Industry Opinion: How to Survive the Fourth Industrial Revolution

16th June 2017

Logistics BusinessIndustry Opinion: How to Survive the Fourth Industrial Revolution

From “Everything-as-a-Service” to “Digital Convergence”:
Challenges for manufacturers and how to survive the fourth industrial revolution

By Ralf Schulze, Manufacturing Lead EMEA, Zebra Technologies

The fourth industrial revolution – also called industry 4.0 – is in full progress and has already begun to fundamentally change the manufacturing landscape. In 2016, we witnessed the rise of the Internet of Things (IoT) as a driver of industry 4.0. Manufacturing companies have recognized that high efficiency pressure, increasing competition and flexibility demands require investment in IoT projects. Yet, in terms of interconnectivity and IoT experience, manufacturers seem to be lagging behind other sectors such as the logistics industry.

With 50 billion connected devices on the horizon from now until 2020, the ‘Internet of things’ is a major leader in innovation. The demand for these connected devices will soon affect almost every sector and revolutionize not only private use, but also professional use. Industry is expected to be the largest consumer of connected devices in production systems (102.5 billion), followed by management of production assets and then ground maintenance/intervention. It is very much in the interest of businesses to factor the rise of IoT into their production machinery, for the sake of modernisation and competitiveness, as industry remains an unparalleled driver of growth. Businesses adopting the IoT will be in a position to benefit from the prevalent trends in the transformation of services and consumer needs. Furthermore, powerful IoT platforms offer the infrastructure needed to handle and incorporate vast flows of data, and to reduce the complexity of operational processes, leading to product customisation etc

According to a trend survey among logistics and manufacturing companies by market researcher PAC, 48% of logistics companies declared they had connected their plants across different sites, compared to only 13 per cent of manufacturers. Logistics companies have also implemented and completed more IoT projects than manufacturers.

One thing is certain: Industry 4.0 will transform manufacturing business models in the long term, so how can manufacturers leverage IoT to make their business models sustainable and viable for the future? And how can they survive the fourth industrial revolution and secure their market relevance against competitors?

Five trends have manifested themselves in the manufacturing industry that will substantially change the way of doing business:

1. Service Transformation: Companies are increasingly introducing additional service components to ramp up their portfolios and foster long-lasting customer loyalty. New services around existing products are designed to create an entire service ecosystem which promotes ongoing customer relationships instead of one point interactions.

2. Everything-as-a-Service: Software-as-a-Service was just the beginning. Companies across all industries are switching from business models based on product ownership to pay-per-use contracts. Manufacturers will increasingly sell results and services instead of products, for instance mobility instead of cars. Customers will only pay for a service when and as long as they need it, transferring storage and maintenance costs to manufacturers. These customizable services are all closely connected.

3. Individualization: Today, customers are demanding products and services tailored to their specific needs, rendering large-scale mass production useless and inefficient, and changing manufacturers’ business models from “we sell what we make” to “we make what we sell”. However, the possible combination of hundreds or thousands of production options and features for customized products entails huge complexity that requires powerful and reliable systems to process these massive amounts of data correctly and efficiently.

4. Hypercompetition: The manufacturing industry is witnessing a shift in the competitive environment. Significantly increasing competition goes along with a “war for talent.” For the past 9 years, according to the Federal Ministry of Education and Research (BMBF), the number of available apprenticeships has continuously exceeded the demand. In 2015, for instance, there were 563,054 available apprenticeships, but only 542,806 candidates . 30 per cent of industrial companies were not able to fill all apprenticeship vacancies in 2015, according to the German Industry and Trade Federation (DIHK) with most companies overall explaining this with a lack of suitable candidates . Consequently, talent is hard to find and companies compete against each other, not only for customers and market share, but also for talented employees who can secure their future in a digitized world.

5. Digital Convergence: Manufacturers’ production and supply chains are shifting to the digital sphere, with new products and services involving various technologies such as RFID, WLAN, locationing or video technology. These technologies and the different kinds of data they deliver are merged and accessed through a variety of devices and applications as the physical and the digital world are becoming increasingly connected through IoT.

Every manufacturing company is impacted by at least one of these five trends. Right now, IoT still looks like a mysterious, impenetrable jungle to many of them. IoT projects are stalled or not put into practice because of the complexity of data integration and a lack of know-how. But it’s worth taking the challenge. IoT connects manufacturers with suppliers, customers, their own staff as well as machines and materials along the entire production chain, providing businesses with real-time visibility into their operations and processes.

It helps manufacturers improve and expand their services by enabling them to respond quickly to demands or issues, thereby ensuring sustainable customer loyalty. Companies that embrace IoT will thus be able to benefit from the service transformation and everything-as-a-service trends. In addition, powerful IoT platforms provide the infrastructure necessary to process and integrate huge data streams and to reduce the complexity of business processes that arise, for instance, from the mass individualization of products. Finally, manufacturers’ business models are improved and rendered more resistant through increased productivity and a simultaneous reduction of costs, for instance through predictive maintenance and reduced production downtime.

Companies should therefore concentrate on the benefits of digitization and not bury their heads in the sand in the face of short-term IoT challenges. Instead they should consider IoT as an indispensable tool that equips them with actionable insights and productivity gains; and which delivers the competitive edge they need to survive in a hypercompetitive environment and successfully master the far more long-term industry 4.0 challenges for their business models.