Enterprise Resource Planning Vendor Gains Connectivity through Acquisition of Plant Intelligence Provider

Market Impact

The acquisition of Lighthammer Software Development Corporation (http://www.lighthammer.com), a privately-held supplier of enterprise manufacturing intelligence and collaborative manufacturing software, by SAP might indicate that manufacturing operations management (MOM) software systems are becoming mature for consolidation. MOM software is the Web-based collaborative software layer (with the traits of both the integration and analytic applications) for monitoring plant-level trends, establishing operational context, and disseminating plant-level information to the other enterprise-wide constituencies. It is also referred to as enterprise manufacturing intelligence (EMI), manufacturing performance service (MPS), or whichever other acronym some analyst has come up with to make the traditionally not very user-friendly space that includes manufacturing execution systems (MES), plant automation systems, and other plant-centric technologies seem more attractive.

For background information on this acquisition, see The Importance of Plant Level Systems, Multipurpose SAP NetWeaver, and Enterprise Resource Planning Giants Eye the Shop Floor.

In fact, there have been numerous examples of other large plant-centric vendors (including the likes of ABB, Rockwell Automation, General Electric [GE], and Siemens) acquiring an array of companies and products (such as the former Skyva, Systems Modeling, IndX, and Datasweep), thus enabling them to build a broader, integrated, single-source MES scope. SAP's acquisition of Lighthammer might suggest that such manufacturing floor ventures of enterprise applications vendors are more than merely the knee-jerk reaction of a long overdue and much anticipated spending increase in the plant-level software market (see Do Chinese Enterprises Really Need MES and WMS? and The Challenges of Integrating Enterprise Resource Planning and Manufacturing Execution Systems).

Plant floor applications are generally very different from each other, though even their vendors deliver somewhat generic solutions, since continuous flows, discrete piece production rates, temperatures, pressures, and other manufacturing process parameters are common across many manufacturing applications. Still, owing to a dearth of standardized plant-level processes, bundled with a raft of manufacturing styles and industry-specific regulatory compliance (and consequently quality assurance) requirements, user organizations have typically implemented applications on a system-by-system basis. This is in part a response to firefighting requirements defined by department managers, manufacturing engineers, and equipment or process vendors.

This diversity of applications affects one of the major roles of the plant execution system, which is to collect and pool data from the real time processes for delivery to planning level enterprise applications, including enterprise resource planning (ERP) and supply chain management (SCM) systems. This is because, while mainstream ERP vendors have invested in making their products more attractive to specific vertical markets, they cannot really afford to deliver specialized functionality unless there is a large market.

This is Part Two of the two-part Has SAP Nailed Plant Level Leadership with Lighthammer? series.

Part One detailed the acquisition event.

What Does SAP Get?

As with its earlier appetizing acquisitions, such as those of TopTier, TopManage, and A2i (see SAP Acquires TopTier to Further Broaden Its Horizons and SAP Bolsters NetWeaver's MDM Capabilities; Part Four: SAP and A2i), the Lighthammer deal should provide SAP with several benefits. For one, the two parties have quite close product DNAs, since Lighthammer has long been a strategic marketing and development partner, with a manufacturing-centric product, which is now delivered as an SAP xApp-like composite application.

Lighthammer, formerly an SAP partner, had worked to create technology integration between its products and the SAP architecture, so reconfiguring Lighthammer as an SAP composite application running on SAP NetWeaver should present no special difficulty. With the acquisition of Lighthammer, SAP gains workflow-based connectivity to virtually any source on the plant floor and analytical functionality with Lighthammer's products for plant intelligence. This meshes well with SAP's recent business intelligence (BI) dashboard forays (see Business Intelligence Corporate Performance Management Market Landscape).

Furthermore, a high percentage (over 85 percent) of Lighthammer's approximately 150 clients are also SAP clients, a fact which should help SAP manage these clients' expectations. In addition, the improved plant-level functionality should make SAP more competitive in non-SAP environments as well. In particular, SAP's existing non-Lighthammer manufacturing clients should benefit, because they should gain greater flexibility in integrating multiple plant floor solutions with SAP. On the flip side of the coin, the vendor has pledged to support existing Lighthammer-only customers for a period of time. However, logically, the value of operating in this mode would decrease if customers are not going to pursue an SAP-centric strategy in the long term.

Challenges

We concur with AMR Research's finding in the SAP Plus Lighthammer Equals xMII November 2005 report that there are ample opportunities for vendors to amplify xApp Manufacturing Integration and Intelligence (xMII) in terms of data historians or operational data stores, industry-based manufacturing models and KPIs, data mining add-ons to enable proactive, model-based decision making, etc. xMII performance management product functionality is moving in the direction of enhanced alert and event management, knowledge management, real time economics, and directed workflows, which will be key to encapsulating information and capabilities that are needed to make better and faster decisions at multiple levels within manufacturing. Over time, xMII will leverage selected SAP technologies such as the new SAP Visual Composer, which reduces the effort required to develop user interfaces (UI), but will present a challenge to users who have to adapt to the change.

Another weak area that SAP acknowledges is their inability to structurally improve manufacturing processes themselves. This is due to the fact that it is incredibly difficult to map what is happening on the shop floor in detail to, for example, the business systems or the costing systems. It is even more difficult across multiple plants, as the vendor has to provide customers with the ability not only to get the workflows right, but to assemble the data needed to do structural improvements. For this, one would need a plant-level analytic server that could unify data from multiple process control systems into a single contextual database in order to capture, process, and transform real time raw data into intelligible monitoring, counting, and measuring information that could be used by planning and other systems.

The Lighthammer acquisition may compound the above problem. So far, Lighthammer's raison d'tre has been mostly to provide visibility into disparate plant systems for root cause and analysis, or, to put it another way, merely to take raw data and distill it on the screen. Unfortunately, SAP has never owned the complex data models or analytical tools for process discovery that, somewhat ironically, might provide other vendors that sell plant-focused applications at many levels of solutions for manufacturing and value networks with many opportunities and even allow them to use Lighthammer as the integration toolkit and interface to SAP. These vendors may include Invensys/Wonderware, Rockwell/Datasweep, Camstar, Accumence (formerly Visibility Systems), Visiprise, PEC Info, DSM, Activplant, Informance, OSIsoft, Pavilion Technologies, CIMNET, GE Fanuc, Citect, Siemens, Yokagawa, and PSI-BT, to name only a few.

A further challenge for SAP will be establishing themselves as a trustworthy partner to independent software vendors (ISV) that are afraid of being acquired in order to build the necessary ISV ecosystem (see SAP NetWeaver Background, Direction, and User Recommendations). SAP also has to clarify for potential plant-level ISV partners how to use xMII as an underlying platform for delivering preconfigured industry templates and systems.

Another uncharted area is the proliferation of Lighthammer to the discrete manufacturing industries, since despite having over a hundred joint customers, the focus of this relationship has been predominantly in process manufacturing (e.g., chemicals or life sciences) environments. It makes sense for SAP to have started with the process industries because there was more apparent opportunity. Nonetheless, although the acquisition restricts Lighthammer competitors from further penetrating SAP process manufacturing accounts, the next challenge is for both merging parties to respond to the unique needs of discrete manufacturers for standards-based interoperability and plant-level requirements within the automotive, aerospace, high technology, and other discrete manufacturing industries. In the end, the vendor hopes to achieve the maximum commonality between the two sectors, but that is going to be neither quick nor easy.

Implications for Other SAP Partners

Even in light of the acquisition of Lighthammer, and given the natural question of what the acquisition means for other plant-level SAP software partners, SAP maintains that it will remain fully committed to strongly supporting and growing these partner relationships, and that it does not expect that this acquisition will interfere with that. Indeed, SAP may have an industry-wide ethical responsibility to stick to this agreement. Exemplifying this, a group of leading manufacturing companies and software vendors endorsed the Instrumentation, Systems, and Automation Society's (ISA) ISA-95 Enterprise-to-Control System Integration standards and World Batch Forum's (WBF) business to manufacturing markup language (B2MML) at a recent plant-to-business (P2B) interoperability workshop hosted by SAP and ARC Research. Workshop attendees also discussed the establishment of an open vendor and user consortium to share knowledge and best practices for plant floor to business integration and to provide compliance certification for use of B2MML and related standards. In addition to SAP and ARC, participants included representatives from Apriso, Arla Foods, Datasweep, Dow Corning Corporation, DuPont Engineering, Eli Lilly, Emerson Process Management, Empresas Polar S.A., GE Fanuc, General Mills, Invensys-Wonderware, LightHammer, MPDV, MPR de Venezuela, OSIsoft, Procter and Gamble, PSI Soft, Rockwell Automation, Rohm and Haas, SAB Miller, Siemens, and Yokogawa, as well as representatives from ISA and WBF. Ever since this endorsement, the progress in terms of leveraging ISA-95 as a standard and the WBF's B2MML as an appropriate schema for the process industries has been remarkable.

Similarly, two years ago or so, in response to growing customer need, SAP announced the industry wide "manufacturing interoperability" initiative, the aim of which was to dramatically reduce enterprise-to-production systems integration costs using available industry standards. For more details see Multipurpose SAP NetWeaver.

SAP is not to blame for having planning solutions that, in some cases, may extend deep into the plant floor, since the lack of integration is in part because the involved parties in the software industry have tacitly agreed to divide the software world into disjointed sets of vendors—the automation vendors, the MES vendors, and the ERP or enterprise applications vendors. Viewing things with this old and outgoing mindset has brought many endeavors to a halt, due to the question of where the line between MES and ERP is. As discussed in The Challenges of Integrating Enterprise Resource Planning and Manufacturing Execution Systems, the answer is often that there is no one clear line.

For example, due to the notion of "plant-centric ERP" in the 1990s, vendors, such as the former Marcam in process manufacturing and Baan in discrete manufacturing, had deep manufacturing models that challenged the artificial boundaries between ERP and MES. Along the same lines, Oracle plans to add more built-in plant-level functionality in the upcoming Oracle e-Business Suite Release 12, precluding the need for the typically extensive and painful customization outside of Oracle's toolset. Even smaller ERP vendors have been adding industry-specific functionality, for example Ross Systems (now part of CDC Software) for pharmaceutical and life sciences companies, IQMS for plastic processors, and Plexus Systems for automotive customers.

When it comes to SAP, it has a lot of customers that use SAP functionality to tie directly into low-level shop floor systems. However, there are also SAP customers that at the same time—at another site or division—use SAP in conjunction with an MES system. In the end, SAP will likely compete in the marketplace where it feels its functionality is competitive enough compared to other solutions. But the vendor acknowledges that customers have, for good reasons, installed other solutions, and will continue to do so. Thus, in order to be a trusted platform provider, it will want to be able to integrate with those systems.

User Recommendations

The acquisition is good news for Lighthammer and SAP's existing customers, particularly for the large corporations that need to integrate their internal applications with applications from other vendors or that need to exchange plant-level information with business partners that are not necessarily SAP shops. The announcement may fuel interest from SAP customers looking for a plant-level solution, and it should generate increased viability confidence in many Lighthammer customers. These customers should immediately explore how the tight integration into the application stack via SAP NetWeaver might benefit them. SAP, on the other hand, should take the Lighthammer integration relatively slowly, being careful to preserve and build on the former Lighthammer successes, so as to allow the right balance of autonomy and embedding to evolve.

Just as SAP users eying service-oriented architecture (SOA) technology should consider SAP NetWeaver (see SAP NetWeaver Background, Direction, and User Recommendations), so SAP users that are in the process of evaluating plant intelligence solutions, especially if they are comfortable with NetWeaver and are in process industries, should seriously consider Lighthammer. Lighthammer customers or prospects with no SAP products or plans to engage SAP should not automatically rule out Lighthammer. However, since its functionality will become SAP-centric down the track, such companies should also consider other plant intelligence or MES providers, some of which are also SAP partners, such as NRX, Apriso, FactoryLogic, Visiprise, Vendavo, TechniData, or Pelion. In other non-process industries, users should evaluate many options, keeping in mind the vertical industry savvy and fit, along with the vendors' commitment to the industry and technology standards.

A fully integrated, extended ERP product like SAP Lighthammer might almost completely eliminate the issues raised in The Importance Of Plant Level Systems for a small or medium repetitive manufacturing enterprise with a scarcity of information technology (IT) skills. For instance, when data is stored in the same database, there is no need for the creation and management of ungainly interfaces. This is because there is only one master application, in which data visibility is inherent, since with the proper links, data can be gathered and disseminated in multiple ways, without delay. Yet, in most cases, multiple databases on the shop floor (e.g., quality management data, production and warehousing real-time transactions, plant maintenance data, ERP master data, etc.), are rarely in sync, making timely decision-making difficult and often inaccurate. This concept holds true any time information is kept in more than one location, since without a highly advanced method of synchronization the chances of having accurate data stored in more than one location are small indeed.

If data is only synchronized on a batch mode basis daily, or even by shift, managers have a difficult time making timely, accurate decisions. This impacts all functions, such as production planning, shipping, inventory control, and purchasing. It also handicaps customer service representatives as they attempt to fulfill customer requests for their order status. In the worst cases, some data is never synchronized to the master ERP system, which creates a serious communication void and promotes the worst sort of proverbial "islands of automation" situation. Finally, while results can be impressive when done properly, manufacturing integration and intelligence projects indisputably require careful planning because they touch many aspects of operations, impact business processes, and require ongoing support.

This concludes Part Two of a two-part note. Part One detailed the acquisition event.