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Industry 4.0

18 May 2018

What we mean by Industry 4.0

The term ‘Industry 4.0’ stands for the fourth industrial revolution. Other related terms include the ‘Industrial Internet’ or the ‘Smart Factory’, although neither takes as complete a view. While Industry 3.0 focused on the automation of single machines and processes, Industry 4.0 focuses on the end-to-end digitisation of all physical assets and integration into digital ecosystems with value chain partners. Generating, analysing and communicating data seamlessly underpins the gains promised by Industry 4.0, which networks a wide range of new technologies to create value.

 

PwC’s 2016 Global Industry 4.0 Survey of industrial companies

PwC’s 2016 Global Industry 4.0 Survey of industrial companies is the biggest survey of its kind studying Industry 4.0 to date.

With over 2,000 participants from companies in nine major industrial sectors and 26 countries, it goes to the heart of company thinking on the progress towards transforming into a digital enterprise.

Key findings from the survey research

1. Industry 4.0 - from talk to action

Seventy-five percent of companies expect to have highly digitised horizontal and vertical value-chain processes in five years. Investment plans are extremely ambitious, with first movers in particular already making significant Industry 4.0 investments and realising both above-average digital revenues and operational savings. Their plans for the next five years are even more ambitious and far-reaching, with digital products and services paving the way for disruptive business models.

2. Digitisation drives quantum leaps in performance

Companies that successfully implement Industry 4.0 no longer need to choose between focusing on a better top or bottom line. They can improve both at the same time. Over the next five years, the companies that were surveyed expect to increase annual revenues by an average of 2.9% and reduce costs by an average of 3.6% p.a. First movers who combine high investment levels with advanced digitisation are set to achieve even more dramatic gains. Industry 4.0 will fundamentally reshape the competitive landscape and bring fundamental change to established industries.

3. Deepen digital relationships with more empowered customers

Customers will be at the centre of the changes to value chains, products and services. Products, systems and services will be increasingly customised to customer needs, and many of our survey respondents say they plan to use data analytics to understand and meet them. First movers who are able to establish successful industrial platforms will have a significant advantage over competitors. Ultimately, industrial companies will need to own relationships with the end customers who drive demand or at least integrate with platforms that allow them to access the end customers efficiently.

4. Focus on people and culture to drive transformation

Our survey respondents say that their biggest implementation challenge isn’t the right technology, it’s a lack of digital culture and skills in their organisation. Industrial companies need to develop a robust digital culture and to make sure change is driven by clear leadership from the C-suite. They’ll also need to attract, retain, and train digital natives and other employees who are comfortable working in a dynamic ecosystem environment.

5. Data analytics and digital trust are the foundation of Industry 4.0

Data fuels Industry 4.0 and successful data analytics is the prerequisite for successful implementation of digital enterprise applications. It’s time to move from a phase of discovery and understanding what data is available and what it is worth to one of insights and action. ‘First movers’ are already making the shift and using data analytics to help drive decision-making.

6. Robust, enterprise-wide data analytics capabilities require significant change

Industrial companies will need to develop robust organisational structures that support data analytics as an enterprise-level capability. Half of the surveyed companies have established dedicated data analytics functions, either on a corporate level to bundle talent or on a business unit level to remain close to the operational business. However, 38% of companies currently rely on selective, ad-hoc capabilities of single employees; another 9% have no significant capabilities at all.

7. Industry 4.0 is accelerating globalisation, but with a distinctly regional flavour

Industry 4.0 will create digital networks and ecosystems that in many cases will span the globe, but still retain distinct regional footprints. Both developed and developing markets stand to gain dramatically. Companies in Japan and Germany are the furthest along in digitising internal operations and partnering across the horizontal value chain. With high investment in technology and employee training, they view their digital transformation primarily in terms of gains in operational efficiency, cost reduction and quality assurance. China’s industrial companies stand out in all aspects of digitisation: they are expecting both above-average cost reductions as well as increased digital revenues through to 2020. China is one of the countries that stands to gain the most from automating and digitising labour-intensive manufacturing processes and needs to find a solution to rising employee remuneration. In addition, Chinese companies are highly flexible and open to digital change.

8. Big investments with big impacts: it’s time to commit

Industry 4.0 investments are already significant and our research suggests that global industrial products companies will invest US$907 bn per year through to 2020. The major focus of this investment will be on digital technologies like sensors or connectivity devices, as well as on software and applications like manufacturing execution systems (MES). In addition, companies are also investing in training employees and driving organisational change. More than half of respondents expect their Industry 4.0 investments to yield a return within two years or less.

You can download the full report here.

How digitization makes the supply chain more efficient, agile, and customer-focused

If the vision of Industry 4.0 is to be realized, most enterprise processes must become more digitized. A critical element will be the evolution of traditional supply chains toward a connected, smart, and highly efficient supply chain ecosystem.

The supply chain today is a series of largely discrete, siloed steps taken through marketing, product development, manufacturing, and distribution, and finally into the hands of the customer. Digitization brings down those walls, and the chain becomes a completely integrated ecosystem that is fully transparent to all the players involved — from the suppliers of raw materials, components, and parts, to the transporters of those supplies and finished goods, and finally to the customers demanding fulfillment.

This network will depend on a number of key technologies: integrated planning and execution systems, logistics visibility, autonomous logistics, smart procurement and warehousing, spare parts management, and advanced analytics. The result will enable companies to react to disruptions in the supply chain, and even anticipate them, by fully modeling the network, creating “what-if” scenarios, and adjusting the supply chain in real time as conditions change.

Once built — and the components are starting to be developed today — the digital supply “network” will offer a new degree of resiliency and responsiveness enabling companies that get there first to beat the competition in the effort to provide customers with the most efficient and transparent service delivery.

8 elements of the digital supply chain

The goal of the digital supply chain is ambitious: to build an altogether new kind of supply network that’s both resilient and responsive.

But if companies are to make the digital supply chain — or perhaps more properly, the digital supply chain ecosystem — a reality, they can’t just gather technologies and build capabilities. They must also find people with the right skills, and manage the shift to a culture that’s willing to carry out the effort. In other words, they must transform their entire organization.

The digital supply chain, as we envision it, consists of eight key elements: integrated planning and execution, logistics visibility, Procurement 4.0, smart warehousing, efficient spare parts management, autonomous and B2C logistics, prescriptive supply chain analytics, and digital supply chain enablers. Companies that can put together these pieces into a coherent and fully transparent whole will gain huge advantages in customer service, flexibility, efficiency, and cost reduction; those that delay will be left further and further behind.

Supply chain maturity

Few companies have reached anything close to complete maturity in their efforts to put together the fully digital supply chain. To develop a supply chain strategy and organize their ensuing efforts in a coherent fashion, it is critical that companies understand their starting position. The process leads through four stages of maturity:

  1. Digital novice. These companies have yet to embark on the journey. Their supply chain processes remain discrete, carried out by individual departments and business units.
  2. Vertical integrator. Companies at this stage have managed to integrate their supply chain processes internally, across departments and functions.
  3. Horizontal collaborator. Here, companies have learned to work with their supply chain partners to set business goals, define and carry out common processes, and achieve a fair degree of transparency into the chain.
  4. Digital champion. These companies have achieved the highest level of collaboration with partners and transparency into operations, while developing mutually beneficial processes and analytical techniques for optimizing the entire supply chain.

The digital supply chain roadmap

The key to becoming a digital champion and reaping the full benefits of DSC lies in developing an orderly process for implementing and integrating the many technologies and capabilities required. In our experience, companies need to take five primary steps:

  1. Understand your starting position: Review your current maturity along the four stages of the maturity model and identify areas for improvement.
  2. Define your strategy: Determine your target maturity level and the supply chain vision that best supports your business strategy.
  3. Develop the appropriate road map: Settle on the necessary implementation steps and work them into a detailed road map.
  4. Deploy small pilots with end-to-end scope: Many applications that make up the digital supply chain represent a radical change for most organizations, so companies should first carry out smaller pilots that showcase benefits and help develop the right capabilities. These “lighthouse” projects should aim at testing the end-to-end flow for a specific supply chain, rather than implementing a limited set of technologies on a broader scale.
  5. Segmented rollout and capability development: After a successful pilot, the rollout should start with those supply chains where expected benefit is highest. This could involve key customers, key regions, or some other supply chain segmentation criterion. The capabilities required will need to evolve along with the rollout.

Conclusion

Supply chains are extremely complex organisms, and no company has yet succeeded in building one that’s truly digital. Indeed, many of the applications required are not yet widely used. But this will change radically over the next five to 10 years, with different industries implementing DSC at varying speeds. Companies that get there first will gain a difficult-to-challenge advantage in the race to Industry 4.0, and will be able to set, or at least influence, technical standards for their particular industry. The advantage will by no means be limited to the greater efficiencies. The real goal will be the many new business models and revenue streams the digital supply chain will open up.