Industry 4.0 and the U.S. Manufacturing Renaissance
 
Throughout history, new technologies have enabled dramatic advances in productivity, from the invention of the pulley to haul water around the fifteenth century B.C., to the development of the printing press to publish books in the fifteenth century A.D. But it has only been in the past few centuries that technologies have really revolutionized the way we work and the output we produce.

During the Industrial Revolution, James Watts improvements to the Newcomen steam engine enabled the rise of factories in the nineteenth century. Early in the twentieth century, Thomas Edisons innovations in harnessing electricity enabled the mass production era exemplified by Henry Fords automobile plants. In the 1970s, automation enabled factories to begin producing more goods with fewer human workers.

These first three eras are now giving way to a fourth era enabled by digital technology, an era that the Boston Consulting Group (BCG) calls "Industry 4.0" in a new report by that name.1
 
Note that these four eras are loosely equivalent to the various Techno-Economic Revolutions identified by economist Carlota Perez that have been highlighted in previous issues of Trends.2 Currently, we are about to enter the Deployment Phase of the Fifth Techno-Economic Revolution.
 
The BCG report identifies nine technology advances that are powering Industry 4.0.3 Weve discussed most of these advances individually in Trends, and most of them are now starting to be used in factories. Now, however, they are converging to transform production from isolated cells into a fully integrated, optimized, and automated production flow. Lets look at each of the nine advances.

1. Big data and analytics will improve manufacturing efficiency by optimizing production quality, reducing energy costs, and improving equipment service. By collecting and analyzing data from a variety of sources, including equipment and customer management systems, managers can make better decisions in less time.

2. Autonomous robots will work on the factory floor next to humans and will learn from them how to be more productive and efficient. They will be cheaper and more useful than the manufacturing robots used today.

3. Simulation will save time and money by allowing managers to see how machines, human workers, and products will interact in a virtual world that closely parallels a real factory. They will be able to test the impact of changing machine settings, the steps in a workflow process, or the layout of a plant, all without having to make any changes in the physical world until they have been proven to be effective.

4. Horizontal and vertical system integration will finally become a reality rather than an unrealized vision in todays world where manufacturers, suppliers, and customers frequently use incompatible systems that cant communicate with each other, and where even a companys internal functions are not fully integrated. In Industry 4.0, companies will be integrated both horizontally and vertically so that data can be exchanged freely within the enterprise and beyond its walls.

5. The industrial "Internet of Things" will link all of the companys equipment, components, and products with embedded computing and sensors. This will allow all of these individual units to communicate with each other and with centralized controllers.

6. Cybersecurity will defend the manufacturers production lines and industrial systems from hackers and other threats that can arise when everything is linked to the Internet and connected to everything else. New protocols will be needed to protect communications from electronic eavesdroppers and to verify that anyone who tries to access the system is an authorized user.

7. The cloud will increasingly be used to share data across locations and between the company and its external stakeholders. Cloud technologies will become faster. This will allow managers to use the cloud to store machine data and to implement new systems to monitor and control processes.

8. Additive manufacturing will enable manufacturers to make cheap prototypes of products, to design new components, and to crank out small batches of customized goods that would be too expensive to produce at a small scale today. According to PriceWaterhouseCoopers, today two-thirds of manufacturers are already using the technology.

9. Augmented reality will improve the performance of workers by giving them information when they need it, and where they can use it. For instance, using technology similar to Google Glass, employees could see the steps in a repair process displayed on a wearable computing device as they look at a machine that needs to be fixed.

Companies in the U.S., Asia, and Europe are already working to make Industry 4.0 a reality. For their study, the BCG analysts focused on Germany because its factories are already highly automated. However, the following conclusions apply to the U.S. as well.
 
Between 2020 and 2025, as more companies adopt Industry 4.0 technologies, BCG expects productivity gains on conversion costs (which exclude the cost of materials) of 15-25 percent, on average. Some industries are positioned for greater gains than others. While the productivity of the automotive industry will improve by 10 to 20 percent, industries such as mechanical engineering and food and beverage will improve by 20 to 30 percent.
 
Based on this analysis, we offer the following forecasts:

First, the nine technology advances will trigger growth in both revenues and employment.

Again, using Germany as a test case, BCG expects revenues to increase by about 30 billion euros per year due to manufacturers increased demand for new equipment and consumers fascination with new, highly customized products. Over the next ten years, German employment will grow by 6 percent in manufacturing and by 10 percent in mechanical engineering.4 Similar increases can be expected in the U.S. In all developed economies, low-skilled workers will be displaced by automation, while the demand for workers fluent in analytics and in using software on the shop floor will drive demand for high-skilled workers.

Second, Industry 4.0 will generate cost savings through increased automation and integration.

Using data from physical machines to simulate the machining of parts could lower production set-up times by as much as 80 percent. By 2025, labor costs, operating costs, and overhead are projected by drop by 30 percent. Cycle times will speed up by 30 percent. Advances in robotics will be responsible for a large proportion of these gains.5

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Among the new automation solutions that will soon be implemented in factories, according to a report on ZDNet,6 are three relatively cheap tabletop robots. They are:

- Sawyer (Rethink Robotics), which has a digital face and can handle materials, tend machines, and test circuit boards, at a price of $29,000.

- UR3 (Universal Robots), which is an articulated arm that can automate the tasks of soldering, setting screws, painting, and gluing, at a price of $23,000.

- Yumi (ABB), a robot with two arms, adaptable hands, and vision guidance for assembling small parts, at a price of about $40,000.

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Third, customers will benefit from Industry 4.0 because manufacturers will be able to respond to their needs more quickly, more completely, and at lower costs.

The production process will be more flexible, with higher levels of speed, quality, and productivity. Manufacturers will be able to offer a degree of customization that is unimaginable today.7

Fourth, Industry 4.0 will unleash innovations in every industry.

Consider how additive manufacturing is enabling aerospace firms to design new parts that lower the overall weight of an aircraft and reduce the need for expensive materials like titanium. Doctors can now design prosthetic devices that perfectly replace a patients own body parts. The additive manufacturing industry grew to $4.1 billion last year after its third year at a compound annual growth rate of nearly 34 percent; by 2020, it is expected to be a $20.2 billion industry, according to the Wohlers Report 2015.8

Fifth, training is another area where Industry 4.0 will revolutionize performance.

One company that is already embracing this new model is Siemens, which uses a virtual 3D representation of its factories to train new employees in how to respond to emergencies. Trainees wear augmented-reality glasses that simulate the experience of working with robots; they can interact with the machine virtually and learn how it responds to their commands. Among businesses that are developing augmented-reality glasses, in addition to Google, are a startup called Magic Leap and Microsoft, with a wearable device called HoloLens.

Sixth, while Industry 4.0 will benefit European countries with skilled labor forces like Germany, it will mean even more for the United States.

In the U.S., the North American Energy Revolution, the worlds largest domestic consumer market, and a younger workforce give manufacturing an added boost. Americas big challenges are to "close the skills gap" with better non-college training, and to eliminate burdensome taxes and regulations that stifle investment by multinationals.

References

1. To access The Boston Consulting Groups report "Industry 4.0: The Future of Productivity and Growth in Manufacturing Industries," visit their website at:

https://www.bcgperspectives.com/content/articles/engineered_products_project_business_industry_40_future_productivity_growth_manufacturing_industries/

2. Technological Revolutions and Financial Capital: The Dynamics of Bubbles and Golden Ages by Carlota Perez is published by Edward Elgar Publishing Limited. ⓒ 2003 Carlota Perez. All rights reserved.

3. To access The Boston Consulting Groups report "Industry 4.0: The Future of Productivity and Growth in Manufacturing Industries," visit their website at:

https://www.bcgperspectives.com/content/articles/engineered_products_project_business_industry_40_future_productivity_growth_manufacturing_industries/

4. iBASEt, April 28, 2015, "Predicting Industry 4.0s Impact on Manufacturing," by Louis Columbus.   ⓒ 2015 iBASEt. All rights reserved.

http://www.ibaset.com/blog/predicting-industry-4-0s-impact-manufacturing/

5. iBid.

6. ZDNet, April 2, 2015, "Inexpensive Table-Top Robots Will Disrupt Light Manufacturing," by Greg Nichols. ⓒ 2015 CBS Interactive. All rights reserved.

http://www.zdnet.com/article/inexpensive-table-top-robots-will-disrupt-light-manufacturing/

7. iBASEt, April 28, 2015, "Predicting Industry 4.0s Impact on Manufacturing," by Louis Columbus.   ⓒ 2015 iBASEt. All rights reserved.

http://www.ibaset.com/blog/predicting-industry-4-0s-impact-manufacturing/

8. com, April 7, 2015, "The 2015 Wohlers Report Is Out," by Andrew Wheeler. ⓒ 2015 Engineering.com Inc. All rights reserved.

http://www.engineering.com/3DPrinting/3DPrintingArticles/ArticleID/9908/The-2015-Wohlers-Report-Is-Out.aspx