In 2019, the World Economic Forum and McKinsey & Co. released a whitepaper that describes two ways that Industry 4.0 will transform business. First, implementation of Industry 4.0 capabilities will allow companies to enter new markets and generate new revenue streams. Second, companies will be able to use Industry 4.0 to enhance operational performance.
If you’re reading this and you haven’t yet decided how to adopt Industry 4.0 in your manufacturing business, you’re not alone. According to that same 2016 study, only 16% of manufacturers have settled on a strategy. As set out below, we hope to set you on the right course.
Overview of Industry 4.0
Industry 4.0 – also known as the Smart Factory – was invented in 2011 as a German government strategic initiative designed to protect the German manufacturing sector from low-cost competition from China and other Asian economies. The initiative’s goal was to computerize manufacturing. More specifically, Germany wanted its manufacturing companies to implement cyber-physical systems that had the capability to self-optimize and deliver intelligent product customizations in mass production environments.
Primary Components of Industry 4.0
Industry 4.0 has four essential components, described in the following graphic:
The Impact on Jobs
As with every major industrial change, many worry that Industry 4.0 will destroy jobs through automation. However, if done properly, McKinsey and the World Economic Forum believe that Industry 4.0 should be an “injector of human capital . . . transforming work to make it less repetitive, more interesting, diversified and productive”.
This makes sense. Companies will start collecting analysis-ready mountains of data. They’re going to need data scientists to manage that data. They’re going to need strategic thinkers to decide how to monetize that data, enter new markets, and implement new business models. And, they’re also going to need front-line workers who are closest to the business process to make decisions about optimization. Finally, as operations, machines, and software become increasingly connected, companies are going to have to fill new technical and risk management roles.
How Should You Approach Industry 4.0?
As you imagine your future world, “where should I start?” is probably the toughest question you’re going to have to answer.
We’re going to recommend a six-stage path forward.
- Explore the possibilities: learn about industry trends, modern technologies, and use cases
- Build a holistic strategy: with key technology and business stakeholders, hold a strategic planning session designed to enhance competitive advantages and identify new market opportunities
- Architect: Develop an integrated architecture that covers organizational structures, business processes, technologies, and risk management
- Prioritize the projects: First, you need to get your house in order. This means properly implemented ERP and other enterprise applications, networks, and supporting infrastructure. Once you’ve built your foundation, start with a proof-of-concept project that has strategic value and that’s easily winnable
- Plan the projects: develop detailed project schedules, budgets, and resource plans
- Execute: Get it done!
The Bottom Line
Though industry 4.0 is here, most companies still haven’t figured out what to do with it. You should act quickly. You have an opportunity to get ahead of your existing competition and sneak up on unsuspecting competitors in new markets.
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