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As Industry 4.0 moves into the mainstream, manufacturing companies are learning that technology is only part of the challenge.

Almost five years ago, a German government-sponsored project exploring the implications of new and emerging computer technologies for manufacturing published its final report. Industry 4.0 Working Group presented their paper at the Hannover Messe, where more than 220,000 representatives of the world’s engineering and manufacturing industry gather every year to see the latest innovations in production and automation technologies. The choice of location sent a clear message: From its beginnings in an area of speculative research, the term “Industry 4.0” was ready for the mainstream.

If its aim was to get people talking, the Industry 4.0 project has been a significant success. The concept has spawned hundreds of papers and articles and encouraged equipment makers, software companies and consultancies to launch new offerings, or relabel old ones, with the “Industry 4.0” badge.

Smart machines, flexible factories

Its originators coined the term “Industry 4.0” to suggest a fourth industrial revolution, after mechanisation, the introduction of mass production and the development of computer-controlled machines. The difference between the factories of the future and those of the past, the researchers say, will result from the development of new “cyber-physical systems”, where products, workers and machines exist in a sea of digital data. Some of that data will be generated during production and use, by embedded, network-connect sensors, and more will be imported from the wider world. Fast, reliable networks, based on internet technologies, will allow data to flow freely to wherever it is needed. Powerful computers using smart algorithms will use data to control every step in the production process, and then to optimise the performance of the finished product through its lifespan.

For its proponents, Industry 4.0 promises a world where manufactured objects and their associated data are inextricably linked, allowing companies to reimagine the way manufacturing processes are operated and managed. Speaking in an interview in 2013, Siegfried Dais, deputy chairman of the board of management at German engineering company Robert Bosch GmbH, described “an extreme vision” for a manufacturing environment in which the unfinished material entering a production process “already knows for which customer it is intended and carries with it all the information about where and when it will be processed. Once the material is in the machine, the material itself records any deviations from the standard process, determines when it’s done, and knows how to get to its customer”.

Where are we now?

Smart blocks of metal aren’t yet directing themselves autonomously through production facilities. In fact, most factories today look and work much the same way they did a decade ago. Real-world examples that show the potential of Industry 4.0 technologies are beginning to emerge, however. Often, these so-called “lighthouse” examples have been developed by the companies that produce those technologies.

Siemens, for example, has upgraded its 80-year-old electric motor manufacturing plant in Bad Neustadt an der Saale, Germany. The digital solutions adopted at the facility include new control interfaces, connections between machines and improvements to the flow of information between design and the computer numerical control (CNC) systems that manage machining operations. The company says that the improvements have increased throughput times by 40% and allowed the production rates on new machines to be ramped up 60%. It now uses the plant as a showcase “smart factory” for existing and potential customers.

Semiconductor giant Intel aims to play a significant role in the internet of things – the array of connected sensors, displays and other devices that underpin Industry 4.0 technologies. The company has used its own manufacturing plants as a testbed for new technologies. At its factory in Penang, Malaysia, for example, Intel says that the use of sensors and advanced analytics to support the adoption of predictive maintenance practices has saved millions of dollars. The new approach, in which machines monitor themselves for early signs of wear or developing faults, has cut maintenance time by 50% and reduced yield losses due to defects and breakdowns by 25 to 50%. An automated system for the classification of defective products has accelerated the process by a factor of ten, speeding up troubleshooting and the root cause analysis of defects.

Industrial giant GE has spent US$4bn developing digital products, and billions more acquiring start-ups and established players with technologies that can be integrated into its digital manufacturing offerings. It has also deployed digital systems extensively across its own worldwide network of 500 manufacturing facilities – which it calls “brilliant factories”. Between 2015 and 2016, the company claims that digitalisation helped it achieve $1bn in productivity gains, with a further $700m in savings forecast for 2017.

Are they buying it?

Technology demonstrators are one thing. Asking manufacturers to invest hard cash is quite another. Consultancy McKinsey has surveyed companies in the US, Germany and Japan on their adoption of Industry 4.0 approaches. The research revealed broad support for the potential of digitalisation. Of those polled, 89% said they expected Industry 4.0 to increase their operational effectiveness and 80% said the approach would have an impact on their overall business model.

So far, however, implementation of new approaches has proved trickier. Only 37% of the manufacturers surveyed said they had made “good” or “substantial” progress with Industry 4.0 in the previous year. There were also considerable regional variations in the results. Companies in Germany were most likely to claim good progress, slightly ahead of their counterparts in the US 84% of Japanese firms in the survey, meanwhile, said they had made little or no progress.

Beating the roadblock

What’s stopping manufacturing companies from fully embracing the digital revolution? Money is part of the answer. The McKinsey survey notes that respondents who claim the most success in the development of Industry 4.0 applications spend a significantly higher fraction of their overall R&D budget on their efforts than those that show less progress. Natural conservatism is another important issue. Companies are often nervous about redesigning proven products or upsetting finely tuned manufacturing processes.

Even if they have both the will and the cash, however, companies face other important barriers along the road to digitally enabled products and processes. The most important among these is a shortage of skills. Industry 4.0 increases the demand for capabilities that are often in short supply at manufacturing companies, such as people with deep expertise in the management of complex data networks and automation systems. It also requires entirely new skill sets in areas like data analytics or artificial intelligence systems. In its own research, consultancy PwC found that 50% of companies saw a lack of digital capabilities as a major challenge to their adoption of Industry 4.0 approaches and 69% felt that they needed to develop these capabilities in-house.

The application of internet technologies in the manufacturing space also creates security and privacy concerns. There is growing evidence that cybercriminals see network-connected industrial control systems as valuable targets. Electricity distribution systems in the Ukraine have experienced a number of blackouts attributed to cyberattacks on their control systems, and the US Department of Homeland Security’s Industrial Control Systems Cyber Emergency Response Team has warned of a substantial rise in the number of incident reports it receives each year.

It isn’t just criminal groups that concern manufacturing organisations, however. As Anton Huber, former CEO, Siemens Digital Factory Division, states in a paper on the topic: “In many cases, [its] industrial data represents a considerable portion of the value of the company.” Consequently, many organisations also have reservations about sharing critical manufacturing and product data with suppliers and partners, especially if they can’t agree how that data will be handled or who will profit from any value generated by it. This reluctance to share data could inhibit the development of potentially valuable digital services, like the use of cloud-based services for remote equipment monitoring or the analysis of manufacturing data by third-party specialists to find opportunities for efficiency improvement.

Building new models

While Industry 4.0 technologies offer the potential of entirely new business models, companies still face the challenge of building the processes and infrastructure needed to make those models work. Smart, flexible production systems allow manufacturers to greatly increase the degree of product customisation they can offer, for example, but they need to find ways to make that customisation accessible and appealing to customers, without adding excessive cost and complexity to their sales and distribution activities.

Servitisation is another highly attractive option for many manufacturers of industrial equipment. New service offerings can range from digitally enabled remote support to models in which the customer pays only for the utility provided by the manufacturer’s product. Aircraft engine makers, with their “power-by-the-hour” offerings, have shown that these approaches can be a win-win, reducing capital costs for customers while providing predictable long-term revenues for suppliers. The challenge for product companies looking to develop new services often lies not in the technology required to monitor the performance of their assets, but in having the right analysts, support staff and service engineers in place to keep them running smoothly.

In all these models, efficient supply chains and logistics processes have a critical role to play, says Reg Kenney, president, Global Engineering and Manufacturing at DHL: “Servitisation models require equipment makers to take responsibility for the uptime and availability of their products wherever they are in the world. They can only do that if they have the right service parts logistics systems in place. And manufacturing supply chain managers are facing greater complexity from flexible manufacturing systems and rising customer expectations.”

In the supply chain, however, digitalisation creates opportunities as well as challenges, he adds. “We are seeing a huge amount of innovation in the supply chain, from the use of big data and analytics to increase forecast accuracy and accelerate process improvement, to the introduction of automation and digital tools to improve the productivity of our warehouse operations. And as our customers realise that we have developed these capabilities, they increasingly come to us for ideas about the best way to use these approaches in their supply chains.”

This article was originally published in DHL’s Delivered magazine.