BCG: Industry 4.0 to lift manufacturing to new levels

15 June 2015

Industry 4.0, which refers to the transformation of manufacturing processes with the latest automation and digital technologies, is expected to lift manufacturing to new levels, an analysis from BCG finds. The firm foresees nine technologies that are expected to transform manufacturing over the coming decade. To highlight the benefits of Industry 4.0, the firm uses Germany as an example, where the improved manufacturing will come with productivity gains of between 5% and 8%, and an increase of 1% to GDP every year.

Since the dawn of the industrial revolution, technological developments have provided jumps in the capacity and productivity of manufacturing. Yet while other industries have surged ahead in recent decades, with large developments in IT, mobile and e-commerce, manufacturing has been slow to make substantial gains.

Industry 4.0
In a recent report from the Boston Consulting Group (BCG), titled ‘Industry 4.0: The Future of Productivity and Growth in Manufacturing Industries’, the consulting firm explores the changes driven by technological advancements that are expected to take make in manufacturing over the coming decades. The firm finding that there are nine key technologies set to transform industrial production in the coming decades: industry 4.0. To demonstrate its findings, BCG uses case studies from Germany, which is recognised as a world leader in industrial automation.

Nine technologies are transforming industrial production

The nine technologies are in one way or another related to the digitalisation of the industrial sector, and are broadly interconnected in their expected effect on the industry. The technologies include the deployment of autonomous robots that work with people in production. Isolated, optimised cells will come together as a fully integrated, automat­ed, and optimised production flow, leading to greater efficiencies and changing tra­ditional production relationships among suppliers, producers, and customers. Furthermore, advanced analytics in the manufacturing process is set to increase lean methods of production, while horizontal and vertical supply chain integration through network and information cohesion will improve value chain wide productivity, among others.

Industry 4.0 gains
The effect of these technologies on manufacturing is expected to produce considerable increases in productivity. To quantify the potential benefits, BCG created an outlook for the adoption of these technologies on German manufacturing in the coming decade.

Industry 4.0 productivity gains

One area in which the new technologies are expected to create a net benefit is in productivity gains. Industry 4.0 technologies are set to improve German manufacturing productivity to the tune of €90 billion to €150 billion over the next 5 to 10 years. In terms of conversion costs – excluding that of materials – the gains will range between 15% and 25% according to the report. While with materials costs factored in the gains are 5% to 8%. The largest total gains are projected in machinery at between 10-15%, the production of wind turbines will account for 1% of German manufacturing output, with new technologies set to increase the productivity conversion costs by between 25-35%.

The rise of the machines to replace human beings, following Industry 4.0, is set to produce a change in the kinds of skills that will be in demand in the coming years. Lower skilled repetitive jobs will go, to be replaced with a significant demand in the mechanical-engineering sector – which could see a 10% increase. Overall manufacturing will see a 6% increase in employees, from around 6 million to 6.5 million by 2025.

Increased manufacturing employment

Industry 4.0 will itself come to manufacture industry 4.0 goods, which will have considerable market value and are set to contribute €30 billion to GDP per year, or an additional 1% on GDP growth per year.

“Germany has excellent chances of further expanding its global leadership role in machine building and automation, considerably increasing productivity and growth and creating more high-skilled jobs,” explains Michael Rüßmann, a BCG partner and Co-Author of the report. “To maintain this advantage in the long term, however, German companies have to invest much more strongly in building production-related IT and software competence and train highly skilled workers in these fields in a targeted manner.” The firm estimates that adapting production processes to incorporate Industry 4.0 will require that German producers invest about €250 billion during the next ten years, amounting to about 1-1.5% of manufacturers’ revenues.