Industry 4.0 is expected to change the face of manufacturing over the next 10 years. But what is Industry 4.0, and how can small businesses stay competitive in a rapidly changing world?
The Fourth Industrial Revolution
In September 2015 the European Parliament issued a briefing paper (PE 568.337) in which it points out that the “… ubiquitous use of sensors, the expansion of wireless communication and networks, the deployment of increasingly intelligent robots and machines … has the potential to transform the way goods are manufactured in Europe.”
It goes on to define a series of Industrial Revolutions as follows:
- First Industrial Revolution: mid-18th to mid-19th century – Steam power;
- Second Industrial Revolution: late 19th century to 1970s – Electric power and assembly lines;
- Third Industrial Revolution: 1970s to today – Electronics and IT led to greater automation;
- Fourth Industrial Revolution: today and into the near future – Sensor technology, interconnectivity and data analysis allow mass customisation, integration of value chains and greater efficiency.
It also makes some big claims for ‘Industry 4.0’ suggesting that it “… holds the promise of increased flexibility in manufacturing, mass customisation, increased speed, better quality and improved productivity.”
So, is there an industrial revolution taking place under our noses? The short answer is “sort of”.
Industry 4.0 is defined by the advancement of new and existing technologies with the aim of creating a forward-thinking strategy to prepare industry for the years ahead.
So why is this important for a manufacturing sector which is in decline and accounts for only 15% of the value added in the EU economy? The answer may lie in the 33 million jobs supported by manufacturing throughout the EU, or that it accounts for c.80% of EU exports, and roughly the same proportion of private R&D spend, so it is seen as a key driver of sustainable economic growth.
More likely is that as the economies of some members states had moved relentlessly away from manufacturing industry and towards services – in France and the UK it is now less than 10% of gross value added – it is countries like Germany with a strong manufacturing industry base of c.22% of GVA that best weathered the storm of the recent financial crisis. The EU Commission has therefore set a target to rebalance the economy of the EU by increasing manufacturing industry’s share to 20% by 2020.
In 2015 the UK government published its action plan for government and industry, which states “Technological advances are set to transform modern manufacturing as will increasing consumer demand for bespoke products. These changes have huge implications for supply chain businesses which will need to respond and adapt. Embracing use of robotics, integrated sensors and IT/ Cloud Computing central to the 4th Industrial revolution will impact profoundly on manufacturing supply chain management and customer relationships, bringing greater collaboration and more integrated systems.”
With Industry 4.0, everything in and around a manufacturing operation, including suppliers, plant, distributors, and even the product itself, is digitally connected, providing a highly integrated value chain.
Information Technology will digitise information and integrate systems at all stages of product creation and use, both inside companies and across company boundaries. It will monitor and control physical processes, including 3D printing devices (‘additive manufacturing’), and systems though embedded sensors, control intelligent robots that can configure themselves, model and virtualise the design of products and the establishment of manufacturing processes, and support human workers through augmented reality and intelligent tools.
Wireless and internet technologies will link machines, products, systems, and people, both within the manufacturing plant, and with suppliers and distributors. As a result we shall see greater flexibility and smaller batch runs, rapid design and prototyping with increased customer involvement, real time error detection and correction, predictive maintenance, and ‘lights out’ factories where automated robots continue production without light or heat – indeed this might see a reversal of the practice of exporting jobs to low labour cost countries.
In their April 2015 report ‘Industry 4.0: The Future of Productivity and Growth in Manufacturing Industries’, the Boston Consulting Group predicts that in Germany alone, Industry 4.0 will contribute 1% per annum to GDP over the next ten years, and at the same time create c.390 000 jobs.
What does this mean for my business?
There is little doubt that UK manufacturing is under pressure to remain competitive and even a cursory glance at these claims will identify that some parts of this complex jigsaw puzzle are either close at hand, or indeed already a reality, whereas others are likely to be a long way off.
In its 2014 ‘Hype Cycle for Emerging Technologies’, Gartner assessed some of these technologies, such as human augmentation, to be at least ten years away. This has led some to criticise Industry 4.0 as poorly defined and full of hyperbole, and indeed there does appear to be an element of both in the mix.
However, we equally have to accept that the trend is towards greater integration of systems and processes, greater automation, and faster, more flexible working – it is the timeframe for these changes that is the real debate. We must also accept that the take up of these new technologies will not be uniform, not least because new technologies tend to start off very expensive, and the preserve of the larger, well-resourced organisations.
It will take time before the cost of such technologies become affordable to the millions of SMEs which, according to the briefing paper prepared for Parliament in November 2016, make up 99% of all UK businesses, and employ 60% of UK workers – but make no mistake, the change is coming.
Industry 4.0 will not only impact upon the business operation, it will impact on all areas of the business, finance included. As the operation moves towards greater flexibility, more rapid response times, shorter lead times, real time monitoring, and increasing automation, it will not be acceptable to be producing accounts mid-way through the following accounting period, because by then it will be ‘ancient history’.
Traditional systems will not cope with the pace of change in the organisation, as separate databases and spreadsheets for capacity planning, material requirements planning, and inventory control, will leave the organisation in the slow lane, and about to be overtaken by faster, more efficient competitors.
In order for small firms to stay competitive in the face of these changes, integration of systems will be vital in order to provide accurate and, more importantly, instant data to react faster and more effectively to change. Manufacturers need to leave behind the practices and methods that defined the ‘Third Industrial Revolution’ and move towards a modern, responsive, and fully integrated system where cloud technologies and instant reporting can offer competitive advantage in a rapidly changing world.
So, we really do all have to ask ourselves, “are we ready for ‘Industry 4.0’?”
Paul Driscoll is a qualified Chartered Management Accountant with a practice established for 25 years specialising in manufacturing and construction clients, a director of over a dozen companies, and board level adviser to many others.