Connected

machines
A game changer in
industrial manufacturing?
Whitepaper
 Connected machines – what is it all 02
about?

Why should I implement connected 03

machines?

Beyond money – what else does it 04

bring?

Implement connected machines – 05

which path to take?

How shall I pay the bill? 07

I am in a hurry – can I have this thought 08

leadership on 1 page?

© 2022 KPMG AG Wirtschaftsprüfungsgesellschaft, a corporation under German law and a member firm of the KPMG global organization of
independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.
1
Connected machines – what is it all about?
A connected machine
ecosystem comprises
industrial assets inter-
linked via software and
intelligent technologies,
to drive smarter and more
agile decisions.

Key elements of Industry 4.0

Connected
Machines

3D Big data Cyber Digital

Printing security Twin
Robotics

Cloud
AI / ML Computing AR / VR
Sources: Please refer #1 in references

Industry 4.0, a revolution driven by advancements in system for manufacturers. A connected ecosystem,
technology, integrates physical operations with smart which enables industrial IoT (IIoT), acts as a building
digital technologies (such as AI, industrial IoT, block for manufacturers in realizing the Industry 4.0
blockchain, connectivity infrastructure, etc.) to create benefits.
a more holistic, interconnected, and a cyber-physical

€90.5 bn 6.7%
Projected value of the CAGR during the forecast
global industrial IoT(a) period, 2021-26F
market by 2026

Strong growth outlook 36.8 bn 15.8%

of connected machines, due
to rising adoption by Projected volume of global CAGR during the forecast
industrial manufacturers industrial IoT(a) period, 2020-25F
connections by 2025
Sources: Please refer #2 and 3 in references

Notes: (a) Market size of industrial IoT considered as it comprises connected machines in industrial manufacturing

© 2022 KPMG AG Wirtschaftsprüfungsgesellschaft, a corporation under German law and a member firm of the KPMG global organization of
independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.
2
Why should I implement connected machines?
Increase your customer satisfaction, boost operational efficiency, bring
down costs and raise profits, while avoiding falling behind competition,
downtimes and losses in productivity.

Benefits of a connected machines value chain

Manufacturer Dealer / service provider End customer

— Cost savings — Remote maintenance — Reduced downtime

— Efficiency gains — Efficient workforce utilization — Reduced service costs
— Improved customer — New / extended service — Tools for automation
experience offerings

Case in point
Realized benefits and rising demand for connected machines is pushing integrated IM players and software
providers to augment their offerings
IM players Service providers
Siemens Electronics Works, Germany Dematic

140% Implemented a lean digital factory Acquired Digital Applications

Factory output approach, powered by predictive International for
achieved 2017-21 maintenance and AI €120 million to boost its logistics
software offerings

Schneider Electric, Indonesia Konux

70% Embedded sensors in connected Developed an AI-based predictive
Supplier service rate(a) machines to enable monitoring and maintenance system to enhance
transfer of real-time data to suppliers railway infrastructure

Sources: Please refer #9, 11, 14, 15 and 16 in references

Risks of not implementing connected machines

Case in point
— Loss of revenue / €0.2 million(b) 5%–20%(b)
profitability Per hour cost incurred by a Loss in productive capacity
— Stunted business factory due to unplanned of a factory due to downtime
downtime
growth

— Product / service Big data-driven, smart App-controlled vehicle access

obsolescence processes could replace and keyless ignitions could
traditional welding procedures replace car keys

Sources: Please refer #13, 17 and 33 in references

How KPMG can help: KPMG’s Advisory services help you identify
“cost efficiencies” and “productivity gains”. Learn more

.Notes: (a) Supplier service rate is an indicator displaying the quantity and date from warehouse to external suppliers or from the stores to central and external supplier; (b) Based
on results of global surveys conducted by Aberdeen Research and Emaint

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independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.
3
Beyond money – what else does it bring?
Generate additional revenue streams with profitable business models
such as ‘outcome-as-a-service’, and attain your Sustainable Development
Goals (SDGs) with reduced carbon footprint and efficient processes.

Servitization
It is a business model achieved through connected connecting their products to seek additional revenue
machines, which enables manufacturers to sell via aftermarket services. It includes analysing
products as a service rather than the product itself. performance patterns to generate automatic work
With stiff competition resulting in reduced margins on orders for maintenance and repair.
manufactured goods, manufacturers are wirelessly

Benefits Challenges
— Recurring income — Large operational changes needed
— Better customer relationships — Tricky price setting
— Service as a value creator — Cultural transformation from a product
to a service-centric mindset

Case in point
Kaeser Compressors The Michelin Group Heidelberg Lensing
— Air-as-a-service (Connected — Tire-as-a-service (smart — Printer-as-a-service
air compressors) tires track air pressure to (Subscription-based
— Pricing based on quantity assess replaceability) printing services)
consumed of compressed air — Pricing based on distance — Pricing based on
travelled pay-per-use
Sources: Please refer #20, 22 and 23 in references

Sustainable Development Goals (SDGs)

An added advantage of connected machine implementation is the ability of industrial manufacturers to
address many of the 17 goals set by the UN, to be implemented by 2030.

SDGs addressed by IM players(a)

SDG 3 – Good SDG 8 – Decent SDG 12 – SDG 13 – Climate

health & wellbeing work & economic Responsible action
growth consumption &
production
Case in point
Groupe Renault, France(b) Schneider Electric, USA(b) Hitachi, Japan

-50% Safety incidents -78% CO2 emissions -16% CO2 emissions

I4.0 technologies (cobots and VR) Digital energy management to IIoT and data analytics to enable
to enable digital-enabled service curb green house gas emissions an efficient digital energy
training to support operators and combat climate change management system
Sources: Please refer #10 and 11 in references

How KPMG can help: KPMG can support you with our "Growth"
and "ESG focused" programs. Learn more
.
Notes: (a) Basis KPMG analysis; the list is indicative and not exhaustive; (b) Numbers for efficiency gains in the above-mentioned companies pertain to plants where connected
machines have been implemented

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independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.
4
Implement connected machines – which path to take? (1/2)
One of the ways to deploy connected machines entails in-house
implementation – either by adding smart components to legacy
equipment or building new customized facilities.

Brownfield
Upgrading existing machinery by adding technological solutions such as sensors, IoT gateway, and data
visualization capabilities.
Benefits
IOT
Higher-level Gateway — Reduced capex, quicker ROI
Systems — Quicker adaptation to requirements
Sensor
— Targeted at recurring and critical issues, eliminating
unnecessary deployments
Challenges
Devices — Software and hardware integration
Data analytics — All machinery may not be retrofit-ready
— Potential security risks in linking old equipment with
new equipment
Case in point
Bosch Ericsson
Upgraded a legacy workbench by using IoT Added sensors with mobile IoT connectivity for
gateway to ensure quality control. Received monitoring and analyzing production, saving €196
the first pay-off in just 18 months per IoT sensor as compared to cables
Sources: Please refer #38, 41 and 42 in references

Greenfield
Building up new and customized infrastructure, systems, facilities and processes.
Co-bots Unmanned Benefits
IoT sensors for Trucks
supply chain — Higher design flexibility and efficiency
management — Faster integration with the workforce and other
operational factors
— Lower maintenance costs
Challenges
Wearables
Augmented — Large capex required
Reality
— Complex and time-consuming
Predictive — Complicated training requirements for personnel
machine migrating to data-driven systems
Analytics / AI
Case in point
Audi AG BAE Systems
Invested over €1 billion in a smart factory in Mexico Collaborated with 40 companies in a €11.2
enabling connectivity with central control station to million concept project to test solutions for
comply with the global production standards deploying 5G in manufacturing
Sources: Please refer #45 and 50 in references

How KPMG can help: KPMG’s proven "Value Creation" program has been
designed to help you in selecting the best route(s) for implementation of connected Learn more
machines in processes.
.
© 2022 KPMG AG Wirtschaftsprüfungsgesellschaft, a corporation under German law and a member firm of the KPMG global organization of
independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.
5
Implement connected machines – which path to take? (2/2)
Leverage various types of collaborations such as strategic
alliances, JVs or M&As to attain the desired connected machines
capabilities and gradually build operational synergies.

Strategic partnerships(a)
Large industrial conglomerates are forging partnerships with prominent technology players …

Schneider Electric Robert Bosch partnered with LafargeHolcim

partnered with Qualcomm Technologies to jointly partnered with IBM to
Accenture to build a research on 5G NR (new radio) develop a digital platform
digital factory for scaling solutions that would help accelerate for optimizing road
its IIoT solutions deployment of connected factories construction

April April February April August February

2017 2018 2019 2019 2020 2021

Siemens Digital Leoni collaborated with Siemens Digital

Industries Software Relayr to jointly develop an Industries Software
partnered with Telit, intelligent predictive collaborated with IBM and
enabling both players to maintenance solution to Red Hat to leverage IBM’s
integrate their IIoT assets optimize manufacturing open hybrid cloud
technology and expand
Siemens’ MindSphere IIoT
Sources: Please refer #51, 52, 53, 54, 55 and 56 in references platform
Mergers and acquisitions(a)
Rather than investing in R&D for greenfield to strengthen connected machine capabilities and
implementation, large manufacturing companies are improve operations…
acquiring component or technology providers
Date Bidder Target Target business area Bidder deal rationale

Apr-2021 Hitachi Rail Perpetuum Provider of wireless Optimize railway operations and
rail sensors boost transportation portfolio
Dec-2020 NSK B&K Vibro Provider of machine Expand condition monitoring
condition monitoring services portfolio used to
solutions enhance machine productivity

Dec-2018 Comelz Develer Developer of IT Expedite product development

software and using Develer’s AI, Big Data and
hardware solutions IoT offerings
Apr-2018 Siemens Agilion Developer of Bolster real-time location
wireless location systems (RTLS) for smart
solutions factories and logistics
Sources: Please refer #57, 58, 59 and 60 in references

How KPMG can help: For decades, KPMG has supported clients with proven
“Buy” and “Partnership” programs to meet this kind of transformation requirements. Learn more

Notes: (a) Represents an indicative list of partnerships and M&As that were announced between January 2017-July 2021

© 2022 KPMG AG Wirtschaftsprüfungsgesellschaft, a corporation under German law and a member firm of the KPMG global organization of
independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.
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How shall I pay the bill?
Take advantage of the various financing programs and support
mechanisms by federal and state governments across Europe to
digitize operations, as well as traditional funding sources.

Why are the EU and Germany promoting digitization in industrial manufacturing?

14% 29.4 million 18%

EU’s GDP represented by People employed in Germany’s GDP
the manufacturing sector, manufacturing in EU-27, represented by the
2020 Q1 2021 manufacturing sector, 2020

€425 billion ~30%

Projected value-added Projected productivity gains
potential facilitated by facilitated by digitization in
digitization in Germany, 2025 Germany, 2025

Sources: Please refer #63, 64 in references

Key initiatives launched

Governments launched multiple initiatives to boost industrial digitization, across Europe
(including EU and the UK).

Some initiatives directly aimed at Circular economy initiatives that may drive
enhancing digitization digitization

EU’s Digital A €7.5 billion program for the CE- IoT A €1.7 billion program funded
Decade 2030 deployment of European 2022 by the EU, for circular economy
digital projects and IoT in manufacturing and
other sectors
InvestEU A €372 billion funding to
foster research, innovation and EU A ~€1 trillion program
digitalization over 2021-27 Green contributing to the advancement
Deal of manufacturing to achieve
Horizon A €100 billion research and 2030 sustainability targets
Europe innovation program aimed at
2027 cybersecurity, digital economy, Germany A mandatory progress report
climate change, etc. ProgRess of resource efficiency (via digital
III transformation) across value
European A €4-6 billion initiative to fund chain, to identify and resolve
Data Strategy data infrastructures supporting bottlenecks
2025 AI and interconnectivity in IM,
among other sectors
Germany A €200 million funding by BMWI
Platform and BMBF to promote Industry
Industrie 4.0 4.0
Sources: Please refer #65,66,67,68,69,70, 71 and 72 in references

Tailored approach for obtaining funding

Different mechanisms may have different pre- can also get funded via other routes such as strategic
requisites, focusing on specific entities (start-ups, divestments, PE, VC, bank business loans, etc.
SMEs) or specific regions of operation. Companies

How KPMG can help: KPMG can help you explore internal financing options
or acquire funds from external sources. Learn more

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independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.
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I am in a hurry – can I have this thought leadership on 1 page?

In a nutshell:

1 Connected machines – what is it all about?

As a part of Industry 4.0, the connected machine ecosystem comprises devices, software, and
intelligent technologies that enable inter-machine communication, resulting in smarter and more agile
decisions

2 Winning or losing millions – why should I implement connected machines?

Switching to a connected ecosystem could help increase your customer satisfaction, boost operational
efficiency, bring down costs and raise profits, while avoiding falling behind competition, downtimes and
losses in productivity

3 Beyond money – what else does it bring?

Connected machines can generate additional revenue streams with profitable business models such
as ‘outcome-as-a-service’, and attain your Sustainable Development Goals (SDGs) with reduced
carbon footprint and efficient processes

4 Which path shall I take to implement connected machines?

Facilitate connected machine solutions in factories either via brownfield (upgrading existing systems) or
greenfield (building new systems) implementation or via acquiring or forming strategic alliances with
connected machine solution providers

5 How shall I pay the bill?

Apart from the traditional funding sources, companies can benefit from the various financing programs
and support mechanisms by federal and state governments across Europe to digitize operations

Reach out to KPMG for:

Growth & Portfolio Internal and ESG Buy-side / Turnaround / Value

Management External Financing (KPMG Impact) Partnership Enhancement
Evaluate growth Free up cash from Define an ESG Acquire or Identify and
potential, formulate annual proceeds or strategy, and collaborate with implement cost
a clear-cut portfolio portfolio sales and / identify and a local player in reduction / efficiency
strategy, and or gain access to implement resource connected measures using
optimize business subsidies, and local efficiency programs machines space technology
portfolio accordingly financing markets

© 2022 KPMG AG Wirtschaftsprüfungsgesellschaft, a corporation under German law and a member firm of the KPMG global organization of
independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.
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Contact
KPMG AG
Wirtschaftsprüfungsgesellschaft
Ganghoferstrasse 29
80339 Munich, Germany

Christoph Kaiser Thomas Theelen Fabian Gorgs

Partner, Senior Manager, Senior Manager,
Industrial Manufacturing, Industrial Manufacturing, Industrial Manufacturing,
Deal Advisory, Strategy Deal Advisory, M&A Deal Advisory, Strategy
T +49 173 5764860 T +49 174 3020192 T +49 151 61849025
ckaiser@kpmg.com ttheelen@kpmg.com fgorgs@kpmg.com

Authors:
Christoph Kaiser
Partner,
KPMG, Germany

Fabian Gorgs
Senior Manager,
KPMG, Germany

Ishan Dogra
Sector Manager,
KPMG Global Services, India

kpmg.de/socialmedia kpmg.de/advisory

Some or all of the services described herein may not be permissible for KPMG audit clients and their affiliates or related entities.

The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide
accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one
should act on such information without appropriate professional advice after a thorough examination of the particular situation.

© 2022 KPMG AG Wirtschaftsprüfungsgesellschaft, a corporation under German law and a member firm of the KPMG global organization of independent member firms affiliated with
KPMG International Limited, a private English company limited by guarantee. All rights reserved. The KPMG name and logo are trademarks used under license by the independent
member firms of the KPMG global organization.
References
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© 2022 KPMG AG Wirtschaftsprüfungsgesellschaft, a corporation under German law and a member firm of the KPMG global organization of
independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.
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39. When to Retrofit a Machine and How to Choose the Right Control, Manufacturing tomorrow, Feb 2021
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© 2022 KPMG AG Wirtschaftsprüfungsgesellschaft, a corporation under German law and a member firm of the KPMG global organization of
independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.
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