Industry 4.

0
An Introduction
Understanding Industry 4.0 decentralized decision making, real-time capability to
Manufacturing has undergone several eras of change from collect and analyze data and provide insights, flexible
the first industrial revolution (use of steam power and adaptation to changes by reconfiguring individual modules
mechanical production), to the second (use of electricity and an increased services orientation. Consequently,
and mass production) and a third era defined by increased Industry 4.0 will create opportunities for new business
automation of manufacturing processes due to the use models, solution offerings, and new products.
of information technology (IT). A fourth era of change – As manufacturers consider reasons to pursue an Industry
Industry 4.0 – is driven by trends on connectivity, service 4.0 strategy, at some point in the future, the transition
orientation, advanced materials and processing technology, will challenge an organization’s ability to adjust. These
and collaborative advanced manufacturing networks; challenges will come in many forms, likely linked to
networks of advanced manufacturing devices controlled the incorporation of new IT capabilities, the impact of
by computers combining them into a physical – digital exponentially increasing amounts of data from sensors
environment. This change includes the entire value chain and connected devices in the operating environment,
from raw materials to end use to recovery, impacting suppliers, and from the distribution network as we see the
business and support functions too (e.g. supply chain, emergence of self-regulating and adapting supply systems.
sales). At the same time, risks will emerge related to data security
associated with increased connectivity.
Industry 4.0 creates new design principles along which
the industry can organize itself, these include: increased What is changing?
interoperability between manufacturing networks through Advances in materials and manufacturing technologies are
increased connectivity, virtualization of manufacturing linked to those in computing and data management as well
processes by linking sensor data (from monitoring physical as by developments in connectivity (e.g. internet protocol
processes) with virtual plant and simulation models, (IP) version 6).

Smart technologies are potential disruptors of manufacturing industry cost curves and gateways to new
competitive space
Materials and Manufacturing Connectivity Smart Computing and
Smart Technologies Technologies Big Data

Advanced analytics &

Advanced materials Advanced sensors
visualization

Remote-controlled Advanced computing &

Additive manufacturing
operations Artificial intelligence

Robotics Facebook of assets Virtual industrialization

Distributed generation Smart machines Digital infrastructure

Modular operations Cloud computing

New materials and processing technologies are making accept and communicate data allowing for operational
manufacturing more efficient while increasing the ability improvements to occur both automatically, or through user
to customize allowing the industry to quickly become intervention. Finally, an increasing wealth of data coupled
more agile, flexible, and decrease scale requirements. with techniques for processing to extract insights, opens-up
Machines are moving from collections of separate devices new ways to optimize operations, and enables improved
to singular collaborative networked systems which can planning and predictive capabilities to optimize production
and reduce down time.

3
Industry 4.0 opportunities New organizational demands
Going forward, it will be essential for companies to focus The convergence of new technologies and capabilities
on creating value networks rather than value chains – places new demands on manufacturing organizations.
utilizing strategic alliances and partnerships effectively Consider the impact of the increasing use of sensors
to create competitive advantage. To do so, they must to capture data. As sensors proliferate the value chain,
understand where value is generated and how it is shared. they will also become smaller, less expensive, faster with
The manufacturing industry is already seeing early examples lower power consumption, and less overhead impact
of new business models and partnerships creating on equipment, leading to greater proliferation, and the
impact through solutions that enhance value beyond the availability of massive amounts of new data. To handle
manufactured product alone: this will require changes in IT, more and diverse data
• Integrated networks for product design: a national structures, which will require scalable, highly available and
automotive manufacturer and a government agency secure platforms, based on open standards. While the
used crowdsourcing to design customized vehicles transfer of strategic information between components and
with minimal investment in a reasonable timeframe. various members of the value chain will pose new data and
By releasing off the shelf specifications for materials, network security considerations.
the design process lasted 4-6 months, which was on
schedule and under budget. Manufacturers will not only need to attract employees who
• Advanced materials permit new product designs: a global are comfortable and skilled to operate new technologies,
manufacturer designed a continuous, hybridized additive but will face increasing competition for data scientists and
manufacturing process embedding functional elements database managers skilled in interpreting and leveraging
into in-mold labeling material. This process increased intelligence from new data streams. Manufacturers will
the rapid prototyping and scalability of objects for mass also need to identify entrepreneurial talent internally
production securing process patents to gain competitive and externally to work in emerging, dynamic business
advantage. environments considering opportunities holistically across
• High Performance Computing and Simulation: using the business, and be prepared to act outside of traditional
supercomputing to accelerate the product design organizational silos.
process, the company was able to run simulations and
test new ideas reducing time-to-market from 5 years to Organizational change management will become a critical
2 weeks. capability required for success. Employee morale and team
commitment may be affected by adjustments to business
Beyond product design and development, other companies models and the skill requirements associated with digital
are providing manufactured goods bundled with services technologies. A successful organization will focus on
to customers. Other companies are experimenting with collaboration, system interoperability, closing “digital” skill
hardware on a rental basis, providing maintenance and gaps, and an early focus on change management.
upgrades as part of the fee, which is similar to software
and cloud providers in the technology industry. A broad solutions-driven approach
• Using data to improve maintenance: using advanced Given the broad business implications of Industry 4.0,
sensors a global industrial conglomerate is monitoring manufacturing organizations must think holistically,
sensor data to predict when maintenance is necessary incorporating both an inside-out and an outside-in
enabling optimized flight scheduling and reduced engine perspective. Ad-hoc exploration and implementation of
recovery times for customers. new technologies and processes will not be enough, it will
• Reducing unplanned downtime: a global chemicals require a structured approach focusing on creating tangible
company is utilizing predictive analytics to understand value. Consider, for example, the innovation process
maintenance and reduce unplanned outages. This has led which will need to involve more external parties taking an
to an 80% reduction in unplanned outages and $300k ecosystem perspective of customers, suppliers, and their
per extruder in annual savings. R&D partners. Since Industry 4.0 is near the front-end of
• Sustainable production enabled by data: a global the innovation curve, it will take a benchmarking exercise
industrial conglomerate is using additive manufacturing to determine relative maturity towards perceived best-in-
and crowdsourcing/gamification to redesign jet engine class capabilities. Such an exercise will need to support
components. Reduced material in the new design identification of the strengths, weaknesses, and gaps in the
resulted in more energy efficiency and lower product areas critical to success in an Industry 4.0 environment.
cost. To develop Industry 4.0 initiatives, manufacturers will
need to bring IT, production, operations, engineering, and
R&D capabilities, working together outside of traditional
organizational structures. This joint-cooperation coupled
with an agile approach, using design-led thinking and an
iterative process, can enable rapid prototyping of Industry
4.0 products and business model concepts. Considering
typical organizational challenges, and the tendency to
stick to clear processes in fear of endangering the utility
of entrenched assets, manufacturers should consider
introducing projects in small pieces – rather than a single,
big shift – making it possible to experiment with asset and
talent requirements.

Industry 4.0: An Introduction 4

How we can help

The potential for far reaching transformation as Industry 4.0 evolves requires the
capabilities to solve problems from end-to-end – horizontally and vertically within and
outside an organization. Focused Industry 4.0 efforts, will require a perspective that
cuts across each of these dimensions, which is informed by deep industry knowledge,
technology expertise, strategy and business model expertise and an equally informed
external (“outside-in”) perspective built by experience across multiple industries and
market sectors. At Deloitte, we have worked with a wide range of manufacturing
companies, including in highly specialized industries such as aerospace & defense,
automotive, chemicals, and high tech, as well as supporting global manufacturers in
consumer products, retail and telecoms. We have the experience in supporting clients
with systems-level innovation through our Advanced Materials Systems (AMS) framework
– and we regularly support clients in both large and small transformational efforts
spanning the business, technology, and human resources. We maintain a common focus
regardless of context – identifying and solving business issues, delivering measurable
financial impact – a proven approach which enables prioritization and justification of
investments and creates true business impact.

Contacts:
The preceding document is an introduction to the topic of Industry 4.0. Deloitte regularly
analyzes the global manufacturing industry, publishing related reports on industry transformation Stefan Van Thienen
and its impact on business models and organizational requirements. Partner, Strategy & Operations
Deloitte Consulting Belgium
Interested in specific elements of Industry 4.0? Please see some of Deloitte’s other svanthienen@deloitte.com
perspectives on:

Andre Barneveld Binkhuysen

Director, Technology
Deloitte Consulting Netherlands
abarneveld@deloitte.nl

Andrew Clinton
Specialist Leader, Strategy &
The future of The Internet 3D opportunity: Cognitive Operations
manufacturing: of Things Additive technologies: Deloitte Consulting United States
Making things in a ecosystem: Manufacturing The real opportunity aclinton@deloitte.com
changing world Unlocking the paths to for business
business value of performance, Roland Korte
connected devices innovation, and Senior Manager, Strategy &
growth Operations
Deloitte Consulting Germany
rkorte@deloitte.de

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