Industry 4.0 investments in major economies to hit 4.5 trillion by 2020

03 May 2016

Industry 4.0 is set to rapidly transform the competitiveness of industrial and manufacturing sectors globally, adding a forecasted $493 billion in revenue gains per annum over a five year period, a new study finds. Although initial investments needed to adopt Industry 4.0 will be high – a total of $4.5 trillion to 2020 – the rewards are expected to be even higher.

In a new report, titled ‘Industry 4.0: Building the digital enterprise’, PwC, together with Strategy&, explores the Industry 4.0 transformation taking place across 10 major industries. The research involves executives from more than 2,000 companies in 26 countries across Europe, the Americas, Asia Pacific, Middle East and Africa. Results are weighted by country GDP to provide a balanced overview of global totals. Industrial manufacturing represents the largest share of respondents, at 21%, followed by engineering & construction, at 19%.

Industry 4.0
‘Industry 4.0’ represents the widespread deployment of an ‘industrial internet’, which broadly relates to the use of digitalisation and automation in industrial processes. The basis of the "revolution", as it is dubbed by many, is a focus on the end-to-end digitisation of all physical assets and integration into digital ecosystems with value chain partners. In the context of the industry upgrade, this means that both the vertical and the horizontal value chains become integrated, with the connection of people, things and systems creating dynamic, self-organising, real-time optimised value-added connections within and across companies.

Scaling investment
The report finds that the companies surveyed are planning substantial investments into Industry 4.0, more specifically, a total investment of $4.5 trillion over the coming years. The per annum investment will, on average, be $907 billion to 2020, equal to a 5% share of total revenues.

Investment levels in the electronics industry will take the lead, as the industry will invest $243 billion every year, or around 7% of their revenues, until 2020. Engineering and construction is the second largest investing industry by total size annually, investing $195 billion, followed by industrial manufacturing, at $177 billion.

The heavy investment is expected to result in considerably higher levels of digitalisation across a range of functional areas in the years to 2020. Today, around 41% of the vertical value-chain at surveyed companies is integrated – this is expected to increase to 72% in the coming five years. Horizontal value chains too are expected to see considerable integration, up from 34% today to 65% in five years. Digital business models, products and service portfolios will see increases of more than a third, up from 29% to 64%.

Improved efficiency
One of the benefits of the new industrial process is that Industry 4.0 will help companies create efficient manufacturing processes with increased production, energy and resource efficiency. The efficiencies that may be gained through moving to integrated planning & scheduling for manufacturing are: integrated shop floor planning that can improve asset utilisation and product throughput time; predictive maintenance of key assets, which uses predictive algorithms that can optimise repair and maintenance schedules; and integration within horizontal value chain partners, including suppliers and key customers, that can, according to the firm, significantly improve efficiencies and reduce inventories.

The research finds that the substantial investment by major industries is projected to result in significant cost reductions in the years to 2020. On average savings will reach 3.6% of costs annually, with a combined annual saving of $421 billion until 2020. The biggest cost reduction is set to take place in forest, paper & packaging at 4.2% annually, followed by automotive and chemical, both at 3.9% annually.

4.0 barriers
The transformation to Industry 4.0 is expected to result in significant changes within the company structure. The survey results suggest that internal factors, such as culture, organisation, leadership and skills, rather than external issues, will take precedence. The biggest barrier to successful transformation, for instance, has been cited as a lack of clear digital operations vision and support from leadership and top management, at 40% of respondents. The second biggest challenge for companies is a lack of clarity about the economic benefit and digital investment required, at 38% of respondents. High financial investment requirements comes in third, cited by 36%.

A range of less concerning challenges include concerns around loss of control over company’s intellectual property, at 14%, followed by business partners not able to collaborate around digital solutions, at 16%. Moreover, the report adds “From our interviews with industrial companies, the biggest challenges centre around internal issues such as culture, organisation, leadership and skills rather than external issues such as whether the right standards, infrastructure and intellectual property protection are in place or whether concerns about data security or privacy concerns can be overcome.”