The next phase in the digitization of manufacturing is Industry 4.0, a much higher level of automation and digitization in the supply chain and production line thanks to a combination of the Internet of Things (IoT), big data analytics, horizontal and vertical IT system integration, cloud technologies, mobile computing, 3D simulation, additive manufacturing (3D printing), augmented reality and autonomous robots. Factories will become smart: production equipment, sensors and people will be communicating and exchanging data in real time via wireless Internet. Machines will be able to optimize and configure themselves, assist in decision-making and problem-solving and even make simple decisions on their own to ensure an uninterrupted production flow.
In 2015, PwC conducted an international survey on the adoption of Industry 4.0 across production sectors. It interviewed 2,000 companies from 26 countries. Over one third of them claimed that they had already reached a high level of system integration and digitization, while over 71% expected to reach it by 2020. Accenture estimated that Industry 4.0 could generate $14.2 trillion worldwide by 2030. It could bring $531 billion to the UK, $700 billion to Germany, $1.8 trillion to China and $7.1 trillion to the US. These figures show that Industry 4.0 has vast business potential.
1. Smart technology will boost productivity. In 2015, the Boston Consulting Group (BCG) estimated that productivity improvements on conversion costs, i.e. excluding material costs, across all manufacturing sectors in Germany would be in the range of 15 to 25% over the next 5 to 10 years. Including material costs, productivity would improve by 5 to 8% or by €90 billion (over $100 billion) to €150 billion (about $167 billion).
2. The Internet of Things (IoT) will increase manufacturing and resource efficiency. In 2014, market research firm TNS Emnid conducted a survey of 235 German industrial production companies on the benefits of Industry 4.0 solutions. It found out that the companies expected an almost 18% increase in efficiency on average across all industry sectors over the next 5 years. 37% of the respondents anticipated an increase in efficiency by over 20%. The companies forecast an extra 2.6% reduction in production costs per year. This rate can be achieved on condition that all suppliers involved are able to reduce their production costs and pass them on to other partners along the supply chain.
3. Local production will be easier and more cost-effective. Companies will be able to operate anywhere in the world just by transferring their product software and data. Thanks to 3D printing, they will be able to produce components, spare parts or even some simple products locally. They will not need to ship finished pieces from their headquarters anymore. 3D printing will especially pay off in high-cost countries: companies will be less sensitive to labour costs.
4. Mass customization will become a regular production mode. Smart technology will make manufacturing processes more flexible and tailored to individual customers’ needs. Companies will be able to produce small batches of customized products at the price of mass-products. As more industrial producers are investing in Industry 4.0 solutions, mass customization will progress further.
5. 3D simulations of plant operations will help test and optimize machine settings. Operators will feed real-time data into modelling software to create a virtual model of a physical plant. They will be able to test what machine settings will work best for a new product line. Virtual testing will cut down machine setup times, increase product quality and save up a lot of costs before a product launch. A prototype of new assembly lines will also help make informed decisions on whether investment in new physical equipment will pay off.
References:  Jamie Hinks, TechRadar /  Joe McKendrick, ZDNet /  Bernard Marr, Forbes /  PwC via Reinhard Geissbauer, Jesper Vedsø and Stefan Schrauf, strategy+business /  Accenture via Lauren Davidson, The Telegraph /  Boston Consulting Group /  TNS Emnid via PwC, Industry 4.0 – Opportunities and Challenges of the Industrial Internet /  Roland Berger, Industry 4.0: The new industrial revolution – How Europe will succeed