The Impact of Industry 4.0: How is it Changing Manufacturing?

by: Smith and Howard

December 1, 2016

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The manufacturing sector is in the midst of another major transformation. The confluence of several technology megatrends maturing at the same time—including, among others, Big Data and advanced analytics, robotics and automation, artificial intelligence and virtual reality—is heralding the fourth industrial revolution, known colloquially as Industry 4.0.

Industry 4.0 is all about optimization—smart, flexible supply chains, factories and distribution models where machines capture and convey more data via machine-to-machine communications and to human operators. All this aims to enable businesses to make quicker, smarter decisions, all while minimizing costs. How this trend will play out remains to be seen, but some of the biggest players in the manufacturing industry are already making changes and putting big money into embracing it.

What is Industry 4.0?

In 2011, the Association of German Engineers launched a highly integrated project labeled “INDUSTRIE 4.0” to develop and market a wide suite of technologies to affect change in Germany’s manufacturing sector and improve its production competitiveness.

“Industry 4.0” has now been adopted into the general lexicon to refer to the digitization of manufacturing—the coming together of the cyber and physical worlds to reduce inefficiencies and lower costs while improving flexibility. Often used interchangeably with the “Industrial Internet of Things” (though there are nuances), Industry 4.0 usually refers to the “smart factory,” which makes use of technologies like embedded sensors and wireless connectivity in factory machinery and equipment. But “smart logistics,” such as automated warehousing, cargo tracking and remote fleet management, can be just as transformative in increasing value across the entire supply chain.

Despite the broadness of the term, most agree that Industry 4.0’s impact on the manufacturing industry will be significant, with the potential to disrupt both processes and products. In a recent BDO survey of U.K.-based engineering and manufacturing managers, 20 percent said they have some level of Industry 4.0 strategy in place, and 43 percent are making investments in automation over the next 24 months; those who aren’t making investments cite their lack of understanding as the main reason.

Building the Industry 4.0 Foundation

Manufacturers have access to a wealth of information and tools that can help improve quality and efficiency in the manufacturing process, and enable them to rapidly adjust course in response to disruptions or variable demand. Those who aren’t thinking ahead to what’s next risk falling dangerously behind, or worse, becoming obsolete.

However, manufacturers must learn to walk before they try to run. Industry 4.0 entails handling massive volumes of data and using business intelligence software to interpret, address and transfer that data to other parts of the business, back to the enterprise resource planning (ERP) system or supply chain partners. Can the IT system process high volumes of data without compromising performance or speed? Are there safeguards in place to preserve data integrity? Are the ERP and manufacturing execution systems (MES) adequately integrated? Will the current IT architecture be able to scale for the future? If a company’s IT infrastructure lacks the capacity or controls to ensure data quality, the investment may go to waste or cause significant delays. Insights based on bad data or bad analysis lead to bad decision-making.

Building Cybersecurity Protections

Manufacturers can’t—or at least shouldn’t—make the leap into Industry 4.0 without considering the cybersecurity implications and investing accordingly. Data shows the manufacturing industry is already a prime target among hackers: The U.S. Department of Homeland Security reported in January that investigations of cyber attacks on the manufacturing sector nearly doubled in the year ended Sept. 30, 2015. If unaddressed, Industry 4.0 will only compound the issue.

Only 8 percent of manufacturers said they were very confident in their cybersecurity protections to prevent an IT breach, according to the BDO-sponsored MPI Internet of Things Study. And 44 percent do not have or are unaware if they have the ability to detect and identify unauthorized Internet-connected devices. Industry 4.0 is breaking down the traditional barriers that can stymie innovation and collaboration, but in doing so, it’s creating more opportunities for bad actors to break in. Manufacturers need to design their cybersecurity policies and protocols for the factory of the future, and hold their supply chain partners to the same standard.

Building a Connected Supply Chain

Achieving a smart supply chain requires a network of mutually beneficial relationships between suppliers and customers. Collaboration to achieve better responsiveness and visibility is critical in driving efficiencies and, ultimately, cost savings. Embedded sensor technology enables the links within the supply chain to communicate and cooperate in real time with one another to facilitate smarter, faster decision-making. As a result, the responsiveness of the entire supply chain, including design, manufacturing, volumes, rework and through-life service provisions, is elevated.

Supply chain collaboration in Industry 4.0 also requires a new level of transparency and information sharing across traditionally siloed functions, departments and companies, in order to enable communication in real time about issues that arise. Information sharing must be constant and bidirectional, allowing inter-company visibility into everything from inventory challenges to shipping delays to shifts in demand. Best practices should be shared with internal and external stakeholders to increase efficiencies and improve interoperability. The result—when done right—is increased end-to-end visibility across the entire supply chain ecosystem.

Gaining an Advantage Hinges on Strategy

In short, the race to get ahead should be measured. Industry 4.0 is unavoidable, but smart manufacturing requires smart planning and smart investments. Technology can transform a business, but it can just as easily destroy it. There are many intricacies and preliminary steps to consider in embracing a more forward-thinking Industry 4.0 strategy, starting with laying a proper foundation and outlining clear strategic objectives. Long-term strategic planning is critical to success.

This article was written by Rick Schreiber and originally appeared in BDO USA LLP’s Manufacturing Output Newsletter – Fall 2016. Copywrite 2016 BDO USA, LLP. All rights reserved.

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