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IoT Drives Digital Transformation

By Tanja Rueckert, Executive Vice President, IoT & Customer Innovation Unit, SAP SE

Impact on Business

The Internet of Things (IoT) has been catapulted to the peak spot of ‘inflated expectations’ in the 2015 Gartner Hype cycle.

Leading analysts and consulting firms continue to make substantial estimates about its economic impact. McKinsey & Company, for example, predicts a range between USD 3.9 to 11.1 trillion per year in 2025 and, in the past few years, venture capitalists have invested several billion dollars in the IoT, according to the Boston Consulting Group (BCG).

At the 2016 World Economic Forum in Davos, Switzerland, the IoT was predicted to be the fourth industrial revolution that, following the historical game-changers of water and steam, electricity, and electronics and IT, would lead to a new machine age. Fueled by hyperconnectivity — eventually with tens or hundreds of billions of devices plus new levels of machine intelligence — the IoT is predicted to enable complete digitalization of business processes, unparalleled operational efficiency, and disruptive business model innovation.

Technological advances play a significant part in this vision. The following breakthroughs are the enabling levers:

  • Consistent increases in computing power based on Moore’s law
  • Advent of cloud technology
  • (Predictive) Big Data analytics
  • New machine learning capabilities
  • Reduction in sensor and storage costs

This futuristic perspective carries a risk to which many businesses fall victim by presuming that the IoT will happen to them as the technology evolves and disruptive startups bring it to market. The advent of the sharing economy that has posed similar threats to traditional business models may have contributed to this passive ‘wait-and-see’ stance but fall short in comparison to the sheer complexity of an IoT-based economy.

This article explores why SAP believes many underestimate the IoT’s relevance today and its impact on the future. Waiting for the IoT to arrive tomorrow will result in missed opportunities to tap into the digital economy and gain competitive advantages now. Underpinning this argument is a case about the value of an end-to-end IoT scenario and some encouragement to IT and business leaders to start small and think big — starting today.

We will also examine the critical importance of strategic partnerships. The Internet of Everything (IoE) is far too big to be led by a single company; it is dependent on an integrated ecosystem. This is why SAP is proud of its strategic partnership with Huawei and why a description of our collaboration will form the conclusion of this article.

SAP’s IoT Path

With more than 40 years of market leadership in enterprise application software, SAP has set out to realize the IoT for businesses and make it universally connected to close the ‘Thing-to-Insight-to-Action’ loop. Based on an end-to-end data and process flow, as shown in Figure 1, SAP’s solutions create intelligent insight and drive impactful action, from the devices and machines at the edge to the business processes at the digital core of an enterprise. Leveraging advanced machine-learning algorithms, these solutions become more effective over time, as data is accumulated to predict events with increasing accuracy and automate preventive action.

Figure 1: SAP’s Vision of the IoT for Business

Real customer cases have already delivered proof that these closed loop scenarios not only drive unparalleled operational efficiency but also enable entirely new business models, such as transforming a traditional product into an innovative service with flexible pay-per-use billing options. These early adopters have found in the IoT a means to ensure their survival and gain a competitive advantage in the highly disruptive digital economy.

These end-to-end closed loop scenarios require the full IoT stack, as shown in Figure 2, which SAP enables through key partnerships.

Figure 2: IoT Stack

The ‘Connected Things’ layer is where physical machines and sensors connect and generate data. The ‘IoT Backbone’ layer refers to the critical link between core business processes and Things. SAP provides a secure, open, and extensible IoT platform based on SAP’s HANA Cloud Platform (HCP). It offers common services and standardized interfaces and API, and supports ‘reconfigurable,’ closed-loop business processes by integration with the digital core. HCP also enables differentiating IoT analytics and applications at the top layer. Customers and partners build, extend, and integrate IoT Apps and benefit from reusable IoT application services.

For SAP, empowering and nurturing a rich ecosystem and offering customers an integrated and interoperable landscape are the key to IoT success.

Along with this ecosystem is the responsibility for end-to-end security across the entire stack. In particular, unprotected distributed Things can be easily compromised via the Internet or can physically expose the integrity of the network and the edge data to a wide array of cyber attacks.

Based on an end-to-end IoT security architecture, SAP is committed to keeping data secure in transit and at rest, and deploying mechanisms that ensure data integrity and appropriate access controls with the use of strong cryptography.

Digital Transformation

Powerful technology stacks that enable end-to-end IoT scenarios are fundamentally changing traditional business models and creating unprecedented value. For example, a busy shipping port is the result of a prosperous economy and favorable location. A terminal management enterprise at a busy port requires efficiency and effectiveness and technologies that increase port throughput, reduce idle time, save energy, and increase revenue. SAP’s answer is to provide IoT technologies to connect every Thing in a port in real time.

Port business processes include waiting for ship arrivals, unloading/loading operations, delivering containers, and transferring them to and from freight forwarders. Required port information is entered into a Terminal Operation System (TOS) days in advance; then, the system schedules all required activities based on this static data. However, in today’s world, schedules based on static data do not always meet customer needs, as customers prefer IoT-based dynamic scheduling solutions that can deal with unexpected changes.

For example, when the Automatic Identification System (AIS) discovers a delayed ship arrival, all allocated resources — cranes and vehicles — must be automatically rescheduled, rather than being held offline. If GPS data indicates vehicles are stuck in traffic, pick-up times for the gantry cranes are recalculated in real time to avoid an unnecessary container queue. Real-time Location-Based-Service (LBS) platforms auto-connect with all vehicles that are inside the port perimeter, giving vehicle drivers a full picture of traffic on the port grounds, as well as an optimal route to freight stations, parking areas, and fuel. Major ports like Hamburg, Germany have widely adopted IoT-LBS services delivered by SAP solutions, showing significant improvements in port logistics, as shown in Figure 3.

Figure 3: IoT-Enabled Digital Transformation for Shipping Ports

Apart from increasing the efficiency of job execution, the IoT is also helping ports digitally transform traditional business processes by creating new services.

‘Track & Trace’ is a most valuable service that enables the logistics life cycle to use IoT technologies, such as RFID, AIS, and GPS.

Traditionally, freight forwarders, purchasing agents, and goods owners must seek out very detailed information from multiple parties, such as which container holds a specific package, current ship locations, and estimated arrival date and time, etcetera, with limited results. Therefore, port management operators can use centralized Track & Trace services to sort all these fragments of information and provide access to the assorted stakeholders. Any port that is newly equipped with the latest in information-services support positively impacts its suppliers and customers. Once the goods are transferred to the freight-forwarding carrier, the life cycle enters into the land carriage stage.

Many larger terminal management enterprises own large vehicle fleets; therefore, the land transportation sector must focus on continuous improvements in quality and safety as an essential component of their services. Numerous vehicle networking applications, such as SAP Connected Transportation, address this need. In the commercial market, overland transportation management tools focused on safety-best practices are readily available. Within these applications, telematics data is collected from the vehicle On-Board Diagnostics (OBD) interfaced with other types of sensor data, such as weather, noise levels, CO2 concentrations, GPS signals, and even wearable devices. The telematics and sensor data is correlated by the central server for output as driver-behavior and driver-fatigue analysis, vehicle health checks, and others. Based on the results, dynamic task planning and mechanical/behavior optimizations are presented to Machine-to-Machine (M2M) or a graphical UI/UX for people and integrated with Enterprise Transportation Management and Human Capital Systems, such as employee care and training programs.

Shipping ports are at an apex of information flow and logistics in the transportation industry. The vast accumulation of past and current cargo information offers vast opportunities to find business value in patterns mined from the data. Port management enterprises can use data mining technologies to provide unique analysis of variations in supply and demand for all categories of goods by using key factors like seasonality, economics, weather, and climate. By performing risk assessment and making use of the results, they can offer business innovations, such as procurement consulting services, that include future demand forecasts based on Things like the upstream supply of raw materials, thus transforming port management enterprises into purchasing agents or even financial service providers.

IoT technologies drive the digital transformation of specialty equipment manufacturers that produce and sell equipment to ports and are anxious to find new opportunities for expanding their businesses. Predictive Maintenance is one example of an IoT-based innovation that manufacturers wish to improve upon.

The current market for maintaining port equipment is full of vendors that provide qualified maintenance services at relatively low costs, compared to the prices quoted by the Original Equipment Manufacturers (OEMs) — making it clear that the business model of providing maintenance services is more profitable and sustainable than selling equipment alone. Equipment manufacturers win back the technical services market from independent maintenance vendors with the IoT. Equipment vendors are in the best position to remotely collect operational data, such as temperature and equipment vibration, and return it to the factory. By fusing operational and IT data, the OEMs build reliability models that automatically schedule maintenance tasks, preventing large business losses.

The IoT is a key lever to realizing the smart port, and the core of the IoT is connectivity. Each asset inside and outside a port, including ships, cranes, cargo, etcetera, is well-connected through IoT-enabled smart devices. Individually connected with a powerful data analytics engine that extracts intelligence from the system, each piece of equipment is optimized for its task, with green production and improved work safety levels.

SAP and Huawei Strategy

SAP and Huawei have joined together to more closely explore IoT market opportunities and leverage their respective advantages. As a world-leading communications and network device provider, Huawei, with its IoT smart gateway, is an important edge component for remote data collection. Together with SAP’s dominant market position in high-performance, in-memory computing, Huawei will provide comprehensive end-to-end IoT solutions to drive IoT adoption to the next level.

Transportation is a remarkable example. The Traffic Safety Culture Index in the U.S. shows that car crashes rank among the leading causes of death. SAP is developing an IoT-based transportation solution to help guarantee driver and passenger safety by using IoT data collected from public transportation vehicles, such as school buses, coaches, and heavy vehicles.

Huawei plans to install a smart IoT gateway device inside vehicles so that, while a vehicle is on the road, different kinds of sensor data will be collected and saved into SAP SQLAnywhere, which serves as local storage on the IoT gateway. The IoT data will then be uploaded to the SAP HANA database via 3G or Wi-Fi, either in real time or as scheduled. Then, SAP HANA uses its powerful calculation capability to perform analytics, such as driver behavior and fatigue detection, enabling intelligent insights to fleet managers.

A reference case solution has already been successfully presented to large enterprises in various countries. This cooperation is only the beginning for SAP and Huawei in the IoT arena. Soon, this alliance will enable the full IoT stack in unprecedented ways for a broader ecosystem.

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