Editorial note: This article appeared in Forbes on November 1st, 2016
As a business leader, you can’t afford not to know about Industry 4.0 (defined by McKinsey as “the next phase in the digitization of the manufacturing sector”), which will transform manufacturing in a way that impacts profit margin significantly for your business.
While not many people understand or have even heard of the term outside of manufacturing, many business leaders have heard about IoT (Internet of Things). What will happen when IoT becomes fully integrated with other emerging technology, such as big data and autonomous robots? Can you imagine the impact on the world? That’s just one of the questions posed by this new phase.
There are three things that you should know about Industry 4.0: what it is, what the impact is, and what challenges it faces.
What Is Industry 4.0?
Industry 4.0 was an initiative started by the German government in 2006. It has also been called the “industry internet” or “the fourth industrial revolution.” The initiative’s intention is to digitize the manufacturing sector in order to increase productivity. German industry will have invested a total of €40 billion in Industry 4.0 by 2020.
The vision of Industry 4.0 has been adopted worldwide and is influencing other initiatives and cooperative efforts. In general, there are nine key technological components that make up the foundation of Industry 4.0: autonomous robots, big data, augmented reality (AR), additive manufacturing, cloud computing, cyber security, IoT, system integration, and simulation.
Through the interoperability of IoT, computation, networking, and physical processes are integrated as cyber-physical systems (CPS) that cooperate with each other and with human beings in real time. As a result, manufacturers are transforming into “smart factory operators” who manage highly automated, connected equipment, and analyze data provided by the systems.
What Is The Impact Of Industry 4.0?
• New business opportunities. These are created for many vertical markets, such as retail, medical, industrial, automotive and telecommunication industries. According to The Economist, many companies have initiated the effort to digitize factories, such as Siemens, BASF, Bosch, Daimler, Deutsche Telekom, Klöckner & Co., and Trumpf. The products they make are increasingly packed with sensors and connected to the internet in order to provide better products and services for their customers.
• A more efficient value chain: When the system is well integrated, equipment can be run by automated processes. The cost of manufacturing will be decreased and the quality will be better. The impact is on the whole value chain of delivering products to the market. When the value chain is impacted positively, the margin will be impacted accordingly and create a competitive advantage for a company.
• Data-driven strategy and business models: Sensors in CPS and cloud computing enable data collection and analysis in real time. Therefore, issues can be detected and resolved in a timely manner and the product lifecycle can be streamlined based on insights from big data analysis. Also, insights that reflect real-time operations are available for decision makers. Therefore, strategy and business models can be modified quickly to increase revenue.
• A rising need for skills-based training and talents: Specific skills are required to work in a smart factory. The skills will impact education choices and societal structure when traditional labor is being replaced.
Industry 4.0 Challenges:
• Reliability and stability: Since IoT standards are being established, it is a challenge to have a reliable and stable non-proprietary solution for machine to machine (M2M).
• Security: When objects are connected without sufficient security precautions, the system is vulnerable. For example, in 2015, Chrysler recalled 1.4 million vehicles after security researchers found that they could remotely disengage both the brakes and the transmission of a 2014 Jeep Cherokee. This is a challenge of IoT.
• Long-term commitment and development: It takes industry commitment to work on standards and protocols in order to have interoperable solutions developed. The financial investments might impact the effort of long-term development for some companies.
• Skilled labor: German demand for engineers outruns supply right now. This is an example when disruptive innovation happens, a skilled workforce will be difficult to locate.
Only time will tell how smoothly the transition into Industry 4.0 will be for the world of business as we know it. As business leaders, we can stay adaptable by staying aware, informed and prepared.