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Industry 4.0: Penetrating Digital Technologies Reshape Global Manufacturing Sector

January 28th, 2017

The traditional manufacturing process typically consists of three parties: the physical manufacturer; suppliers; and services providers. These parties are usually fairly unconnected and have independent operations, which creates a lot of inefficiency in the supply chain and turns into lost opportunities. Fortunately, development of the fourth industrial revolution, the Industry 4.0, which emphasises digital technologies, such as cloud computing and IoT (Internet of Things), is expected to decrease this inefficiency, as well as refurbish the whole manufacturing supply chain.

This article is part of the global briefing Industry 4.0: The Future Impact of the Fourth Industrial Revolution, which analyses preparedness and implications for the adoption of the fourth industrial revolution.

More complex manufacturing structure to simplify operations

The emergence of Industry 4.0 will be followed by Digital Production, which will transform the manufacturing process as we know it today. This means physical production, through cloud computing, will be connected to digital systems and other players in the supply chain. Digital production will enable the virtual manufacture of products, sense potential issues and communicate these problems to the system, as well as choose the optimal way to manufacture products.

Currently, similar functions are fulfilled by employees, but they lack flexibility and are based on extensive calculations and preferences, etc. Digital production, carried over cloud computing and other technologies, on the other hand, is flexible and can arrange production on-the-go and choose the best way to fulfil an order.

 

Computer services led by cloud computing will drive the changes

The manufacturing sector remains one of the main investors in computer and related services. The share of the manufacturing sector in total IT services’ capital purchases (GFCF) stood at 10-30% of total investments over 2010-2015. Notably, this figure was higher in developing countries, which were acquiring large-scale foreign direct investments in the manufacturing sector. However, as investment flows to such countries dries up, this share is starting to evaporate. The contrary can be said about innovating countries, which saw IT investments rise in importance over 2010-2015.

Computer and Related Service Purchases by Manufacturing and Other Buyers and Their Dynamics over 2010-2015

Source: Euromonitor International from national statistics

In recent years, developed countries have witnessed notable shift towards innovation in communication technologies, which are seen as a primary future driver of modern economies. Particularly this has been evident regarding spheres like cloud computing, the IoT and the 5G internet, which are poised to become the major driving technologies of the Industry 4.0.

Cloud computing can be called the most important of the three, as it envelops the essence of Industry 4.0. Cloud computing has been expanding at double digits over recent years globally, primarily boosted by SMEs seeking cost reductions on their IT bills. The manufacturing sector has however still been waiting for appealing proposals from technology companies. With Industry 4.0 gaining ground, this is about to change and cloud-based solutions like IIoT (Industrial IoT) are expected to surge in demand.

Major constraints remain unresolved but long-term potential is high

Many issues remain, however, regarding the implementation of technologies like cloud computing in manufacturing operations. Most of these issues are technological, such as security issues surrounding cloud computing networks, uninterruptable 5G internet connection and the absence of common standards. In addition, there is a lack of understanding about how Industry 4.0 can help businesses. Recent studies on cloud computing and Industry 4.0 have shown that businesses in developed countries still have little idea about Industry 4.0, are unsure how these technologies can transform processes and are concerned about data protection.

Over recent years, large efforts to reduce obstacles have been notable. For instance, all of the major telecom infrastructure developers have been working on the launch of 5G equipment by circa 2020, which will create a field of high-speed connectivity for manufacturers to work on, while in Europe, the Alliance for Internet of Things Innovation (AIOTI) was established in 2015 to standardise the development of cloud technologies.

As a result of these restrictions, it is estimated that it will take around five years for the Industry 4.0 revolution to really kick in. Major work will take place in the development of cloud networks with trustable connectivity, while policy makers will have to ensure no constraints exist to adopt these technologies. Developed countries that invest in research and development should be at the forefront of the industrial revolution and thus benefit the most from it, as they have the enforced data protection laws, developed internet infrastructure and tech-savvy population.

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Justinas Lasinskas

Justinas Lasinskas is an Industry Analyst at Euromonitor International. He holds bachelor’s degree in Business and master’s degree in Economics from Vilnius University. Justinas has been working in market research since 2012, where he is engaged in research of electronics, electric and ICT industries. His professional interests include IT, telecommunications, business analytics and data analysis. You can find Justinas on LinkedIn.

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