Industry 4.0 is set to transform the competitiveness of European industries, adding €550 billion over five years in revenues, a study from PwC finds. To transform to the industry 4.0, the investment will be high, at €140 billion per year until 2020. However, rewards also remain high. In addition to the increased revenues, average efficiency will increase 3.3% annually and costs will be reduced by 2.6%.
In its ‘Industry 4.0 – Opportunities and Challenges of the Industrial Internet’ report, PwC and subsidiary Strategy& in collaboration with the market research institute TNS Emnid explore the effects of the new way of working on various industries. The research involved 235 companies from the German processing and the information and communications industry. The aim of the research is to understand how the next wave of industrialisation is affecting process and industrial manufacturing.
‘Industry 4.0’ involves the widespread deployment of an ‘industrial internet’, which is broadly a digitalisation and automation of the industrial process. The basis of this revolution is “the availability of all relevant information in real time by connecting all instances involved in the value chain.” In the context of the new industry, 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.
Investing in the future
The transformation itself is by no means an inexpensive process. The research indicates that the investment into the transformation of the value chain across European industrial companies will be €140 billion per year until 2020. The average investment of the surveyed companies stands at 3.3% of their annual revenues, with information and communication companies averaging 3.9% while the process industry invests 2.7% on average. In terms of individual companies, almost a third invests between 4-10% of their revenue into the transformation.
Following these high levels of investment in the digitalisation of the value chains, the companies will see much of their transformed into an 'industrial 4.0' standard in the coming five years. Information and communication companies are now at 27% digitalisation and will develop to 80% by 2020. Electronics and electrical systems will see the greatest digitalisation of their value chain, at 89% by 2020. In terms of companies by size, larger companies with revenue in excess of €5 billion will see the biggest growth, at 92%. Across all industries the average by 2020 is 83%.
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 researchers project an average efficiency increase of 17.9% through digitised enterprises across all industry sectors. This is equivalent to an annual efficiency increase of 3.3%. Just over a third (37%) of companies are expecting so see efficiencies greater than 20%. Cost reductions are also projected alongside the improvement in efficiency, with a 21% reduction for more than 20% of companies, and the average reduction across all industries at 13.8% or 2.6% per annum.
It is not merely an increase in efficiency that will see companies improve their prospects through the next industrial wave; revenue is also expected to increase significantly. The study finds that about 50% of companies surveyed expect double-digit growth in revenues in the next five years, attributed directly to Industry 4.0. Across all industries surveyed the average revenue increase is 12.5% cumulated over five years, which is equivalent to a 2.5% annual revenue increase.
Within Europe the additional revenue generated from the Industry 4.0 transformation will reach €110 billion annually over the coming years, totalling €550 billion over five years. The researchers conclude: “The Industrial Internet or Industry 4.0 will thus make a considerable contribution to growth in Europe in the next years.”
Strategy& rivals BCG and Roland Berger recently also released research on the economic impact of Industry 4.0, with BCG finding that Manufacturing 4.0 can lift the industrial sector to new levels, while Roland Berger highlighted the value Manufacturing 4.0 could bring to the Belgian economy.