers, or “prosumers,” collaborating to
design and build products to meet new demands.
Factories no longer need to be constrained by place
or time. “We’re moving to a future where the factory
is everywhere, where if you want something you
don’t necessarily have to buy it. You can download
it, adapt it, or print it at home,” says Alastair Parvin,
founder of WikiHouse, an open-source project for
designing and building houses. “If the factory is
everywhere, then the design team is everyone.”
New Technologies
Transformative technologies form the armature of
the new model of resource optimization now taking
shape. 3D printing, for example, is having a
massive impact on a broad range of industries. It
will give consumers new power to influence design
and delivery of the products they want. And it will
provide manufacturers with speed, scale, efficiency,
and opportunities never before possible. Wiki-
“It’s necessary for companies to understand the demand.
What is the demand, where is the demand, how can you
replenish the customer in order to fulfill the demand.”
Hans Thalbauer
8

Home Depot:
More Efficiency, More Profits
Home Depot’s tagline is “More Saving,
More Doing.”That’s exactly what the
home-improvement giant is achieving
in its own operations.
With more than 2,000 big-box stores
and a busy website pulling in $4.5 billion
of income on revenues of $74.75 billion
in 2012, the company’s gross margins
jumped 35 points in Q3 2013. Three-
quarters of that gain can be pegged to
better supply chain efficiency, says
CFO Carol Tomé.
Over the past five years, Home
Depot has constructed a network of
rapid-deployment warehouses, Tomé told
the Wall Street Journal. The intent was to
more efficiently stock shelves and deliver
goods like generators and snow blowers
in response to weather events. The
approach seems to be working: The
facilities process more products per
hour, both incoming and outgoing, than
past facilities, the company says.
For its next act, the company is opening
1-million-square-foot direct-fulfillment
hubs to serve its online business. The
new centers should lower shipping costs
and speed delivery. It’s that kind of
optimization of resources that’s spelling
success for the DIY leader.
House, for instance, offers a library of 3D models
for residential buildings that are shared under a
creative commons license. Users can download files
and actually print parts of a home-construction kit.
M2M, meanwhile, is allowing organizations to
automate processes, lower costs, improve safety
and customer service, and reach new markets.
There will be 50 billion connected devices by 2020,
according to telecom giant Ericsson. Through this
Internet of Things, consumers will connect prod-
ucts to the Internet for continual monitoring and
control. Industrial firms will deploy low-cost sensors
to manage equipment and avoid unsafe conditions.
While manufacturers will monitor the entire length
of the supply chain for better resource use, greater
visibility, lower risk, and improved delivery.
9

Finally, in-memory computing, Big Data, and
predictive analytics mean you can forecast
better and run supply chains leaner and with
greater accuracy. The ability to capture all data
inputs, from customers to machines
to markets, and analyze that data with
unprecedented capacity and speed, means you can
understand your supply and demand to a degree
never before possible. With in-memory
computing and sophisticated analytics, you can
identify resource constraints before they have a
negative impact, foresee new customer demands
as they’re still emerging, and communicate new
insights throughout your value chain to respond
faster and more precisely than the competition.
“With the Network Age, we have real-time systems
that instantly analyze and evaluate what’s happening
and enable us to respond infinitely more quickly.
We have mobile computing that takes technology,
and power, and information, and the capability
of collaboration right up to front-line workers.”
Don Tapscott
10

“On the one hand we have growing scarcities.
On the other hand we have growing overcapacities....
We can start to use the overcapacity that exists
to reduce our consumption of physical resources....
This is an opportunity to shift the way that we
manage resources to a real-time, interactive,
and collaborative model.”
Don Tapscott
11

Imperatives
By 2030,
people will be living in cities.
6 10out
of
Source: World Health Organization
12

In the past, organizations gained a general view of how resources might influence operations,
but without the specificity to respond at the right place and time. Or, they could home in on
individual inputs, but they lacked big-picture visibility to recognize how those factors might affect
their overall business.
Today, organizations must see both the needle and
the haystack. The forest and the trees. The detailed
data points that let them fine-tune processes in
real time, plus the broader sweep of supply and
demand to steer their business on the right course.
To achieve that goal, companies need to adopt new
strategies, learn new lessons, leverage new net-
works, apply new technologies, and embrace the
new change.
Make the Strategic Shift
To achieve success going forward, organizations will
need to recognize the fundamental importance of
optimizing resources amid increasing scarcity. Lean
operations and flawless supply chains are no longer
tactical targets; today, they’re strategic imperatives.
Resource optimization will not only bring you
The Needle and the Haystack
competitive advantage. It will also be the
differentiator you can present to partners,
customers, and even end consumers.
That new strategic paradigm requires a change in
mindset. Companies will need to be increasingly
creative in how they optimize resources. For
example, rather than treat all intellectual property as
proprietary, you might invest in an IP portfolio, part
of which you own and protect, and part of which you
share with others. Sound far-fetched? In the face of
fundamental challenges in the life sciences industry,
GlaxoSmithKline has taken the position that
clinical-trial data should be placed in a shared online
space, or commons, so that pharmaceutical
companies can cooperate on basic research and
then compete on drug delivery. Other industries will
likely explore similar models.
Hans Thalbauer, on Supply-Chain risk.
13

Find Your Inspiration
Society is increasingly aware of resource
limitations. The green movement, for example, has
led companies to re-examine their operations and
find ways to do more with less, to the benefit of both
the community and their own bottom line. Now, new
models are emerging for optimizing resource use.
Airbnb is an online service that allows individuals to
rent unoccupied living space to short-term lodgers.
Zipcar is a car-sharing company that enables its
800,000 members to reserve transportation by the
hour or the day. Creative organizations will take
lessons from these models and apply them to
their own operations, whether to improve internal
processes or to offer new products or services to
customers. Companies now have an opportunity to
lead rather than follow in collaborative consumption
and other resource-optimizing innovations.
“In supply chain management, it used to be very much
a push principle. You produce, you push materials
and products out to distribution centers, and try
to sell what you have out there. [Today] requires a
completely different model for how companies run
their supply chain. It requires a pull mechanism.
It requires that you have a good understanding of the
demand. It requires that you have a very good
mechanism to respond to demand.”
Hans Thalbauer
14

Leverage New Networks
The network effect is all about expanding value:
the more nodes, the greater the network’s worth.
But you have to be part of the network to reap its
rewards.
Network technologies make it possible to extend and
interconnect supply chains and processes.
As network density increases, so do network resil-
ience and value. Best-run businesses are
leveraging mobile and social platforms to connect
people and functions. The payoffs include a redou-
bling of resources, faster innovation, and a greater
ability to serve markets.
M2M and cloud computing in particular will
revolutionize supply chains, resource management,
and more through the ability to sense and respond
to customer demand and market changes in real
time. By allowing the monitoring and management
of connections among people, devices, and systems,
the Internet of Things is making previously hidden
information instantly visible—and creating a new
resource in its own right.
Apply Untapped Technologies
A broad range of new technologies enables
companies to optimize resources like never before.
And the truly exciting aspect of these innovations is
that they’re not just the promise of the future.
Indeed, they’re already being put into action by
leading organizations around the world.
New robotics and manufacturing technologies
amplify the automation of M2M connections. One
example is a cost-effective robotic innovation called
Baxter. Capable of a broad range of repetitive tasks,
the device requires no programming and can be up
and running in hours or less.
Mobile and social platforms make your people and
your partners more efficient and connected. They
also help link the entire length of the value chain,
from raw-material producer to end consumer. Smart
companies are finding ways to apply these technolo-
gies to outsmart their competitors and outdeliver on
their promises to customers.
Finally, in-memory computing, cloud computing, and
advanced analytics let you better manage resources
and forecast short- and long-term events and condi-
tions. A growing number of companies large and
small are taking advantage of these game-changing
technologies to instantly analyze, evaluate, and re-
spond—to supply risk, customer demand, and more.
Embrace Continual Change
Resource optimization, like business itself, is
dynamic. What’s necessary, what works, what will
help carry you into the future never stays the same.
Neither the scarcities you face nor the solutions for
hedging against them, neither the demands you see
from customers nor the innovations that position
you to meet them, will remain still for long.
As more organizations recognize the value of
optimizing their resources, the bar will be raised.
Your competitive advantage today will be table
stakes tomorrow. Likewise, new technologies and
networks will spawn new models and markets,
altering your operating and competitive landscapes.
You’ll need to continually adapt and innovate. The
organizations that can do so effectively are rare
indeed. But in the face of increasing scarcity, it will
be the only way to optimize resources—and
to survive and thrive.
15

Learn More
• Conversations on the Future of Business
• Conversations on Optimizing Resources
• SAP Center for Business Insight
• SAP Business Innovation Blog: Optimizing Resources
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