Sprinting to Value in Industry 4.0

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Sprinting to Value in Industry 4.0
Perspectives from and Implications for U.S. Manufacturers
December 2016

1
Copyright©2016byTheBostonConsultingGroup,Inc.Allrightsreserved.
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.

2
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

3
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

4
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

5
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."

6
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

7
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

8
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

9
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…

10
…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?

11
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

12
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.

13
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.

14
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.

Thank you
bcg.com | bcgperspectives.com

Sprinting to Value in Industry 4.0

Sprinting to Value in Industry 4.0

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