Industry 4.0: What is it and What Does it Mean for Firms?

The IPC recently hosted a roundtable discussion entitled, “Industry 4.0: What is it and What Does it Mean for Firms?” The gathering included members of the MIT research community and several industry leaders that engage in advanced manufacturing. To the first question of what is “Industry 4.0,” the group agreed that the central driver behind the concept – introduced by the German government in 2003 as part of their new industrial policy in manufacturing – is the generation of enormous amounts of data based on the introduction of sensors that can track every stage of a manufacturing process and of whole production systems, in one or multiple locations. By combining the Internet of Things (IoT), specifically the industrial internet, with cyber-physical embedded systems, Industry 4.0 leads to the creation of “smart factories” that communicate data between machines and the cloud within one factory or across several. See slides by Professor Yilmaz Uygun, former post-doc at the IPC, for a brief overview of the basic concept.

Industry leaders from Massachussets-based companies of varying sizes weighed in on the challenges that Industry 4.0 poses for companies and society at large. Ira Moskowitz, former VP and General Manager of US Operations for Analog Devices  and co-chair of the Massachusetts Advanced Manufacturing Collaborative (AMC), presented the OEM perspective, highlighting the technological advances that drive companies to invest in increasingly sophisticated equipment and systems. Moskowitz provided an overview on his thoughts on Industry 4.0.

Midé CEO, Marthinus van Schoor underscored the challenge of managing large amounts of data and looking for anomalies. This is an IT challenge, he reminded the group, not just an equipment challenge. Eric Janssen, Program Manager of Industrial Automation at Prodrive Technologies, a Dutch electronics company that is opening its first North American operations in Massachusetts in 2017, spoke about the engineering mindset that must permeate ‘net-centric production.’ Prodrive, founded in 2000, ended up developing its own robotics capabilities when it couldn’t find what it needed in the market. It established production facilities in the Netherlands and China, and soon the US, that embody Industry 4.0 practices. Finally, Mike Tamasi, CEO of Accurounds, a contract manufacturer, and co-chair of the Massachusetts AMC, spoke about the challenges small companies like his face when determining how to invest in automation. There was general agreement that adoption of Industry 4.0 practices requires a certain amount of scale.

Several themes emerged from the discussion. First and foremost is the impact of Industry 4.0 on labor. Everyone agreed that a consequence of increasing autonomization will be the replacement of low skilled and even some high skilled workers by machines. Greater use of robotics and the generation of data that can only be processed by machines will lead to fewer jobs for lower skilled workers and require new higher skills as humans spend more time “watching data” for patterns and anomalies.  

Supply chains will also be significantly affected as will service to customers. Large OEMs that adopt Industry 4.0 practices will look to merge data seamlessly within the supply chain and with customers. For suppliers, this will involve being able to track products throughout the production process while for customers, data on product usage will be tracked to facilitate after-market service provision. The challenge for small and medium-size companies within supply chains will be to make the kinds of investments required by OEMs such that it provides a return on investment.  The group agreed that for very small suppliers (under 20 employees), it is unlikely they will be able to make such investments.  

Another critical issue is cybersecurity. The generation of significant amounts of data, as well as the need to move it across firm boundaries will challenge firms’ security systems. Furthermore, firms managing sensitive data will need to improve security to avoid theft, which could have serious competitive and legal ramifications. Cyber-espionage and cyber-terrorism are considered real threats. Experts argue that a security layer must be built into Industry 4.0 smart factories at the outset to prevent exposure to attacks.

Finally, as with any new wave of technology, standards will need to be created to facilitate interoperability between firms and industries. Efforts like Industry 4.0 in Germany or the Digital Manufacturing Initiative as part of the US National Manufacturing Innovation Initiative (NMII) are attempts to begin establishing a clear and consistent language around issues of advanced manufacturing. Furthermore, the battle over technical standards is just beginning, with global technology giants aiming to implant their platforms at the industry’s core, making them the de-facto standard bearers for the emergent system of production.

As to advice for firms trying to introduce Industry 4.0 practices into their operations: begin to “measure everything.” The advantages and benefits of Industry 4.0 become more apparent the more a firm knows about its own production processes. Regions that can help incent such investments will help prepare their manufacturing firms for the future. The group agreed that adoption of Industry 4.0 practices will differ by industry, based on market demand. In industries such as semiconductor manufacturing, widespread adoption is already taking place. There are significant returns on investment in an industry characterized by high production volume. In other industries, such as aerospace, adoption might be slower because of the significant investment required relative to low-volume production of commercial aircraft.  For more information or questions, please connect with us: