The Ultimate Guide to Industry 4.0

As Industry 4.0 continues to change the way that business is done, companies will increasingly need to be adaptable, and be proactive rather than reactive when trying to gain a competitive advantage in an ever-changing marketplace.

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The Ultimate Guide to Industry 4.0

Industry 4.0, often referred to as the “fourth industrial revolution,” represents the increases in connectivity, automation, and cyber-physical systems that underpin the modern “smart factory.” By leveraging Internet of Things devices, big data integration, and cloud-based information technology, Industry 4.0 provides a framework for more efficient, customizable, and synergistic production processes.

Though Industry 4.0 as a concept is only just beginning to show its full potential, the groundwork for its innovative reworking of industrial systems has already been laid by advances in computing and industrial technology. More of an evolution than a revolution, this new industrial paradigm is already changing the nature of the supply chain and the rules of modern manufacturing. These changes can certainly seem daunting from the outside, but once you understand the basic tenets that inform these new systems, you’ll see right away the tremendous potential they hold for creating smarter, leaner production workflows.

The amount that Industry 4.0
could add to the global economy by 2030

The proportion of companies that report achieving advanced digitization commensurate with Industry 4.0

The proportion of companies who believe they will achieve advanced digitization by 2020


1. The Origins of Industry 4.0

If Industry 4.0 represents the fourth industrial revolution, you may be wondering, what were the first three? As experts understand them today, the three prior revolutions in the industrial world were:

  • 1784: Water and steam power were harnessed to mechanize production, drastically reducing production time.

  • 1870: Thanks to the introduction of electricity, Henry Ford introduces the assembly line, leading to divisions of labor and more efficient manufacturing.

  • 1969: With the invention of the computer, industry begins to incorporate automated production. This also paves the way for the fields of IT and robotics.

While the preceding industrial revolutions occurred following the introduction of new technology that radically shifted manufacturing capabilities and processes, Industry 4.0 leverages existing technology and builds on it in new ways, making it in some ways more of an evolution than a revolution.

Likewise, where previous revolutions were founded on specifics instances of innovation, Industry 4.0 is a deliberate framework launched in anticipation of new technology, which was conceptualized and named in 2011. Seeking to capitalize on Germany’s competencies in engineering, logistics and IT, the German federal government finalized its revolutionary Industry 4.0 concept in 2013.

Today, Industry 4.0 acts as a sort of roadmap to high-tech, industrial digitalization. Its foundation is a digital convergence of operations, where process and data can be integrated across multiple supply chains and product life cycles. It isn’t a manufacturers’’ silver bullet, but a guideline for improved organizational and process performance. Because Industry 4.0 builds on existing revolutionary technologies, it requires lean setups as a starting point, and needs lean, well-structured processes in order to emerge.


2. Industry 4.0 Pillars and Concepts

While the sweeping impact of Industry 4.0 may not be obvious for five to ten years, the impact on supply chain management is already visible today. As supply chain managers look to the future, they should look to Industry 4.0 as a foundation when they make major operational or purchasing decisions, i.e. adopting new logistics software or workflows, or driving towards a lean supply chain. But what exactly should businesses look for when making decisions? To begin with, they should focus on these four key Industry 4.0 concepts:

  • Information transparency: Industry 4.0 systems create a “cyber-physical system,” where the physical world is quantified into contextual, accessible data. Systems seamlessly and instantly share that data as required, ensuring that all systems cooperate using real-time information. Any new technology your company adopts should offer this transparency.

  • Interoperability: In an Industry 4.0 system, it’s possible for people, machines, sensors and devices to connect and communicate with one another. This facet of Industry 4.0 generally requires supply chain managers to take a broader perspective on compatibility requirements for software, machines and other devices.

  • Decentralized decision making: Currently most supply chains operate using centralized decision making. But Industry 4.0 has brought a new level of autonomy, where systems will be able to make simple decisions on their own. This has the potential to increase efficiency by reducing time and resources allocated for centralized oversight.

  • Technical assistance: Automation and robots already provide vital support in environments that are too treacherous for humans. The next phase is building a system that can support humans in decision making and problem solving. This interdependence of systems and humans is a key feature of Industry 4.0

By keeping these principles in mind, businesses can identify new IT and workflow changes that will bring them closer to Industry 4.0 adoption. Rather than focusing on all of the jargon that often surrounds discussions of new paradigms in manufacturing, businesses can use these concepts to home in on the key value-added elements of the fourth industrial revolution.


3. Key Components of Industry 4.0

We’ve covered the pillars that define the Industry 4.0 mindset, but what does this new paradigm look like when its put to the test in an actual industrial or manufacturing setting? While many elements of Industry 4.0 are still in the evolutionary stages, and will continue to grow and develop over time, there are certain key components that businesses can and should be aware of.

Greater Customization through Additive Manufacturing

Commonly known as 3D printing, additive manufacturing is the process of building an object by depositing materials in multiple layers. The use of additive manufacturing has certainly become trendy, but it has yet to reach its full potential. Industry 4.0 provides the technological infrastructure for manufacturing enterprises to use 3D technology at scale, producing smaller numbers of more customized products. And because additive technology can be done on demand, production time for these customized products is also significantly shorter. One hallmark of a true Industry 4.0 enterprise, therefore, is the robust integration of additive manufacturing throughout the supply chain, not only to produce products for end users, but also for the manufacture of customized machine parts within the supply chain itself.

Full Integration of Advanced Analytics

Virtually all supply chain leaders currently rely on analytics to inform and optimize production. Indeed, the implementation of advanced analytics consistently yields higher production quality, along with reduced downtime and improved customer experience – all contributing to a better bottom line. But these analytics are often disjointed or orphaned, existing without cohesive connection to an overarching system. As the manufacturing world continues to evolve toward Industry 4.0, analytics systems are simultaneously evolving. The Industry 4.0 supply chain uses advanced analytics and Big Data to inform end-to-end (E2E) visibility. Up-to-the-minute data are available to support real-time decision-making and bring visibility to the entire supply chain, both within and without individual organizations.

Visibility for All Stakeholders

Supply chain leaders have long sought greater visibility, and Industry 4.0 delivers exactly that. All stakeholder groups have access to real-time data for their specific tasks. Furthermore, thanks to aggregation schemes, companies can be controlled from the individual machine view all the way up to global corporate controls. All of this is implemented in on unique “single point of truth” enhanced by your business rules. This approach not only eliminates the need for duplicative and potentially flawed manual data aggregation, but it also increases process speed and supports continuous process improvement. Furthermore, this E2E visibility within a company positions the organization for E2E visibility across the entire supply chain, from the raw materials supplier to the end user.

A Move Beyond Postmodern ERP

The manufacturing industry’s approach to enterprise resource planning (ERP) has been evolving alongside technology. Innovative supply chain leaders are looking beyond the “best of breed” approach that characterizes modern ERP. Instead, they are adopting ERPs that foster strategic collaboration between business and IT leaders and set organizations on the path to thriving in the Industry 4.0 environment. This Postmodern ERP mindset has just begun to catch hold in the supply chain industry, yet Industry 4.0 pushes the boundaries of even this cutting-edge approach. Industry 4.0 calls for a truly agile supply chain that integrates IT systems both vertically and horizontally. Using robust data-integration networks that span usually disconnected departments like engineering and customer service, the Industry 4.0 company is much more cohesive. And because these data systems can communicate beyond the boundaries of the company, they provide unprecedented integration, resulting in a much more agile supply chain.

Widespread Incorporation of the Internet of Things

Another aspect of that integration is the incorporation of networked machines and sensors throughout the supply chain. The Internet of Things (IoT) refers to computing technology embedded in devices, which can communicate with other devices and people through the internet. Currently IoT is most often found vertically within an organization; for instance, the supply chain’s devices and sensors communicate with each other, providing useful but limited intelligence to the manufacturing control system. The next phase, however, incorporates the IoT to communicate across departments as well. Much like IT system software will be integrated, so too will devices, sensors and humans throughout the organization. The Industry 4.0 supply chain fully leverages the IoT for streamlined, agile operations with far greater visibility and transparency.

Increased Reliance upon the Cloud

The Industry 4.0 supply chain is a data-generation machine. It’s constantly producing insights in real time, requiring incredible speed and precision, not to mention the capacity for instant access and E2E visibility. Those demands are best met in the Cloud. As Cloud technology continues to improve, the Industry 4.0 enterprise will increasingly deploy it for data management and functionality. Coupled with seemingly endless storage capacity and an ever-shortening reaction time, the Cloud offers the necessary agility for the supply chain of the next generation.

Robust In-Memory Databases

To complement the endless storage capacity of the Cloud, supply chain leaders must also rely on in-memory databases (IMDBs) to handle ad hoc optimization and analytics. Sometimes also called a main memory database (MMDB), the IMDB uses the computer’s main memory (as opposed to a disk) for data storage. Data stored on IMDB is more readily accessible than data stored in the Cloud because it need not be procured via online transaction – which can cause delays in the process. Thus the IMDB improves speed, workflows and data quality. The most efficient supply chains rely on both the Cloud and IMDB to maximize the organization’s storage capacity and agility.


4. Industry 4.0 Challenges

Previous industrial revolutions have changed not just the way that factories function, but the nature of the businesses that operate them. While the components of Industry 4.0 listed above are largely technological, many of the most significant hurdles to embracing Industry 4.0 will be organizational. Yes, this means breaking down information and decision-making silos and eliminating Shadow IT, but it also means rethinking the nature of digital business in the 21st century.

Redefining Partnership

Just as much as Industry 4.0 is about technology, it is also about processes and people. Supply chain leaders of the future need to understand that as the manufacturing industry evolves, classic understandings of supplier and producer structures will not survive. A new definition of partnership is already emerging, creating new value networks. To succeed in the era of Industry 4.0, supply chain leaders must integrate supplier into their corporate structure They need to adeptly manage their suppliers’ data support and production design, as well as their supply chain risks. This will also mean a new approach toward purchasing decisions: instead of product price-driven models, supply chain leaders must embrace partnership models that take into account risk figures and optimization potential for the future of product development.

A New Concept of Corporate Integration

A critical dimension of successful Industry 4.0 initiatives is vertical integration. Traditional companies are structured in hierarchies that do not allow interaction between layers. This often leads to high efforts in synchronization processes and even more to large gaps between corporate planning processes and execution. In these organizations, production plans aren’t synchronized with logistics. Production planners perform detailed planning tasks that often drastically differ from real outcomes because there is no structured back-loop of execution information and no real-time re-planning process in case of deviations. Businesses need to synchronize these layers, including IoT devices, for operational feedbacks.

Roadmaps to Industry 4.0

As Industry 4.0 continues to change the way that business is done, companies will increasingly need to be adaptable, and be proactive rather than reactive when trying to gain a competitive advantage in an ever-changing marketplace. In doing so, it’s crucial to remember that while Industry 4.0 may seem daunting now, it is fundamentally a tool for making factories and entire business operations more efficient, scalable, and agile. Make sure that you’re implementing new technology in a way that aligns clearly with pre-defined business goals, and that new workflows promote connectivity and interoperability. As the fourth industrial revolution continues to drive adaptation and transformation across myriad business sectors, a strong understanding of the Industry 4.0 framework can help to illuminate roadmaps to future success.




Get Your Guide - The Supply Chain Manager’s Guide to Industry 4.0