Industry 4.0 manufacturing ‘moving from buzzword to tangible lever,’ but focussed application is key

22 August 2017

Digital manufacturing – also known as Industry 4.0 or using technology and big data analysis to improve manufacturing processes – is now beginning to be implemented across the automotive industry, with scale impact improvements realised typically in the region of 5-7%. This is a very significant boost to competitiveness in what is largely a low-margin sector of the industry. 

The information was revealed in the McKinsey webinar ′Digital Manufacturing: Capturing Sustainable Impact at Scale,’ which the consultancy stresses will be a much more rapid revolution to manufacturing that previous revolutions. This is because this 4th industrial revolution (the previous being automation) is based on so-called cyberphysical systems, rather than slow physical plant equipment improvements which required a high level of capital investment. It is all about creating ′connected’ equipment, whose data is then collectively pooled and analysed, and only requires partial replacement of physical equipment to achieve this. And crucially, this data pool is then analysed to identify points where additional efficiency or value can be realised. 

However, McKinsey partner Richard Kelly says that while many manufacturers are aware of the advantages such new technologies can provide for their business efficiency and impact, a clear perspective on where manufacturers can create value from these technologies is ′generally lacking in the companies we speak to.’ Cologne-based McKinsey partner Andreas Behrendt adds that regarding the use of big data to improve manufacturing processes, ′90% [of companies] probably still don’t know what they need, [and] those that do don’t know where to get it from.’ He highlights that, while Industry 4.0 is ‘moving from strong buzzword to a tangible lever,’ this very data management, as well as a lack of talent to unlock its value, are the main obstacles for realising the key Industry 4.0 improvements to auto industry manufacturing. 

Behrendt is also keen to stress that this lack of talent does not mean it is necessary for everyone to have advanced statistics knowledge, in order to analyse big data to improve industrial process efficiency and address ′pinch points’ in the system. What is necessary is knowledge of how to analyse the data in terms of return on investment – with software tools including those of McKinsey available to help non-specialist and managerial staff realise the targeted benefits desired. 

Digital manufacturing can be unpicked into vast array of ′levers’ that can be used to realise value – from popular levers such as ′predictive maintenance’ to ′real-time yield optimisation’, ′data-driven demand prediction’ and ′human-robot collaboration.’ Such levers, of which there are dozens, can be helpfully split into eight primary value drivers, according to McKinsey: service/aftersales, resource/process, asset utilisation, labour, inventories, quality, supply/demand match and time to market. ′Digital technologies’ themselves are not value drivers – they drive familiar existing manufacturing metrics. 

McKinsey stresses that it is creating value that is key – not focussing on the technologies themselves. You identify the lever which can be used to realise the maximum value benefit, develop a business case that leads to a conceptual design. and then identify and use the associated Industry 4.0 technology to achieve these maximal returns. McKinsey says that one client at advanced stages of Industry 4.0 implementation was realising returns of around €5 billion (30% EBITDA improvement). 

Many of the best levers to realise the greatest value returns, McKinsey says, can also be put into one of three categories: automation (in terms of production, logistics and quality), digital management (for production and maintenance) and advanced analytics (which applies to maintenance, production and quality.) Locking down the tangible areas of improvements is critical to developing score cards to quantify and measure these improvements as part of the business case development stage. Kelly says it is important to have an ′extremely clear view about where [the tech-value solution] will be [integrated].’ 

Realising the full benefits from digital manufacturing also requires the auto industry to continue to work to break out from its traditional approach of doing most work in-house, and especially breaking down ′functional silos’ in manufacturing to create a much more flexible approach. McKinsey says that a fundamental component of this is creating a much more collaborative environment, and that, Kelly says, ′working with a much larger number of tech partners including some startups is going to be key.’ Another component will involve the development of new visual processes (NVPs) around core production processes to improve productivity, including developing and refining products to address ′pain points’ in the system. 

McKinsey also highlights regional-specific differences in approaches to Industry 4.0 around the word, with Japan being the most resistant to Industry 4.0, preferring to stick to lean logic, with the revolution against their philosophy of ′simple systems do not fail.’ At the other end of the spectrum is China, whose government forces you to digitally enable any new plant set up there. Behrendt says this is meaning China is ′getting a true competitive edge in this area’ over manufacturers in Europe and North America, with a much more ′entrepreneurial and can-do attitude.’ 

Meanwhile McKinsey says that German OEMs are afraid to open up the data wells Industry 4.0 creates by too much, out of fear others will hack in and competitors gain access to core process knowledge critical to their competitiveness. This acts as an inhibitor to their fundamental need to work more closely with startups and develop larger SAP data management, and undermining their attempts to realise maximal benefits from Industry 4.0. 

As a result, it appears that trust in or bolstering the rigour of manufacturers’ data security SOPs is the first stage for German OEMs to tap into the maximal benefits of the digital manufacturing revolution.