Industry 4.0 is changing the manufacturing sector, and will have a significant impact on the global economy in the next 5 years.
Built on the foundation of the "Internet of Things" (IoT), an interconnected web of smart machines and devices that talk to and interact with each other autonomously, Industry 4.0 is altering the landscape by creating intelligent networks of machines and systems that will increase horizontal and vertical integration.
From preventative maintenance programs that will help reduce machine downtime, to the ability to track products throughout the supply chain, Industry 4.0, if embraced effectively, will give firms the opportunity to realize significant operational and functional competitive advantage over industry rivals.
Real world applications
As an example, consider 'just in time' manufacturing. This is not a new concept, but to reap the benefits organizations have needed to deploy significant human and technical resources. In the Industry 4.0 model these same organizations can now use analytics and networks to manage their supply chain at significantly reduced costs. Now they can connect directly with customers and suppliers in real time to monitor the flow of materials, predict problems before they occur, and provide bespoke changes to products quickly and efficiently. Reducing the marginal costs of bespoke products while operating a mass production system is a Holy Grail for many organizations.
With increased operational efficiency comes the ability to expand R&D horizons and offer value-added products and services, generating entirely new revenue streams and routes-to-market that can improve the top (and bottom) line of any business. Companies can tailor a product to give the customer a bespoke offering that makes them feel like a VIP and generates significant emotional attachment to the supplier. This is invaluable in today's business world.
Caterpillar, the multi-national manufacturer of construction and mining equipment, has developed a method of using analytics to interpret data sent directly from its machines. This information is used by dealers to manage preventative maintenance programs and proactively resolve technical problems, allowing their customers to run a more efficient fleet.
Embrace 4.0 to stay competitive
Most analysts have only scratched the surface of what Industry 4.0 can mean for markets and industries. But, even early predictions are concerning.
Some manufacturers will surely double down on Industry 4.0 and seek to build interconnected devices, machines, and plants in a IoT framework. What are some scenarios?
- More and more industries characterized by the ability for some organizations to offer personalized, local production and mass customization of products
- A rapid disintegration of some value chains, as steps along the value-adding process from raw materials to distribution channels are eliminated thanks to smart, interconnected machines and associated processes
- A dramatic shift in buyer and consumer expectations, as highly customized products that can be manufactured and distributed quickly -- maybe even in hours -- become the norm
- Enhanced sustainability efforts, as manufacturing operations can be scaled down and use less inputs and natural resources
As with most industry disruptions, manufacturing organizations have a choice: either embrace Industry 4.0 fully, or take a wait-and-see position. In either case, new strategy planning and competitive intelligence approaches are necessary to optimize either choice. Indeed, many organizations are using approaches such as scenario-based strategic planning and competitive simulations to fully understand and model the implications on their industry and their own operations of the evolution of Industry 4.0 thinking.