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Intelligence squared

09 January 2018

Industry 4.0 has received a lot of hype, but while this is usually off-putting, that doesn’t mean it won’t have a real impact on manufacturing and its supply chain, logistics and material handling challenges. HSS editor Simon Duddy reports.

I see Industry 4.0 as somewhat analogous to the online boom that hit the retail world and the logistics operations that serve it.

There is some technology and terminology overlap.

Think of IT systems, the huge amounts of new data generated, and the visibility provided by understanding this data.

There’s some differences too. I think the key one is the feverish consumer demand that made the online boom so disruptive is absent, or at least at a step removed. Here, most of the demand will come from managers seeking to make products on shorter runs, be more responsive to customer demand, and do this while cutting costs.

Before we go any further, let’s define Industry 4.0 quickly. It’s the application of pervasive IT to manufacturing technology. This means sensors just about everywhere, with software, perhaps working autonomously, analysing the data created to spot trends and allow managers to improve operations.

This is not just driven by new technological capability. Yes, AI is improving, as it 3D printing and automation, but arguably the main driver is China. It is no accident that Industry 4.0 was created in Germany, home of the best advanced manufacturing in the world.

They have most to lose from the rise of China as an industrial power. German industry concluded it cannot stand still, and Industry 4.0 sees it push further into higher technology, software and services as the Chinese will [very probably] make standard manufacturing a low-profit commodity business over the next 20 years.

Matthias Breunig, partner at McKinsey says: “Traditionally, leading manufacturers have focused on selling hardware. But now it looks as if these days may well be over. The balance of power is tilting toward Asia−Pacific. The very price-competitive copies of US and European machines they offer along with their own innovation power are positioning Asia−Pacific as the new global machinery powerhouse, which increasingly also includes special machinery.”

One example of this competition is in the aviation industry where in May 2017 China and Russia kicked off a joint venture to build a wide-body jet aimed at competing with market leaders Boeing and Airbus.

The response of the two airline giants is a campaign to drive down cost. Denzil Lawrence, supplier development, Boeing commercial airplanes told the Advanced Engineering exhibition it was changing its supply chain strategy due to competition from China.

Lawrence says: “Neither us nor Airbus want to be number two in the market when the Chinese emerge with this product. They will aim to take out the company in the number 2 position. We need to smarten operations to make sure we are number one for the next century.”

The last generation in aviation was all about improving performance using new materials. Now it is about cutting cost without compromising quality.

Lawrence continues: “Our customers want more for less and 65% of our cost comes from the supply chain. This isn’t just a cost cutting exercise. We need to work in partnership. Consider delivery discipline, cost reduction, throughput increase, supply chain visibility etc and tell us where you can add value. Position your expertise in these areas. Get to know your own supply chain. We are aware that much of the innovation, value and cost reduction is coming from tier 2-5 components.”

It is clear that manufacturers in the UK need to move up the value and technology chain if they want to avoid simply competing on price. McKinsey quotes a number of manufacturers using AI tools to gain advantage. For example, an aerospace manufacturer applied AI technologies to revamp its assembly, supply chain and fault detection.

It reaped €350 million in savings, with nearly 60% coming from using advanced analytics to review data from every step in the assembly process and then rewriting standard operating procedures based on the results.

The rest came from using machine learning algorithms, collaborative robots, and self-driving vehicles to improve warehouse costs and reduce inventory levels.

Another example is Motivo, an artificial intelligence startup, who deployed predictive analytics using machine learning to compress semiconductor design processes from years to a few weeks, saving chip makers the cost of iterations and testing.

A helping hand

The Manufacturing Technology Centre (MTC) was founded after the recession in a bid to stimulate innovation. The Government’s analysis concluded the UK was great at new ideas, and universities, and also very good at industry. The weak spot was taking new ideas and maturing them.

Lina Huertas, head of technology strategy for digital manufacturing, MTC says: “MTC started work on the 4th Industrial Revolution four years ago. It is a response to increased global competition, a recognition that supply chains are dynamic networks that need to adapt quickly to change, and a desire to use the untapped potential in data.” The knock-on impact on logistics, materials handling and supply chain is clear.

Lina adds: “If you bring IoT principles into factories, for example, flexible production, it will certainly have an impact on the supply chain, in terms of products in and out. This could have an impact on equipment needed, and will certainly have an impact on the exchange of information in the supply chain.”

Professional services giant AECOM anticipates that autonomous AGVs have huge potential to shake up the manufacturing industry.

Lars Skogmo, process and automation technology and innovation lead at AECOM says: “They can rationalise manufacturing processes such as conveyance between processes, parts supply to production lines and cellular manufacturing lines. This can deliver great efficiencies when compared with traditional conveyer lines. “The factories of the future will also have ‘swarm intelligence’, an emerging field of biologically inspired artificial intelligence. This can be used to develop self-learning systems, so every piece of equipment has infinite flexible paths.”

Another example of innovation is 3D printing of parts. VTT Technical Research Centre, Finland and Aalto University say 5% of spare parts could be stored in digital warehouses. Spare part information is stored and transferred digitally, with parts 3D-printed according to need, close to the end user.

This would make parts more quickly and easily available, while creating cost savings. It may also make part customisation easier.

Big production plants often maintain large spare-part warehouses, where parts can wait long periods before being used. “Capital is released for more productive use when stock decreases.

Another major opportunity lies in reducing downtime through faster spare-part manufacture,” says Mika Salmi, project manager of the project for Aalto University.

First steps

It is one thing to recognise the new technology over the horizon, it’s quite another to harness it to your company’s benefit.

MTC’s Lina Huertas says the main thrust of Industry 4.0 is not technology in itself, but more about the data that is accessed due to the technology and having the intelligence to extract value from it.

“The main mechanism is intelligence. Technology and innovation is key, but it’s more about process and being able to handle change. In addition, before investing in technology, thoroughly understand the value you need from data. Avoid implementing technology for the sake of it. Also, perhaps data can be used at the machine, giving the operator autonomy. Only gather data further up the business if value can be extracted from it. In terms of getting things off the ground, find the first steps that will be big wins. At the same time, get buy in, or people will feel it is something ‘being done to them’.”

Lina predicts Industry 4.0 will bring a big human resources challenge.

The dark side of the Force

It won’t be all plain sailing for Industry 4.0, artificial intelligence et al.

Given how disruptive it could be, it may have to brace itself for a backlash, such as that faced by genetically modified food. Consultancy Accenture writes of the disruptive power of Industry 4.0.

“Once industries become digital, they also become digitally contestable, meaning companies from outside the traditional industry can enter and compete more easily. Think of Google’s moves into driverless automobiles, which are likely to disrupt multiple industries, including car insurance and government licensing.”

Increasing reliance on IT systems in the industrial setting also broadens the scope for hackers to hijack these systems.

Accenture again: “What can go wrong when manufacturing plants, equipment or remote facilities are interconnected and online? Plenty—including disruptions to operations, sabotage and loss of life from broken infrastructure, cyber attacks and data theft by criminals, foreign governments and disgruntled employees.

Recently, an oil rig’s control systems were reportedly hacked when saboteurs were able to tilt the rig’s platform, while another rig became so riddled with computer malware that it took weeks for the operator to make it seaworthy again.”

There are also safety concerns regarding driverless transport, despite the advances it continues to make. Gunny Dhadyalla, principal engineer at the National Automotive Innovation Centre spoke recently at Advanced Engineering.

He is concerned with testing connected, autonomous, intelligent vehicles with the aim of making sure they are safe, reliable and accepted.

“We have some way to go. I attended a conference in Germany with an audience of safety engineers. They were asked to raise their hands if they would let autonomous vehicles drive them home. No one did. There are still lots of problems to solve.”

“The main mechanism is intelligence. Technology and innovation is key, but it’s more about process and being able to handle change. In addition, before investing in technology, thoroughly understand the value you need from data. Avoid implementing technology for the sake of it. Also, perhaps data can be used at the machine, giving the operator autonomy. Only gather data further up the business if value can be extracted from it. In terms of getting things off the ground, find the first steps that will be big wins. At the same time, get buy in, or people will feel it is something ‘being done to them’.”

Lina predicts Industry 4.0 will bring a big human resources challenge. “We need to make sure we benefit society with this change, we have a responsibility to bring people along. You need to think about talent early, and how to re-deploy people if machines take jobs. This can be about skills such as analytics and software, but also about leadership and business roles.” Some firms are ahead of the curve.

Maketime is an Uber-style firm for manufacturing capacity. A company can upload CAD files to a library, showing parts required. The App matches the parts to the best supplier and places orders, streamlining procurement. Another example is a UK company, Automata, which produces a 3D printed robot arm called Eva, which costs under £5,000 and is said to be able to be set up in 15 minutes.

John Phillips, SVP Customer Supply Chain & Global GTM, PepsiCo told a recent Gartner Supply Chain conference that AI had more potential in the supply chain world than almost any other sector or discipline. But he sounded a note of caution.

“The Internet of Things and putting in more sensors allows you to make better data-driven decisions. But don’t underestimate the preparation that has to go into this to get these data engines to work well for your operations. Improve data hygiene. Bad data equals bad answers.”


Echoing Lina’s comments, grasping technology is not likely to be the main hurdle. Improving integration and communication in the supply chain will be important and that comes down to company culture first and foremost.

Consultancy Crimson & Co has researched this and concludes that companies often lack Industry 4.0 readiness because they have not reckoned with the culture change required.

No approach is a silver bullet. Manufacturers increasingly demand supply chain agility, which is great if it creates shorter lead times and more flexibility in service, but dancing to the customer’s tune could also lead to greater inventory and therefore higher costs.

It is said Industry 4.0 can help by offering real-time information about operations throughout the supply chain enabling better response to customers’ needs. But this does require integration and collaboration. And as Crimson has identified, this is about culture as well as technology.

“Research shows that one of the biggest challenges in Industry 4.0 implementation does not lie in how companies apply individual technologies or make improvements in single business functions, but in how effective they are at developing an integrated supply chain approach that connects with suppliers and customers. This is the only way to fully exploit the potential that Industry 4.0 offers.”

For many companies, this requires a maturity beyond that exhibited in their traditional supplier and customer relationships.

Jonathan Gibson, associate director, Crimson & Co adds: “It appears many companies believe investment in IT and advanced technology will drive and sustain change, but the key is actually to ensure that the correct skills and culture exist to drive this transformation.”


Industry 4.0, with automation, AI, machine learning, 3D printing and so on will hit manufacturing and its supply chain and you must brace yourself, like it or not.

It will be wise to tread carefully, but companies that implement new solutions that align well to business aims, and who invest the time and energy in creating a supportive culture will become the next generation of industrial leaders.