International Finance

Are we in Industry 4.0 yet?

IFM_ Industry 4.0
There is a requirement for committing resources to build separate teams tasked with identifying and prioritising Industry 4.0 capabilities

The advent of the internet triggered the “Third Industrial Revolution” by the year 2000, and concepts like artificial intelligence (AI) and big data were seen as the fuelling factors behind a “Fourth Industrial Revolution.”

“The rise of AI and big data started in the early 2000s. When Google and Baidu, the emerging search engines at the time, used AI-powered recommendation systems for advertising, they found that the results were much better than expected. The more data they collected, the better the results would be. But at the time, no one realised that this would be the case in other fields as well,” stated Yang Qiang, an international expert in AI and data mining, back in 2018.

However, despite the 21st century being the “Century of AI,” the term “Fourth Industrial Revolution” has remained somewhat unheard of among the tech-savvy population.

Also known as Industry 4.0, the “Fourth Industrial Revolution” is a way of describing how connecting different advanced technologies could transform the way we manufacture things. A good example is the increasing usage of AI-powered factory robots, which, as per Forbes, “will help manufacturing by better understanding of demand for products and supply of inputs, with lesser impacts on what happens inside the plant.”

As per McKinsey, At the same time, advanced manufacturing (powered by AI) is now “flourishing in markets where stagnation had seemed intractable.”

The manufacturing sector in the United States, which had been languishing at 1.4% over the past two decades, saw boosts from AI, digital technologies, sustainable features, and higher skill, which has helped it to return to the growth path. The result here is evident, with industrialists in the world’s largest economy generating total shareholder returns of about 400 basis points higher than in the previous 15 years.

Industry 4.0 is all about intelligent machines, connected devices, and informed, data-driven decisions dominating the roost in 21st century global economic order. The phenomenon is revolutionising traditional business models, transforming supply chain management, and redefining stakeholder interactions, noted IMD, adding, “This revolution is reshaping industries and blurring the lines between our digital, physical, and biological realities.”

Factories where machines talk to each other, robots work alongside humans, and systems adapt and optimise themselves, are the prime examples of Industry 4.0 in the play. Technologies like the Internet of Things (IoT), cyber-physical systems, cloud computing, and cognitive computing will become integral to the way we do business.

It will not only revolutionise supply chain management but also open new doors to innovative business models, transforming how we interact with stakeholders along the way.

Meet the key pillars

Internet of Things (IoT) and Industrial Internet of Things (IIoT) are the things we are talking about here. IoT is a network where devices are constantly exchanging information. The same concept, applied in the manufacturing landscape, becomes IIoT. Sensors and other devices gather and analyse data from machinery, leading to increased operational efficiency and more informed decision-making.

“Adopting IoT and IIoT is a strategic move to automate data collection, empowering teams to make informed decisions and optimise operations,” IMD states.
In addition to IoT and IIoT, we also incorporate machine learning and artificial intelligence (AI). They bring to the table the element called predictive analytics (the process of using data to forecast future outcomes). Machine learning and AI enable businesses to anticipate market shifts and adapt quickly, while turning data into a strategic tool for agile decision-making.

Then comes robotics and automation. “It’s not enough to implement automation; the real advantage comes in understanding the symbiotic relationship between humans and machines. Integrating cobots into your workforce can elevate productivity and free human capital to focus on more strategic tasks,” IMD noted.

Another crucial pillar of Industry 4.0 is cyber-physical systems (CPS), which is a collection of physical and computer components that are integrated with each other to operate a process safely and efficiently. Examples of this concept include industrial control systems, water systems, robotics systems and smart grids.
“Successfully integrating CPS means mastering both the digital and physical aspects of the business’ operations. This is crucial for creating a seamless and efficient system that responds dynamically to operational demands,” IMD remarked.

Let’s also talk about 3D printing and additive manufacturing, which enables a venture to reimagine its production lines and supply chains entirely, apart from arming the business with the strategic advantage of speeding up its production cycles and customising products at scale.

Also, concepts like Digital Twin Technology, Augmented Reality and Virtual Reality, come with transformative opportunities for businesses, in terms of overhauling their training, operations, and stakeholder interactions. These technologies not only enhance the customer experience but also create immersive environments for skill-building and remote operations.

Case studies

Any “smart” or “cyber-physical” technology blurs the lines between the digital and physical worlds. Some companies have succeeded in implementing the concept into reality.

Siemens, with its advanced MindSphere system, is showcasing a prime example of “Industry 4.0.” MindSphere’s key component is known as “Insights Hub,” which drives smart manufacturing through the IIoT. Using this digital industry software, companies are gaining actionable insights with asset and operational data, while improving their manufacturing processes.

“Deliver business value with industrial IoT data by implementing reliable asset monitoring, enhancing manufacturing performance and efficiency and enabling quality prediction and much more. Make improved operational and business decisions with data-driven insights,” Siemens stated on its website, while explaining the solution.

“Insights Hub” helps its users connect their assets to the cloud, collect and explore their data, and strategically develop their IoT capabilities. Using intelligent analytic tools, the client ventures can transform their business, processes and products at scale, also creating a competitive advantage, reducing costs and improving quality across the entire product lifecycle and supply chain.

In what seems to be another brilliant application of “Industry 4.0,” global diamond mining firm De Beers in 2022 launched a proprietary blockchain-powered platform, known as Tracr, to manage its diamond production and distribution.

The platform was first piloted and tested back in 2018, with the aim of serving the wider diamond mining industry. De Beers has now incorporated the system into its global operations. The platform will give diamond industry producers and retailers access to tamper-proof records of a diamond’s provenance.

“Authorised bulk purchasers of rough diamonds will benefit from the immutable record of diamond credentials, which will, in turn, provide retailers with the added assurance of a diamond’s pedigree and origin,” reported Cointelegraph on the product back in 2022.

“De Beers has touted the performance of the platform to be able to scale to meet periods of high production. Tracr will be able to register one million diamonds per week on the platform, which is a major upgrade to centralised platforms that have been criticised for struggling with large volumes of data that historically cause bottlenecks in this process,” it added further.

Tracr allows companies and users to control the permission, use and access to diamond data. This goes down to an individual level, with each user given their own distributed version of the platform, much like a traditional node operator in other blockchain networks.

If Siemens’ MindSphere helps companies to optimise their manufacturing activities through real-time tech-assisted monitoring and predictive maintenance, Tracr is all about IoT and blockchain ensuring transparency in the supply chain.

Has Industry 4.0 reached its full potential?

No, as propagated by supply chain researcher Richard Markoff and Ralf Seifert, Professor of Operations Management, International Institute for Management Development.

In an article titled “Why the promised fourth industrial revolution hasn’t happened yet,” published on The Conversation, the two experts had a detailed view of the impact Industry 4.0 technologies have had on the supply and manufacturing chains.

As part of their assignment, Seifert undertook a survey of several hundred senior executives conducted, with the topic being managing supply chains.

“None of the top priorities listed by the executives relate to Industry 4.0. Headline-grabbing technologies strongly associated with the fourth industrial revolution, such as AI and machine learning, the internet of things, robotics and 3D printing are in the bottom third of priorities,” the article stated further.
“Before 2020, digitalisation in the supply chain rapidly gained in importance, while traditional topics, such as integrating supply chain and business strategy, supply chain segmentation and systematically applying sales operations and planning (SO&P) processes were still on top of the agenda in most organisations,” Seifert noted in his survey.

By 2022, the global economy and supply chains, which were in their recovery phases post a tumultuous COVID period, faced threats like geopolitics (Ukraine war) and inflation. Around the same point of time, new topics like supply chain resilience, cybersecurity, and maintaining the talent pool emerged as additional top-priority topics for supply chain executives.

Coming back to Seifert’s survey, done in collaboration with independent research associate Katrin Siebenburger Hacki, it found out most of the respondents continue to report massive gaps between the relative importance of the above-mentioned “Top Priority Topics” and the implementation progress achieved.
“Supply chain executives are busier than ever before and are being asked to keep ever more balls in the air, while dealing with topics where making tangible change is slow,” the survey noted.

Around 350 experts from leading international companies, across a range of industries, participated in a November 2022 edition of IMD’s Global Supply Chain Survey (the one conducted by the Seifert and Hacki). The survey found a prolonged decrease in the relative importance of blockchain for supply chains.

“The weight of AI, as well as of last-mile delivery and micro-fulfilment solutions, also decreased, but they remained more important overall compared to other topics. Meanwhile, maintaining the talent pool in the supply chain organisation, compliance and governance, as well as supply chain sustainability, have steadily risen in importance, the goalposts seem to be moving. Indeed, globalisation of supply chain footprints is the only topic where progress achieved now beats its relative importance,” the study noted further.

According to survey respondents, during 2017-2022, implementation gaps remained in basic competencies such as integration of the supply chain with business strategy and applying a S&OP (Sales and Operations Planning) throughout the entire supply chain. While progress was seen on fronts like digitalisation, big data and real-time data use, and AI, the gap between importance and degree of implementation remained high.

“Certain topics at the forefront of digitalisation and innovation do not yet seem to have reached critical implementation mass in global supply chains – most notably digital twins and control supply towers, as well as autonomous vehicles. We will make sure their importance is tracked over the next few years when technologies and implementation are likely to mature. Furthermore, we are taking a closer look at the gaps between top and bottom quartile companies in all of those areas,” the study said.

As per a 2020 study by accounting giant KPMG, among all Industry 4.0 technologies, only cloud computing had reached an advanced level of implementation. The report also found that less than half of business leaders had a good understanding of the term “Fourth Industrial Revolution”.

The above studies point out two things: a lack of awareness of the adoption of Industry 4.0 technologies and the need to build a business case for expenditure on new technological solutions.

“The more ambitious the technology, the higher the risk and scrutiny is. Not every company has leaders ready to champion and sponsor innovation in the face of uncertain or less tangible outcomes. Industry 4.0 initiatives can also lead to resistance to change among workers. IT departments, trained for years to seek out large enterprise solution providers, hesitate to recommend niche solutions from small companies, especially for technologies they’re not familiar with,” Markoff and Seifert mentioned.

To address this, there is a requirement for committing resources to build separate teams tasked with identifying and prioritising Industry 4.0 capabilities. However, to make this work, Markoff and Seifert bat for “an alignment with the broader business strategies of a company.”

The unprecedented supply chain disruptions since 2020 have pushed executives to consider reconfiguring their supply chains. They are opting for conventional options like “Reshoring” (returning manufacturing to the company’s original country) and “Nearshoring” (transferring manufacturing to a closer-by, rather than more distant, country), as they look to restore the pre-COVID resilience in their supply chains.

Talking about “Reshoring,” we have a June 2023 report from Investment Monitor report, which back then claimed, “Many industries are still feeling the pain of major overseas supply chain disruptions and international trade challenges. Meanwhile, the climate crisis and geopolitical instability demand more robust and future-proofed supply chains. According to an Everstream Analytics survey of more than 10,000 supply chain professionals, 98% of global supply chains have been affected negatively over the past three years.”

Forward-thinking business executives are weighing “Reshoring” as the better choice against the higher costs that may come with another globally disruptive event (chances of which can’t be ruled out).

The 2021 Kearney Reshoring Index saw 92% of executives surveyed had positive feelings toward reshoring and 79% who had operations in China have either started or will be moving at least part of their manufacturing back to the United States over the next three years.

Markoff and Seifert see “Industry 4.0” playing a role in this scenario. Driverless forklifts, or automated guided vehicles (AGVs) can be the best case studies of robotics mitigating rising labour costs. Additive manufacturing (the industrial name for 3D printing) can simplify and reduce the cost of production processes that involve two or more costly steps.

“For supply chains that cross international borders, there will be an added incentive to use digital platforms for improving the ability to track inventory, a term covering everything from raw materials to finished products, and to help transport goods. This will help companies identify unplanned disruptions more quickly and react to them appropriately,” the experts stated further, while concluding, “the very supply chain dysfunctions that made headlines and arguably slowed the short-term progress of Industry 4.0 may yet prove to be the engine that finally delivers its promise.”

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