What was manufactured first, the Egg or the Digital Chicken?
With Industry 4.0 came great expectations, but the evolution is slower than expected. What lessons can we learn and will Industry 5.0 accelerate adoption?
The concepts of Industry 4.0 and 5.0 paint an exciting and transformational vision for manufacturing. Where organisations have embraced this change at scale, we have seen significant advantage created.
The concepts of Industry 4.0 and 5.0 paint an exciting and transformational vision for manufacturing. Where organisations have embraced this change at scale, we have seen significant advantage created. However, it appears that many organisations are yet to pass the exploratory stage. According to IOT Analytics, less that 30% of manufacturers have adopted Industry 4.0 extensively1. Other analysts place this figure considerably lower citing Industry 4.0 technologies as being adopted in silos rather than at scale across the operation.
It may be the case that Industry 4.0 initiatives are simply failing, after all a McKinsey 2022 study2 found that over 70% of digital transformations fail. Alternatively, it may be the case that we are stuck in ‘pilot paralysis’, where ‘initial ROI’ is not representative of ‘ROI at scale’ and as such, procrastinating wide-scale rollouts – a true chicken and egg dilemma.
From a pragmatic perspective, the stage is perfectly set. The need for change is clear and recognised by industry leaders, and advances in both foundational IT infrastructure and manufacturing specific digital technologies enables this vision to become a reality.
In this paper we dig deeper into the drivers, the capabilities, and the blockers to Industry 4.0. We share our thoughts on how to accelerate the adoption and benefits of digitalisation and move further to Industry 5.0 in order to gain that all- important first mover advantage.
We see a consensus across CEOs for the need to transform; this is echoed by EY’s CEO Outlook Survey3, where 72% of executives stated that their organizations must radically change.
There is also a recognition that doing nothing is not an option, with nearly half of execs believing that manufacturers could cease operations in the next decade unless action is taken, according to a Forbes Tech Council report4.
What is driving this is a range of political, economic and social factors that are all putting pressure on manufacturers. EY’s survey found that 43% of CEOs placed future pandemic-related disruption as their greatest threat to growth, closely followed by increased geopolitical tensions (35%), climate change impacts (34%), sustained inflation and higher input costs (34%), increased cyber security risks (31%) and fragmentation of the global economy (30%).
All of these factors drive the need for greater agility and this comes from embracing digitalisation, Industry 4.0 and Industry 5.0. This was clearly demonstrated by the way those organisations further along their digital journey navigated the pandemic far better than those not so advanced.
PWC’s Digital Factory Transformation Survey5 reveals an interesting shift in the drivers for transformation.
Whereas cost leadership and improving efficiencies was the dominant driver at 46%, future trends show this dropping to 27% and being superseded by resilience & agility at 34%.
The increased focus by consumers and supply chains on sustainability has fuelled the greatest shift in priorities with the importance of sustainability seeing a 148% increase and a trajectory that will surely continue.
These trends in priorities are significant for the adoption of both Industry 4.0 and Industry 5.0. Whereas transformation was solely focus on cost savings, there are now a much wider range of strategic imperatives that not only justify transformation, but positions such change critical
The past decade has delivered some significant advances in both information technologies (IT) and operation technologies (OT) to the extent that in certain areas the technology is outpacing our ability to transform and embrace what is now possible.
Some of these technologies are highlighted by Forbes13 who describe how Intralogistics Smart Robots are bringing intelligence and sensory awareness to enable them to work independently from humans and automate processes. Also, how AI, Machine Learning and Deep Learning is transforming how data can be analysed to unlock a wealth of actionable insights across the end-to-end supply chain.
However, it is key to remember that it is not the technology alone that transforms industries, but how we apply the technology to enable and drive transformation.
To drive and realise the value of change, organisations need to create teams of talent that both understand these new technologies and can operationalise them to deliver on the vision and goals of Industry 4.0 and 5.0.
AI and ML is transforming automation, leveraging intelligent models to make decisions without human intervention, streamlining processes, removing human error and collecting a wealth of digital intelligence.
Industrial IoT (IIoT) is transforming how we digitally connect everything. From monitoring equipment through to tracking core components through the production process. IIoT is providing us with real-time, mission-critical insights to better understand and manage every aspect of performance.
3D printing technology has helped companies make faster and cheaper prototypes, innovations in this field have almost halved costs while delivering twice the performance.
To truly deliver on IIoT, connectivity is required to support large volumes of data with low-latency. This capability is delivered by the fifth-generation mobile network which delivers exponentially greater bandwidth and speed.
By combining IIoT monitoring with AI/ML you are able to perform predictive maintenance, resolving issues before they affect production and prolonging life of equipment.
Through leveraging a digital twin of your production line, you are able to test scenarios and simulate to enable greater agility.
Is helping manufacturers to simulate production line environments to understand and optimise for performance. They are able to do more effective training to accelerate skills of both operators and maintenance engineers.
When Henry Ford embarked on transforming car production, he had no digital twin or simulated model; all he had was a vision. The world today is very different, yet from these figures we see significant caution in embracing Industry 4.0.
We believe, unfortunately, it is a combination of both fear of failure and a lack of success.
A demand for immediate ROI means a lot of Industry 4.0 initiatives simply never start. Organisations are wrongly
evaluating transformational initiatives against standard ROI models that in many cases just don’t stack up.
We also believe there is significant ‘pilot paralysis’ happening and in a similar way as above, an isolated pilot is unlikely to demonstrate the scale of ROI to drive wider adoption.
However, there is also lack of success, like wider digital transformation, there is a plethora of failed projects and these are as a result of numerous reasons that we will explore.
Source - Everest Group Strategy Workshop on Industry 4.0, 2021
A Forbes6 article places the risk of transformation projects at 84%, a staggeringly high number that is supported by McKinsey, BCG, KPMG and Bain & Company that collectively place the risk at between 70% and 95%.
Gartner7 believe that a fundamental reason for failure is the wrong mindset. Transformation is considered a project rather than a program or journey. Initiatives are kicked-off without a clear vision and strategy and failure to gain buy-in from key stakeholders.
Another fundamental reason cited in a CIO8 article is culture shock, an overriding resistance to change. This often arises from lack of clear vision. If people understand and buy into the reason for change, they are more likely to support and embrace the strategy.
To adopt the next generation of industrial manufacturing processes of Industry 4.0 and Industry 5.0 requires foundational digital transformation and according to McKinsey12 this includes cloud adoption, data modernization and embracing modern technology architectures.
As such, embracing Industry 4.0 and 5.0 requires for this to be a key part of a strategic vision that is clearly communicated, understood and embraced – this is essential for success.
Many early Industry 4.0 initiatives were evaluated and measured on a single factor and this was primarily the reduction of production costs. Unfortunately, the scale of investment required meant lengthy time before ROI.
The reality is that both Industry 4.0 and Industry 5.0 have multi-threaded benefits. For example, leveraging IoT and ML to make better use of renewable energy can drive down costs while improving sustainability. Leveraging proactive/predictive maintenance can ensure greater agility, prevent wastage and reduce outage cost.
Shorter ROI for transformational initiatives can come from taking a holistic prospective - understanding the cumulative impact that each initiative is having and evaluating return based on multi-threaded value across all of the businesses strategic imperatives.
It is not just about creating synergistic outcomes, it is also about breaking down the silos and driving initiatives that can provide a cumulative return greater than the component parts.
This is shown in a McKinsey9 article that highlights that those companies at the front of the Industry 4.0 pack are gaining benefits across the entire manufacturing value chain.
This comes from reviewing the end-to-end network and identifying where the greatest impact can be made. It is about looking at synergistic use cases rather than each use case individually.
McKinsey10 in conjunction with World Economic Forum share where their Lighthouse sites have succeeded by combining Use Cases to create far better synergistic return through both cumulative value and the fact that they share the investment in common Industry 4.0 technologies.
By investing in cloud infrastructure, IIoT, 5G or data analytics across multiple Use Cases will undoubtedly generate a far quicker time to value
It is ironic to accuse the manufacturing industry of reinventing wheels, but this is happening every day as organisations look to explore Industry 4.0 and Industry 5.0 initiatives.
Some industry sectors are succeeding with Industry 4.0 and 5.0 faster than others. ABI Research11 calls out Automotive, Electronics & High Technology, Oil & Gas and FMCG as those sectors leading the way, but this is not a sector-specific transformation.
Great benefits can be gained by embracing what we term ‘CrossPollInnovation’ - looking at what other sectors are doing and drawing on cross-industry sector experts to make significant strides forward rather that repeating lessons and falling prey to already known pitfalls. The secret is to recognise that digitalisation is a combination of innovation and engineering.
Those organisations that have embraced Industry 4.0 and/or Industry 5.0 at scale are already starting to see significant and wide-reaching advantage:
We truly believe that organisations need to look beyond single-threaded ROI to understand the true value of transformation; they need to explore synergies both with use cases and across use cases and learn from others.
Who knows what was manufactured first, the chicken or the egg, but we do know in the future, it will be digital and automated.
L&T Technology Services Limited (LTTS) is a global leader in Engineering and R&D (ER&D) services. With 1033 patents filed for 57 of the Global Top 100 ER&D spenders, LTTS lives and breathes engineering.
Our innovations speak for themselves – World’s 1st Autonomous Welding Robot, Solar ‘Connectivity’ Drone, and the Smartest Campus in the World, to name a few.
We are engineering the change and both Industry 4.0 and Industry 5.0 are key components of this.
We can help you refine and clarify your strategy, guide you on what is possible and be your transformation partner from ideation through to delivered value.
https://iot-analytics.com/industry-4-0-adoption-2020-who-is-ahead/
https://www.mckinsey.com/capabilities/transformation/our-insights/common-pitfalls-in-transformations-a-conversation-with-jon-garcia
https://assets.ey.com/content/dam/ey-sites/ey-com/en_gl/topics/ceo/ey-ceo-outlook-pulse-survey-october-2022-global-report-v2.pdf
https://www.forbes.com/sites/forbestechcouncil/2022/10/31/manufacturers-are-making-progress-toward-industry-40-but-we-still-have-work-to-do/?sh=77570b627bdc
https://www.pwc.de/en/strategy-organisation-processes-systems/operations/digital-factory-transformation-survey-2022.html
https://www.forbes.com/sites/forbescoachescouncil/2022/03/16/12-reasons-your-digital-transformation-will-fail/?sh=b7587f1f1eea
https://imaginovation.net/blog/why-digital-transformation-fails-and-how-to-avoid-it/
https://www.cio.com/article/228268/12-reasons-why-digital-transformations-fail.html#:~:text=Lack%20of%20vision%2C%20leadership%20support,wrong%20turns%20or%20fizzle%20out.
https://www.mckinsey.com/capabilities/operations/our-insights/capturing-the-true-value-of-industry-four-point-zero
https://www.mckinsey.com/capabilities/operations/our-insights/transforming-advanced-manufacturing-through-industry-4-0
https://www.abiresearch.com/market-research/product/7781328-4-key-industries-embracing-industry-40/
https://www.mckinsey.com/capabilities/mckinsey-digital/our-insights/the-new-digital-edge-rethinking-strategy-for-the-postpandemic-era
https://www-forbes-com.cdn.ampproject.org/c/s/www.forbes.com/sites/forbestechcouncil/2023/04/20/how-advanced-industry-40-solutions-are-proliferating-smart-factories/amp/
