How Industry 4.0 Is Transforming Manufacturing



July 28, 2016

By Reinhard Geissbauer

The term Industry 4.0 refers to the combination of several major technology innovations, all maturing simultaneously, and expected to have a dramatic impact on manufacturing sectors. These technologies—including advanced robotics and artificial intelligence, sophisticated sensors, cloud computing, and the Internet of Things—when joined together integrate the physical and virtual worlds. This technological infrastructure is still in its early stages of development. But how is it already changing manufacturing?

1. Better transparency and agility

Companies can be integrated vertically and horizontally. For example, leading-edge inventory management systems connect retailers, distribution centers, transporters, manufacturers, and suppliers. Each transparently receives data about the others’ supply levels, places and fulfills orders automatically, and triggers maintenance and upgrades. This smooths out the gluts and shortages of a typical supply chain, and enables the chain to compensate for sudden interruptions (such as those from natural disasters) and to easily test new products and services in particular geographic locations.

2. More responsive to customer needs

A more responsive value chain allows industrial manufacturers to reach end customers more directly. Products as diverse as aircraft engines and software are increasingly offered as services, often on a subscription basis. At the same time, manufacturers can now make products in batches of one as inexpensively as those that are mass produced. This enables them to fully tailor products to a customer’s needs. And these more personalized products and customized solutions, may generate significantly higher margins than mass-manufactured offerings.

3. Self-monitoring products and services

When captured and analyzed, the data generated by products and services indicates how well they are functioning and how they are used. For example, the equipment used in a shipping port or on a construction site can now detect an impending mechanical breakdown and prevent it. The next generation of this equipment will be able to compare the efficiency of various machines and suggest more efficient deployment. Industrial products that track their own activity will also provide powerful insights into those who use them: how they operate, where they face delays, and how they work around problems.

4. Cost savings

Industry 4.0 replaces redundant legacy systems, such as those for operations management and enterprise resource planning, with a single, enterprise-wide, interoperable whole — which is much less expensive. An overwhelming majority (86 percent) of companies surveyed about Industry 4.0 said they expect both cost reductions and revenue gains from their advanced digitization efforts.

5. Improved employee morale

Because user experience in operational systems has improved in recent years, employees are expected to be happier and more productive with Industry 4.0. Consequently, costs will drop for training, support, and staff turnover.

Challenges ahead

Industry 4.0 brings many challenges, as it requires openness with data and collaboration – an approach that’s uncomfortable to many companies. The requisite technological capabilities and human skills are often in short supply. Will governments revise their customs activities and tax structures to reflect a world in which physical goods of all kinds rapidly decrease in value compared with the intangibles that distinguish them?

And, perhaps most daunting, it requires investments to be made today, while many of the products and processes involved remain unknown. Nonetheless, companies that wait to see how Industry 4.0 evolves before investing, will fall behind.

For more on what your business can do to prepare for this massive transformation, see A Strategist’s Guide to Industry 4.0 in strategy+business magazine.

This article was written by Strategy& from Forbes and was legally licensed through the NewsCred publisher network.

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