Siemens versus SAP: Smart Factory Battle

The Siemens IIoT-LLM and industrial ChatGPT

Siemens is planning targeted investments in the three-digit million range to develop its own highly specialized industrial language model, which will act as a kind of industrial counterpart to ChatGPT and strictly minimize life-threatening hallucinations on the factory floor. From an investigative point of view, SAP is currently more like a driven company in the field of AI, which, in the absence of a dominant in-house development in the area of large language models (LLMs), pours a superficial „AI sugar coating“ over its ERP portfolio and makes itself dependent on technology giants.

For the critical existing SAP customer, this reveals a dramatic turning point: although Walldorf continues to supply the indispensable administrative superstructure, the actual technical disruption in industrial production is increasingly being driven by companies such as Siemens, which are positioning artificial intelligence as the new operating system for industry and want to merge the real and digital worlds in the industrial metaverse.

How SAP uses AI in industrial practice

At the SAP stand at Hannover Messe Industrie, visitors will be able to see a real industrial application live on machines and also how SAP's existing customers use integrated business AI to manage complex value chains as a networked company. SAP invites visitors to take a personal, compact tour of the stand: How companies use AI and data along the entire product lifecycle to decide whether products can be reused, refurbished or recycled.

SAP's focus in Hanover is deliberately not on promises for the future, but on the question: What is already working in industrial practice today and where are the limits? However, in order to understand the shift in power on the shop floor, SAP users need to make a clear distinction between the often overused terms and put them into a logical context that starts with the sensor and ends with autonomous business decisions. 

Industry 4.0, Smart Factory, IIoT and Edge Computing

The overarching framework for this change is Industry 4.0, a term that describes the fundamental paradigm shift and the far-reaching digital networking of people, machines and products. The tangible manifestation of this abstract vision is the smart factory, i.e. the intelligent, highly automated factory in which production systems are data-driven and partially self-organizing.

The nervous system of this factory is provided by the Industrial Internet of Things (IIoT), which consists of myriads of sensors that digitally connect physical machines and transform the store floor into an endless stream of data. However, as it would be highly inefficient and fatal in terms of security to send these gigantic amounts of raw data unfiltered to a central cloud or an inert ERP system, edge computing acts as decentralized intelligence directly at the machine, where data processing takes place without latency and while maintaining strict data sovereignty.

This prepared database is accessed by artificial intelligence (AI), which recognizes patterns hidden in the aggregated sensor values, accurately predicts machine failures and optimizes processes. Finally, the evolutionary spearhead of this ecosystem is Agentic AI, in which autonomous AI agents no longer just passively analyze, but instead carry out actions on their own authority, for example by independently contacting suppliers, dynamically adjusting production plans or reordering spare parts in the system.

Orchestration in the smart factory 

In this technical orchestra, the roles of the two giants SAP and Siemens are very clearly defined, even if the boundaries are becoming increasingly blurred. Siemens is the undisputed master of Operational Technology (OT), i.e. the raw, physical world of automation technology, sensor technology, edge computing hardware and industrial AI models deep in the factory. SAP, on the other hand, is the traditional master of information technology (IT) and the so-called pot floor, orchestrating end-to-end business processes from purchasing to financial accounting and controlling with systems such as S/4 Hana.

If an existing SAP customer looks at the specific smart factory portfolio from Walldorf, they will primarily find cloud-based software solutions such as SAP Digital Manufacturing, which is set to replace the older on-prem systems ME and MII by 2030, as well as SAP Plant Connectivity for connecting machine systems. The undeniable advantage of this SAP ecosystem lies in the seamless business integration, which theoretically ensures that a temperature anomaly on the milling machine leads directly to an automated purchase requisition and a financial provision in the S/4 system without media breaks.

Rise with Smart Factory

Critically scrutinized, however, the SAP strategy reveals massive disadvantages and operational risks for existing customers. SAP is forcing its industrial users into the cloud under enormous pressure, which means that business-critical production data has to leave the company's own protected data center, which raises massive security and sovereignty concerns for many production companies.

Walldorf's AI policy has an even more toxic effect: SAP is aggressively linking the latest AI innovations to cloud contracts such as Rise with SAP and excluding loyal on-prem customers from essential developments, which is tantamount to a de facto innovation blockade for traditional, security-conscious factory operators.

Ultimately, the enlightened SAP user must realize that SAP alone cannot make a factory smart, but is always dependent on the hardware and OT expertise of technology partners in the harsh reality of production, while the software group primarily tries to enforce its platform economy via the Business Technology Platform (BTP) and non-transparent cloud licensing models.

In the meantime, Siemens has conquered the field of software and AI for itself and is giving the global ERP market leader SAP a run for its money in the factory. Siemens is much bolder and more innovative in this respect: a cooperation with Nvidia has been in place for many months, while SAP only signed an AI contract this year. With Smart Factory, SAP once again appears to be losing an important IT area to a competitor. At the Hannover Messe, existing SAP customers will be able to experience the competition between Siemens CEO Roland Busch and SAP CEO Christian Klein first-hand.

SAP once had great ambitions in the area of Industry 4.0 and IIoT under former Chief Technology Officer Bernd Leukert. There was even an Industry 4.0 SAP congress in Frankfurt under the leadership of Tanja Rückert, formerly SAP and currently a member of the Board of Management at Robert Bosch in the Digital Business and Services division, with guest of honor Professor Henning Kagermann, ex-SAP CEO. The SAP industry initiative was summarized under the synonym Leonardo.