The race to adopt elements of Industry 4.0 is already under way among companies in Europe, the U.S., and Asia.
To provide a quantitative understanding of the potential worldwide impact of Industry 4.0, we analyzed the outlook for manufacturing in Germany and found that the fourth wave of technological advancement will bring benefits in four areas:
- Productivity. During the next five to ten years, Industry 4.0 will be embraced by more companies, boosting productivity across all German manufacturing sectors by €90 billion to €150 billion. Productivity improvements on conversion costs, which exclude the cost of materials, will range from 15 to 25 percent. When the materials costs are factored in, productivity gains of 5 to 8 percent will be achieved. These improvements will vary by industry. Industrial-component manufacturers stand to achieve some of the biggest productivity improvements (20 to 30 percent), for example, and automotive companies can expect increases of 10 to 20 percent. (See Exhibit 3.)
- Revenue Growth. Industry 4.0 will also drive revenue growth. Manufacturers’ demand for enhanced equipment and new data applications, as well as consumer demand for a wider variety of increasingly customized products, will drive additional revenue growth of about €30 billion a year, or roughly 1 percent of Germany’s GDP.
- Employment. In our analysis of Industry 4.0’s impact on German manufacturing, we found that the growth it stimulates will lead to a 6 percent increase in employment during the next ten years. (See Exhibit 4.) And demand for employees in the mechanical-engineering sector may rise even more—by as much as 10 percent during the same period. However, different skills will be required. In the short term, the trend toward greater automation will displace some of the often low-skilled laborers who perform simple, repetitive tasks. At the same time, the growing use of software, connectivity, and analytics will increase the demand for employees with competencies in software development and IT technologies, such as mechatronics experts with software skills. (Mechatronics is a field of engineering that comprises multiple engineering disciplines.) This competency transformation is one of the key challenges ahead.
- Investment. Adapting production processes to incorporate Industry 4.0 will require that German producers invest about €250 billion during the next ten years (about 1 to 1.5 percent of manufacturers’ revenues), we estimate.
The estimated benefits in Germany illustrate the potential impact of Industry 4.0 for manufacturing globally. Industry 4.0 will have a direct effect on producers and their labor force as well as on companies that supply manufacturing systems.
The next wave of manufacturing will affect producers’ entire value chain, from design to after-sales service:
- Along the value chain, production processes will be optimized through integrated IT systems. As a result, today’s insular manufacturing cells will be replaced by fully automated, integrated production lines.
- Products, production processes, and production automation will be designed and commissioned virtually in one integrated process and through the collaboration of producers and suppliers. Physical prototypes will be reduced to an absolute minimum. (See “Component Makers Benefit from Greater Flexibility.”)
- Manufacturing processes will increase in flexibility and allow for the economic production of small lot sizes. Robots, smart machines, and smart products that communicate with one another and make certain autonomous decisions will provide this flexibility. (See “Automobiles and the Next Wave of Automation.”)
- Manufacturing processes will be enhanced through learning and self-optimizing pieces of equipment that will, for example, adjust their own parameters as they sense certain properties of the unfinished product.
- Automated logistics, using autonomous vehicles and robots, will adjust automatically to production needs.
Using a component maker as an example, we illustrate how Industry 4.0 will transform the manufacturing process over the next 10 to 20 years.
Integrating Production and Logistics Processes
The transformation begins with the integration of production and logistics processes and their corresponding IT systems. This includes the exchange of product and production data inside the company as well as with customers and suppliers. Suppliers, in particular, will benefit from the exchange of design and supply-chain data.
Communication across the production process will be (near) real time among humans, machines, parts, and products.
Systems that today are proprietary will evolve into both meshed and hierarchical networks with standardized, open interfaces.
Data will be stored in the cloud to increase its availability and accuracy. This will enable more flexibility when reacting to changes (both expected and unexpected) in the production process.
Enhancing Cooperation Among Machines and Humans
Every part being produced will receive a distinct identification code or even a small embedded microcomputer from which autonomous robots will retrieve information dictating the next production steps. These instructions will be more “objective” than today’s task-centered ones.
For example, the robot will get the directive to drill a hole at a certain location, select the right tool, and determine how to fulfill this objective rather than getting precise instructions for turning its different robot-arm segments. In pursuing its more objective directive, it might interact with other robots to coordinate their respective arm movements so as to maximize overall production. It might also work side by side with humans.
This enhanced cooperation among machines and humans will make it possible for component manufacturers to produce multiple component types from one production line in smaller lot sizes, where beneficial. Product quality will improve through the reduction of manual labor and the increased use of real-time data to spot errors.
Increasing Efficiency on the Factory Floor
Automation will also increase the efficiency of logistics on the factory floor.
Autonomous transport vehicles will work with consignment robots to adjust in-bound materials on the basis of real-time operations data. These vehicles will be able to find their way around the factory floor using laser navigation and communicate with other vehicles using wireless networks. Consignment robots will automatically find and select the proper materials for upcoming production processes.
In fact, the benefits of automation for logistics will generate the greatest cost savings—50 percent—for the manufacturer. (See the exhibit below.)
Other estimated cost reductions include 30 percent for labor, operating costs, and overhead over five to ten years. Not only will integrated production and logistics processes be more cost efficient, they will reduce cycle times by as much as 30 percent.
Adopting these technologies will require an investment increase of about 35 percent.
Industry 4.0 allows for a faster response to customer needs than is possible today. It improves the flexibility, speed, productivity, and quality of the production process. And it lays the foundation for the adoption of new business models, production processes, and other innovations. This will enable a new level of mass customization as more industrial producers invest in Industry 4.0 technologies to enhance and customize their offerings.
In the automobile industry, small-batch capabilities will allow for more versatility in welding, seam sealing, and assembly using cooperative, autonomous robots.
For example, fixed clamping devices currently used in the welding process will develop into adaptive industrial robots that can hold and spin each piece according to the individual requirements of the welding robots.
As a result, companies will be able to produce multiple car models with different body styles and designs using one flexible production line. Product and plant engineering can be expanded to multiple product life cycles and models.
In the future, the car-making process will be overseen by automatic job-control systems. These will use data integration to modify the manufacturing process automatically, making multiple order systems obsolete. Car component suppliers will automatically adjust their processes on the basis of new orders from the automaker, maximizing just-in-time logistics. This change will reduce the costs of logistics and operations.
Although robots will be more autonomous in the car factory of the future, employees will continue to play a role. Human workers will be equipped with augmented-reality glasses that can put logistics and manufacturing information in their field of vision. The glasses will use virtual reality to highlight the location where each part should be mounted in the assembly process.
Similarly, data glasses will guide consignment employees in selecting the proper parts. Gesture-recognizing cameras will assist workers in performing quality control checks by automatically documenting and storing quality issues, reducing manual paperwork.
These advances will enable auto workers to handle a wider variety of car models while reducing failure rates and enhancing quality control.
During the lifetime of the car, its virtual model, created in the engineering phase and integrating all relevant data, will constantly be updated with performance data and data from exchanged parts.
Using this virtual model, sometimes called the “digital twin,” producers can improve their after-sales service, offer a range of new services, and generate insights that can be used to optimize the design of future cars.
We estimate that in the next five to ten years, these types of changes will generate €25 billion to €38 billion overall in productivity increases for the German automotive industry, or productivity gains of 6 to 9 percent compared with total costs.
As manufacturers demand the greater connectivity and interaction of Industry 4.0–capable machines and systems in their factories, manufacturing-system suppliers will have to expand the role of IT in their products. Changes will likely include a greater modularization of functionality with deployments in the cloud and on embedded devices. With increases in the overall functionality and complexity of systems comes the need for a greater distribution of decision making. In addition, online portals for downloading software and collaborative partner relationships may offer more flexible and adaptable equipment configurations. Automation architectures will also evolve for different use cases. Suppliers will have to prepare for these various scenarios and support these shifts.
Industrial-automation vendors and most machine-tool manufacturers have built significant software-development capabilities—but Industry 4.0 will require even more. In addition, these vendors will have to compete with IT players that are moving into the growing market for shop-floor- and production-related applications and data-driven services.
The growing interconnectivity of machines, products, parts, and humans will also require new international standards that define the interaction of these elements in the digital factory of the future. Efforts to develop these standards are in their infancy but are being driven by traditional standardization bodies and emerging consortia. Germany’s Plattform Industrie 4.0 was the first driver, but the U.S.-based Industrial Internet Consortium (IIC)—founded in March 2014 by manufacturing, Internet, IT, and telecommunications companies—has become a prominent alternative. Subsequently, a new body, the Dialogplattform Industrie 4.0, was formed in Germany to counteract the IIC’s strong position. Several other standardization organizations have ambitions in the field. Strategically choosing participation in these and other bodies and actively shaping the standardization agenda will be critical for manufacturing-system suppliers.