The digital manufacturing revolution or Industry 4.0 (I4.0) is the latest in a long line of major disruptions in the manufacturing sector. In the past, we called these major disruptions “industrial revolutions”. With each revolution came skepticism and resistance. Yet, as firms began embracing disruptive technologies – steam power, electricity, computers — they began to enjoy the fruits of enhanced productivity, better product quality and more reliable manufacturing processes. I4.0 is no different. It may take time for some manufacturers to fully embrace the core elements of I4.0, but the firm-specific and economy-wide benefits are undeniable. The consequences of being left behind are clear from past revolutions.

The term “Industry 4.0” was coined as part of a new industrial strategy launched by the German Government in 2003. At its core, I4.0 is an approach to manufacturing that comprises capturing and utilizing data from input sensors installed on industrial machines, thus enabling tracking and optimizing of every stage of the manufacturing process.  Combining real-time data with low-cost computing power enables better manufacturing outcomes from design to delivery.

There is no “one-size-fits-all” application of I4.0.  Different elements will drive value creation in different firms.  Convincing examples abound. In addition to optimizing design and production processes, firms can also use data to optimize logistics and supply chains. A delayed shipment can be immediately flagged using systems that track the movement of inputs and product. Manufacturing priorities can then immediately be re-adjusted via a “digital thread” that links to production processes. Optimization of workspace is another example of a major advance facilitated by I4.0. Leading firms now use robots programmed for floor space optimization to organize their merchandise around the warehouse.

If the benefits are obvious, why are some firms putting off adoption of I4.0 technologies and processes? Implementation challenges are certainly significant: up-front costs, uncertain payback and skill-gaps, to name a few. Assessing the best starting point is itself a major stumbling block. Revamping any manufacturing process may require an investment in equipment, software and the retraining of existing employees. Sharing sensor data across the cloud evokes cybersecurity concerns. These are legitimate issues, but every industrial revolution has brought with it the need to learn, invest and adapt. I4.0 is no different in this regard.

The replacement of manual labour with machinery, equipment and systems operated by higher-skilled workers has been required in each industrial revolution. It is also true that each past disruption created jobs in new fields as well as requiring new skills of existing employees. In the case of robotic systems, some repetition and dangerous work will be taken over by machines. However, there will also be greater demand for operators, engineers, programmers and data analysts to design and build systems, operate and maintain the machinery and systems, as well as make sense of and create business value from the substantial amount of data being captured.

Firms adopting I4.0 technologies and processes need to proceed deliberately. Investments in new equipment and software can be a costly failure in the absence of a well-planned strategy. Understanding production processes and identifying the areas that can be optimized using a tailored application of I4.0 can lead to strong benefits for the firm, but only if the necessary groundwork is completed.

What are the practical consequences of not adopting I4.0 technologies and processes? One of the daily challenges faced by manufacturers is identifying how to reduce costly quality problems and unplanned maintenance of machinery.  The true cost of quality problems comes in the form of repair, rework, scrap, service calls and warranty claims. For some companies, this amounts to approximately 10-20 percent of total cost. This amount compounds through supply chain. Eventually, the customer confronts the cost in the form of higher prices. Likewise, the cost of unplanned maintenance drives down profitability through lost production and higher unit labour costs. A recent survey in the automotive assembly industry estimated the total cost of downtime to be approximately $22,000 per minute. I4.0 technologies and processes help manufacturers avoid these costs, thus allowing them to compete by lowering prices without reducing margins. Moreover, I4.0 savings allow manufacturers to reallocate resources towards investments in training, R&D and enhancing overall productivity.

Lower productivity levels, higher costs and higher prices are the consequences of being left behind in the race to adopt I4.0 technologies and processes. Firms will find it increasingly difficult to compete and will inevitably be driven from the market. The digital approach to manufacturing will displace the soon-to-become-obsolete. Firms with ambitions for growth need to develop and act on strategies that build on elements of I4.0. Firms that have chosen to survive and thrive in the face of this latest industrial revolution are already reaping the benefits.


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