Industry 4.0 is more than just a flashy catchphrase. A confluence of trends and technologies promises to reshape the way things are made.
Mention “Industry 4.0” to most manufacturing executives and you will raise eyebrows. If they’ve heard of it, they are likely confused about what it is. If they haven’t heard of it, they’re likely to be skeptical of what they see as yet another piece of marketing hype, an empty catchphrase. And yet a closer look at what’s behind Industry 4.0 reveals some powerful emerging currents with strong potential to change the way factories work. It may be too much to say that it is another industrial revolution. But call it whatever you like; the fact is, Industry 4.0 is gathering force, and executives should carefully monitor the coming changes and develop strategies to take advantage of the new opportunities.
Coming to terms. Start with some definitions. We define Industry 4.0 as the next phase in the digitization of the manufacturing sector, driven by four disruptions: the astonishing rise in data volumes, computational power, and connectivity, especially new low-power wide-area networks; the emergence of analytics and business-intelligence capabilities; new forms of human-machine interaction such as touch interfaces and augmented-reality systems; and improvements in transferring digital instructions to the physical world, such as advanced robotics and 3-D printing. (The four trends are not the reason for the “4.0,” however. Rather, this is the fourth major upheaval in modern manufacturing, following the lean revolution of the 1970s, the outsourcing phenomenon of the 1990s, and the automation that took off in the 2000s.)
Consider an example of each disruptive trend:
Big data. An African gold mine found ways to capture more data from its sensors. New data showed some unsuspected fluctuations in oxygen levels during leaching, a key process. Fixing this increased yield by 3.7 percent, worth up to $20 million annually.
Advanced analytics. Stronger analysis can dramatically improve product development. One automaker uses data from its online configurator together with purchasing data to identify options that customers are willing to pay a premium for. With this knowledge, it reduced the options on one model to just 13,000—three orders of magnitude fewer than its competitor, which offered 27,000,000. Development time and production costs fell dramatically; most companies can improve gross margin by 30 percent within 24 months.
Human-machine interfaces. Logistics company Knapp AG developed a picking technology using augmented reality. Pickers wear a headset that presents vital information on a see-through display, helping them locate items more quickly and precisely. And with both hands free, they can build stronger and more efficient pallets, with fragile items safeguarded. An integrated camera captures serial and lot ID numbers for real-time stock tracking. Error rates are down by 40 percent, among many other benefits.
Digital-to-physical transfer. Local Motors builds cars almost entirely through 3-D printing, with a design crowdsourced from an online community. It can build a new model from scratch in a year, far less than the industry average of six. Vauxhall and GM, among others, still bend a lot of metal, but also use 3-D printing and rapid prototyping to minimize their time to market.
These changes and many others like them are sure to be far reaching, affecting every corner of the factory and the supply chain. The pace of change, however, will likely be slower than what we’ve seen in the consumer sector, where equipment is changed frequently. The coming of steam power and the rise of robotics resulted in the outright replacement of 80 to 90 percent of industrial equipment. In coming years, we don’t expect anything like that kind of capital investment. Still, the executives surveyed estimate that 40 to 50 percent of today’s machines will need upgrading or replacement.