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Manufacturing 4.0: Invest Now or Risk Falling Behind, Report Warns

Posted By Jeff Moad, August 16, 2016 at 10:28 AM, in Category: Factories of the Future

136300536_Binary_Data.jpgManufacturers across all vertical industries are poised to dramatically ramp up investments in smart products, digitized processes and related technologies, skills, and training over the next four years, significantly altering the competitive landscape and putting at risk manufacturers that fail to keep pace, according to a research report recently released by Pricewaterhouse Coopers.

The study, “Industry 4.0: Building the Digital Enterprise,” predicts that manufacturers across verticals such as automotive, aerospace, electronics, and chemicals will invest on average five percent of revenues between now and 2020 on  sensors, connectivity devices, software applications including  manufacturing execution systems, training, and the hiring of digital specialists. That will account for $906 billion in annual spending on digitization activities related to Industry 4.0 (also known as Manufacturing 4.0.)

And the report, based on a survey of 2,000 executives from industrial product companies in 26 countries, said that manufacturers expect significant and relatively quick returns from those investments in M4.0 technologies, skills, and capabilities, in terms of both cost savings and increased revenues. On average, respondents said they expect digitization to lead to cost savings of 3.6% per year over the next five years and to additional revenues of $2.9% over the same period. That amounts to $421 billion in cost savings and $493 billion in revenue increases cumulatively over the next five years.

Forty-seven percent of respondents said they expect digitization of their existing product portfolios will generate more than 10% of their companies’ revenues over the next five years, and 42% said new digital services delivered to customers will do so.

Seventy-two percent of respondents said they expect their use of data analytics related to M4.0 initiatives will improve their customer intelligence and their relationships with customers.

The study also found that, “At least a third of companies in every sector expect to secure efficiency gains and cost savings of more than 20%, and many anticipate that these will be accompanied by additional revenues of the same magnitude.”

The majority of respondents expect a two-year payback on the investments in M4.0 technologies and capabilities that they are now making.

The bottom line, says the PwC report, is that manufacturers must make smart, strategic investments in M4.0 capabilities now or face a competitive disadvantage. And, the report says, those that fail to do so may find themselves unable to catch up later.

“In an increasingly cost-competitive market, no industrial company can afford to lose out in operational efficiency against their market peers. The next two to three years will be crucial for companies looking to catch up,” says the report.

The report added, “It simply won’t be possible for companies to achieve advanced digitization without making a step-change in investment, given the continued rapid progress anticipated by companies who are already leading. The investment required to catch up is likely to be too costly, and faster-moving companies will have a significant advantage when it comes to positioning their offerings as a ‘platform of choice’ within digital ecosystems. Perhaps most importantly, companies who try to jump in too late will find that their internal cultures have lagged behind.”

Not surprisingly, manufacturing executives participating in the PwC study identified several challenges that may inhibit their ability to realize the potential of digitization. Absence of support from leadership and top management and resulting lack of clear digital operations vision was identified by 40% of respondents as the top challenge. Unclear economic benefits (38%) and high financial investment requirements (36%) also stood out.

“From our interviews with industrial companies, the biggest challenges center around internal issues such as culture, organization, leadership, and skills rather than external issues such as whether the right standards, infrastructure and intellectual property protection are in place or whether concerns about data security or privacy concerns can be overcome,” the report states.

The report suggests six steps manufacturers can take to avoid falling behind the M4.0 curve:

  • Begin to adopt a “digital culture,” with senior leadership setting the tone by clearly communicating the transformation at hand and a willingness “to experiment with new technologies and learn new ways of operating;”
  • Evaluate your current digital maturity, and map out a digital strategy that aligns with your overall business strategy;
  • Pursue pilot projects with defined scope that illustrate the end-to-end transformation potential of M4.0. Pragmatically build the digital infrastructure needed to execute on these pilot projects, collaborating with start-ups, universities, and industry organizations where necessary;
  • Based on lessons learned in your pilot projects, map out the capabilities needed to fulfill the larger digital vision. “Your biggest constraints may well be your ability to recruit the people needed to put digitization into place,” the report warns;
  • Beef up the analytics capabilities that will be necessary to leverage the data generated by M4.0 systems and smart products. This includes the right organizational structure and a focus on data integrity and security. Unfortunately, the report says, nearly half of manufacturers have yet to create organizational structures that can effectively develop and support data analytics maturity;
  • Develop an ecosystem approach that involves partnering in order to deliver new, integrated, digitally-enabled products and services.

Written by Jeff Moad

Jeff Moad is Research Director and Executive Editor with the Manufacturing Leadership Community. He also directs the Manufacturing Leadership Awards Program. Follow our LinkedIn Groups: Manufacturing Leadership Council and Manufacturing Leadership Summit

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Posted on
Great article Jeff! I could not agree with you more. I did not take this survey but we have historically invested about 3-5% of our annual revenue back into new technology in order to stay ahead of the curve. We have always historically done this, which I believe has kept us successful over the years. Investing in technology keeps you competitive with the global competition we face today. I believe the companies that did not have this as a normal practice in the 2000s and over leveraged themselves with banks on non-value added investments put them out of business in 2009. It was evident to see when my brother and I went to many different auctions hoping to pick up a good deal. Unfortunately, the exact opposite happened. There were good deals out there, but none of the equipment available we would put on our floor. Our technology we had far out passed what was available. We could clearly see that companies that did not reinvest died a slow death. As you mentioned in the article, once it was recognized, it was too late to recover.

Aaron Wiegel
Wiegel Tool Works, Inc.
Posted on
Thanks, Aaron. This dynamic is only accelerating. The trick is to focus on this technologies that can deliver a quick benefit but that also align with your strategic plan. Best of luck.
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