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Sprinting to Value in Industry 4.0

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This research offers perspectives from and implications for U.S. manufacturers.

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Sprinting to Value in Industry 4.0

  1. 1. Do Not Reproduce More Than Two Slides or Charts Without Permission Sprinting to Value in Industry 4.0 Perspectives from and Implications for U.S. Manufacturers December 2016
  2. 2. 1 Copyright©2016byTheBostonConsultingGroup,Inc.Allrightsreserved. Do Not Reproduce More Than Two Slides or Charts Without Permission Background and context Earlierthis year, a Boston Consulting Group studyfound thatcompanies in the US and Germanyhad implemented the new digitalindustrialtechnologies thatare collectivelyknown as Industry 4.0 at approximatelythe same pace.1 • German companieswere off to a somewhatfasterstartof implementation despite the commonperceptionthat US companieswere the front-runnersin embracing digitaltransformation • German companiesalso appearedto be better prepared foradoptthe new digital technologiesand to have higherambitions To gain further insights aboutthe status of Industry 4.0 adoption byUS manufacturers and the challenges theyface, BCG surveyed 380 US-based manufacturing executives and managers atcompaniesrepresenting a wide range of sizes in various industries (for methodology,see p.13). The surveyfindings show thatmany US manufacturers are missing the opportunityto drive significantvalue from leveraging Industry4.0 technologies.There are a hostof reasons underlying the lack of action ranging from lack of a clear strategyto a dearth of the skilled workers required to implement. While challenges abound,the stakes are high.Industry4.0 can enable a step-change in productivityand create value that vastly exceedsthe low-single-digitgains manymanufacturerssettle for today. Longerterm, companiesthatmove confidentlyto harness the technologieswillbenefitgreatly versus localand global peers.Countries whose companiesare successfulin adopting them will see their manufacturing sector revitalized and will benefitfrom large-scale job creation. 1. See Time to Accelerate in the Race Toward Industry 4.0, BCG report, May 2016.
  3. 3. 2 Copyright©2016byTheBostonConsultingGroup,Inc.Allrightsreserved. Do Not Reproduce More Than Two Slides or Charts Without Permission Executive summary Key findings from the research US manufacturers view Industry 4.0 as a priority, but not an imperative Value is expected to result from productivity and cost improve- ments, but less so from revenue growth In fact, Industry 4.0 offers multiple benefits—enhanced productivity is just the beginning Implementation is underway, but the pace is uneven across technologies Many obstacles exist, but the boldest companies are tearing down barriers systematically • 53% of respondents define Industry 4.0 as a priority, with cost-sensitive industries such as electronics, semiconductors, and oil and gas expressing even higher enthusiasm • However, the vast majority of respondents (89%) see it as an opportunity to improve productivity rather than a competitive threat • Respondents expect to capture the greatest value from reducing manufacturing costs (47%) and improving product quality (43%) and operations agility (43%) • There is very low awareness of how it could drive top-line improvements • Productivity gains from reduced production time, better asset utilization and inventory management are the most commonly understood benefit • But there are additional production benefits too—in manufacturing flexibility, quality, and speed • Anumber of manufacturing "condition" improvements arise as well, including better working conditions, higher safety levels, and environmental benefits • Respondents indicated the highest levels of implementation for cybersecurity (65%), big data and analytics (54%), and cloud computing (53%). • Additive manufacturing (34%), advanced robotics (32%), and augmented reality (28%) are the biggest laggards. • Cybersecurity, big data, cloud, and horizontal/vertical integration investments are most likely to be prioritized over the next 2-3 years • Defining the strategy is the biggest challenge in getting started with Industry 4.0, while changing company culture is the biggest challenge in implementing it • Best-in-class companies are using bold experiments, iterating quickly, and rapidly scaling successful solutions across the organization
  4. 4. 3 Copyright©2016byTheBostonConsultingGroup,Inc.Allrightsreserved. Do Not Reproduce More Than Two Slides or Charts Without Permission Industry 4.0 refers to the convergence and application of nine digital industrial technologies SOP– Standard operating procedure; ERP– Enterprise resource planning; SCM– Supplychain management; MES– Manufacturing execution system; CRM – Customer relationship management Source: BCG Many application examples already exist for all nine technologies • Autonomous, cooperating industrial robots • Numerous integrated sensors and standardized interfaces • Simulation of value networks • Optimization based on real-time data from intelligent systems • Cross-company data integration based on data transfer standards • Precondition for a fully automated value chain (from supplier to customer, from management to shop floor) • Augmented reality for maintenance, logistics, and all kinds of SOP • Display of supporting information, e.g., through glasses • 3D printing, particularly for spare parts and prototypes • Decentralized 3D facilities to reduce transport distances and inventory • Network of machines and products • Multidirectional communication between networked objects • Full evaluation of available data (e.g., from ERP, SCM, MES, CRM, and machine data) • Real-time decision-making support and optimization • Management of huge data volumes in open systems • Real-time communication for production systems • Operation in networks and open systems • High level of networking between intelligent machines, products, and systems Advanced Robotics Simulation Horizontal/ Vertical Integration Augmented Reality Additive Manufacturing Industrial Internet Big Data and Analytics Cloud Cybersecurity 1 2 3 4 5 9 8 7 6
  5. 5. 4 Copyright©2016byTheBostonConsultingGroup,Inc.Allrightsreserved. Do Not Reproduce More Than Two Slides or Charts Without Permission More than 50% of respondents define Industry 4.0 as a priority How important is Industry 4.0 in your organization? Not a priority at all 9% Not much of a priority 13% Neutral 24% Somewhat a priority 33% High priority 20% Several respondents answering "Not a priority" did so because they were not familiar with Industry 4.0
  6. 6. 5 Copyright©2016byTheBostonConsultingGroup,Inc.Allrightsreserved. Do Not Reproduce More Than Two Slides or Charts Without Permission The vast majority of respondents see Industry 4.0 as an opportunity to improve productivity, not a burning platform Do you considerIndustry 4.0 as an opportunity to improve productivity orrather a competitive threatif no action is taken? I consider Industry 4.0 a competitive threat to my organization if no action is taken 11% 89% I consider Industry 4.0 an opportunity to improve productivity in the organization "It is a novelapproach to automation and data exchangethat should help the organization be more productive and efficient, impacting operatingcostand supply chain." "Industry 4.0 aids in the streamlining of processes and business improvements.It sets our company apartfrom our competitors and aids in businessdevelopmentand marketing enhancements." "Computerintegration and robotics can greatly increase productionand quality ofour products." "Having up to the minute information can make or break a project." "In design engineering, 3D modeling and use of augmented reality applicationscombinedwith existing data measurementsystems is saving large amountoftime and cost while improving design speed and accuracy."
  7. 7. 6 Copyright©2016byTheBostonConsultingGroup,Inc.Allrightsreserved. Do Not Reproduce More Than Two Slides or Charts Without Permission Value is expected to result from productivity and cost improvements, but less so from revenue growth Where do you see Industry 4.0 having the biggest impact within your organization? 21% 13% 9% 13% 9% 10% 7% 16% 12% 12% 13% 12% 9% 12% 10% 5% 11% 15% 16% 15% 7% 13% 7% 11% 6% 16% Improved client service 28% Time to market 31% Product innovation 33% Supply chain costs 37% Operations agility 42% Product quality 43% Manufacturing costs 47% New revenue model 13% 2% Revenue increase 28% Ranked #1Ranked #2Ranked #3 Top-line impact
  8. 8. 7 Copyright©2016byTheBostonConsultingGroup,Inc.Allrightsreserved. Do Not Reproduce More Than Two Slides or Charts Without Permission In fact, Industry 4.0 offers multiple benefits—enhanced productivity is just the beginning Increased flexibility … e.g., manufacturing flexibility through machines and robots that can execute the production steps for a large number of products Increased speed … from the first product or factory idea to the finished product through consistent data and, e.g., new simulation opportunities. Increased productivity … e.g., through a higher level of automation that reduces production time, enables better asset utilization and inventory management Increased quality … of products via sensors and actuators that monitor the current production in real time and quickly intervene in case of errors I Productivity IV Speed II Flexibility III Quality Central requirements from production Safety Working conditions Training & Collabo- ration Environm. protection Innovative capability More occupational safety through increased automation Better working conditions through ergonomically adapted workstations Increased collaboration in the production network through consistent data availability Better environment protection through optimized use of resources (e.g., more energy-efficient operation of machinery) Increased innovative capability through new technological possibilities in manufacturing Manufacturing conditions Source: BCG
  9. 9. 8 Copyright©2016byTheBostonConsultingGroup,Inc.Allrightsreserved. Do Not Reproduce More Than Two Slides or Charts Without Permission Cybersecurity, big data, cloud, and hor/ver integration will continue to attract investments. Adv. robotics will experience the biggest uptake 3 2 0 01234 14 1 03 24 034 12Augmented Reality 2 Simulation Hor / Ver Integration Additive Manufacturing Cybersecurity Big Data andAnalytics Advanced Robotics 34 1 0 34 4 2 1 0 4 3 3 2 1 0 0 3 12 4 2 1 0Cloud IoT 0 - Not Implemented 1 2Fully Implemented 3 Please describe the extentofimplementation of the technologies Which technologywillyour organizationprioritize overthe next 2-3 years? 39 38 57 31 54 36 26 20 50 35 37 50 32 32 26 29 17 55 55 30 38 26 28 19 22 357Augmented Reality 59 Simulation 71 IoT 71 Additive Manufacturing 96 Advanced Robots 112 Cloud 119 Hor / Ver Integration 124 Big Data andAnalytics 128 Cybersecurity 144 Ranked #1 Ranked #2 Ranked #3
  10. 10. 9 Copyright©2016byTheBostonConsultingGroup,Inc.Allrightsreserved. Do Not Reproduce More Than Two Slides or Charts Without Permission Whatchallenges do you anticipate yourorganization willface in building and implementing anIndustry4.0 agendamoving forward? Pleaseselectallthat apply 9698103 114 121 129 Change management Raise awareness and "call for action" within their organization Successfully piloting / implementing use cases Understanding business case Rethink organization and processes to maximize outcome Defining an Industry 4.0 strategy Defining the strategy is the biggest challenge in getting started with Industry 4.0…
  11. 11. 10 Copyright©2016byTheBostonConsultingGroup,Inc.Allrightsreserved. Do Not Reproduce More Than Two Slides or Charts Without Permission …while changing company culture is the biggest challenge in implementing it Hire the right talent outside the organization 5% Find the right talent within the organization 13% Change company business model 15% Truly inter- connect departments 27% Change company culture and "way of thinking" 40% What would you say are the biggest challenges in implementing Industry 4.0 across the organization?
  12. 12. 11 Copyright©2016byTheBostonConsultingGroup,Inc.Allrightsreserved. Do Not Reproduce More Than Two Slides or Charts Without Permission What do you see as the most critical Industry 4.0 enabler for your organization? Hiring talent and acquiring new capabilities rank as the most critical enablers for Industry 4.0 adoption 82 148 113 142 73 103 61 95 88 73 111 1126 198 25 131 319 309 289 Ranked #1 Ranked #2 Ranked #3 Hiring talentAcquiring new capabilities Establishing / maintaining 3rd party relationships Implementing / integrating IT and OT systems Other
  13. 13. 12 Copyright©2016byTheBostonConsultingGroup,Inc.Allrightsreserved. Do Not Reproduce More Than Two Slides or Charts Without Permission Conclusions and key takeaways ManyUS manufacturers are moving too slowly to adoptIndustry 4.0. Theylack a sense of urgencyand holistic strategy.Companies thattake a wait-and-see approachto adoption do so at their peril. Companiesshouldfocus on gaining a deeperunderstanding ofhow they can apply Industry 4.0 and accelerate the pace ofadoption.The realvalue is achieved when manufacturers maximize the impactof these advancesbycombining them in a comprehensive program. The race is on to adoptIndustry4.0, and as previous BCG research has shown,Germanyis already off to a faster start than the US. The winners will approach the race as a series of sprints but manage their program as a marathon. Although companies should consideran Industry4.0 transformation holistically—in terms ofboth the technologies and the organizationalscope—theyshould avoidtrying to do everything at once.The best approach is to conductbold experiments,iterate quickly,and scale up new solutions across the organization assoon as theyare validated. Battle-tested program-managementtechniques can keepthe large-scale,multiyeareffort on track. The profile of the manufacturingworkforcewillchange.To fill critical Industry 4.0 jobs—suchas data managers and scientists,software developers,and analytics experts--companieswillneed to retrain the workforce and tap the pool of digital talent. They'llalso need to create new jobs to meet higherdemand.
  14. 14. 13 Copyright©2016byTheBostonConsultingGroup,Inc.Allrightsreserved. Do Not Reproduce More Than Two Slides or Charts Without Permission Survey methodology In August2016,the Boston ConsultingGroup completeda survey of 380 U.S.-based manufacturingexecutivesand managers.The surveywas conductedonline,with selective phone and clientfollow-up discussions. Respondents work forcompanies representing a wide range of sizes.They were grouped into three categories:small(revenues between$50- 100 million); medium ($100-500million);and large (greaterthan $500 million). All but a few of the companies were headquarteredin the U.S. The majority— almost60%—were large companies. Respondents hailed from various industries (see distribution atright). 5 5 7 10 13 15 16 25 27 28 29 30 31 31 31 32 Other 45 Printing and publishing Construction equipment Textiles, apparel, footwear, and leather products Electric power Mining Plastics and rubber products Semiconductor Metals and fabricated-metal products Pharmaceuticals and biotechnology Food and beverages Electronic and electrical Automotive Machinery and components Oil and gas Chemicals and petrochemicals Aerospace Industry Note: "Other" includesindustriesthat received less than five respondents, such as pulp and paper, medicalproducts, cementand glass, and furniture and wood products.
  15. 15. 14 Copyright©2016byTheBostonConsultingGroup,Inc.Allrightsreserved. Do Not Reproduce More Than Two Slides or Charts Without Permission This research is part of BCG’s ongoing series on Industry 4.0 and its impact on manufacturing Authors of this research Justin Rose Partner, leader of the North American activities of the operations and digital teams in the firm's Industrial Goods practice BCG Chicago Vlad Lukic Partner, coleader of BCG's digital operations efforts in North America, and a leader of the firm's advanced analytics teams focused on operations topics BCG Boston Tom Milon Principal and an expert in digital manufacturing who supports the firm's Innovation Centers for Operations in North America BCG Philadelphia Alessandro Cappuzzo Consultant BCG Chicago Selected publications and research in the series The Factory of the Future A report by The Boston Consulting Group and the Laboratory for Machine Tools and Production Engineering (WZL) of RWTH Aachen University, December 2016 Productivity Now: A Call to Action for US Manufacturers A report by The Boston Consulting Group and the National Association of Manufacturers, December 2016 Time to Accelerate in the Race Toward Industry 4.0 A report by The Boston Consulting Group, May 2016 Man and Machine in Industry 4.0 A report by The Boston Consulting Group, September 2015 The Robotics Revolution: The Next Great Leap in Manufacturing A report by The Boston Consulting Group, September 2015 The Need for U.S. Digital Engagement A commentary by The Boston Consulting Group, July 2015 Industry 4.0: The Future of Productivity and Growth in Manufacturing Industries A report by The Boston Consulting Group, April 2015 Why Advanced Manufacturing Will Boost Productivity A report by The Boston Consulting Group, January 2015 Note: All publications are available on BCG’s thought leadership portal,www.bcgperspectives.com, or at www.bcg.com. To request a media interview, please contact Dave Fondiller at fondiller.david@bcg.com. To discuss the findings with a BCG expert, please contact Payal Sheth at sheth.payal@bcg.com. To read other publications in this series, please go to www.bcgperspectives.com.
  16. 16. Thank you bcg.com | bcgperspectives.com

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