Industry 4.0 Why now?
As you probably know, the concept of Industry 4.0 has been around for a number of years and we have seen many prototypes and proof of concept implementations. I think that there is widespread agreement that Industry 4.0 provides significant business benefit but that there is still huge opportunity to be realized .
McKinsey found in a survey in May 2017 that only 30% of pilot projects in the area of Industry 4.0 have been scaled globally. This is in line with SAP’s experience at our customers and this is why we have set up our Industry 4.Now program consisting of software solutions and services, to ensure that our customers really benefit from their Industry 4.0 initiatives getting past “pilot purgatory”, moving seamlessly from prototype to global roll out to realize the full benefit of industry 4.0.
What does that mean for industrial manufacturers?
Beyond the threat from disruptive competitors and the widespread availability of new technologies there are other factors that are pushing industrial manufacturers to change the ways they work to deliver products and services faster than ever.
These factors include rising customer expectations, this means that industrial manufacturers want to offer personalized products. Not just provide them but being able to manufacture and deliver these individual products and services at scale at a cost-effective price. This need for mass customization increases complexity and drives demand for digitalization of the sales, the supply chain and the manufacturing processes. The ultimate aim is to have efficient processes that can handle a lot size 1. Leading consulting firms for medium and large manufacturers see this clearly in their studies: Staufen Consulting calls it “Increased internal complexity through growing diversification and customer-specific solutions (lot size 1).“ and McKinsey has referred to the need to “Enable mass customization, upholding high throughput and consistent quality“
In addition, as products become commoditized, industrial manufacturers are looking to improve profitability and customer loyalty by providing value added services. This helps them diversify and increase their share of wallet, and opens the opportunity to provide end to end solutions for their customers. However, this evolution from product to system provider puts new demands on industrial manufacturers. They need to be able to support different processes, products and software; develop different ways to analyze value and risk, and hire or develop different employee skills and qualifications. To be a successful system provider, industrial manufacturers need to leverage the latest technology to provide remote monitoring, develop benchmarking, and deliver outcomes to create value for their customers. This is backed up by McKinsey research (“The services solution for unlocking industry’s next growth opportunity” January 2019) which has shown that increasing well executed services can increase customer satisfaction by 10 to 20 percentage points and reduce costs by 15% to 25%. And Bain research concludes that this is a huge opportunity as “European equipment makers expect their share of revenue from advanced service contracts to more than double by 2024, in their study “Advanced Industrial Services: Big Data and Analytics Change Everything”, published April 16. 2020.
While introducing these new business models and other new opportunities, it is important to still keep a high level of operational excellence: In fact offering new service models and individualized products makes it even more important to continue to keep cost, quality and efficiency under control as they are taking on more risk. Manufacturers need to immediately identify opportunities to reduce cost, be able to react quickly to changing demand and be able to locate quality issues as soon as possible.
Industry 4.0 strategies and digitalization projects help reduce costs while maintaining / improving quality – but as always – these technology projects need ownership of the business to be successful. Bain studies state that there can be a 10%-20% efficiency gain by digitalization (Bain & Company: „Digital Operations: Don’t Depart without a Strategy”) So it is more important than ever that Industry 4.0 leaders set clear goals to achieve speed, agility and efficiency.
Over the years, Industry 4.0 has developed from an academic debate to become a strategic differentiator. Yet, many companies have not realized the benefits yet, which is why we at SAP think the time to act is now. That is why we call it SAP Industry 4.Now.
So how does Industry 4.0 fit into the overall digital world? To be successful in today’s digital world, to be able to simultaneously innovate and operate effectively, companies need to become intelligent enterprises. Intelligent enterprise can weave together formerly siloed processes, using intelligent technologies, and real-world data threads from customer and employee experiences. This enables them to run integrated, automated processes, have machines on the factory floor that talk to each other and processes, and have connections to the real world that enables their business processes to make smart decisions autonomously. Industry 4.0 initiatives bring automation to the entire manufacturing process and integrate it with logistics, sales and service. They also help connect industrial manufacturers to the entire network of suppliers and innovation-partners, as in the digital economy you can’t win alone.
Industry 4.0 initiatives address the need to embed intelligent technologies and incorporate real-world data signals into end to end processes. Industry 4.0 initiatives allows customers
to build Intelligent Products that are designed to monitor and maximize performance over time, while meeting customers’ precise and unique configurations,
to design and operate Intelligent Factories, running as autonomously as possible, using data and intelligence (artificial intelligence, machine learning, predictive algorithms to name a few),
to leverage Intelligent Assets, linked to every process and which are dynamically and optimally maintained
and finally, to enable Empowered People that are equipped with the tools, information and systems they need to do their best work.
Approaching Industry 40, strategically across all these themes will make a difference, driving tangible business outcome at scale. And this focus on end-to-end processes that is required to realize the full potential of Industry 4.0 initiatives, also helps companies become intelligent enterprises.
To find out more please visit our Industry 4.Now landing page at sap.com