The fourth industrial revolution is upon us. With the flashy phrase “Industry 4.0” gaining popularity over the web, coBuilder’s Lars Christian Fredenlund explains the origins of the concept and how it will reshape (construction) manufacturing as we know it.
Industry 4.0 is defined as the process of digitisation of all physical assets and their complete integration into а digital environment. The concept was introduced in 2011 by the German Engineering Federation and was conceived as a measure towards achieving significant increase in both asset turnover and profit.
In the light of today’s political, economic and environmental status quo, it represents a real revolution incorporating customers at the centre of all changes, high digitisation of horizontal and vertical value-chain processes and the rise of the digital IQ.
Enabling Industry 4.0, industrial products manufacturers are expected to invest more than US$907bn a year by 2020. The major investments will be mostly in digital technologies (sensors, connectivity devices, software and applications like manufacturing execution systems etc).
These technologies have massive transformative potential, and will be crucial for achieving the EU’s objective set out in the European 2020 strategy. In addition, companies are also investing in training employees and driving organisational change, which is considered to be the biggest implementation challenge.
Researching the data about Industry 4.0 further, we find that the potential return on capital employed in western Europe until 2035 is 28% compared to 18% today. Apart from that, the value effect of Industry 4.0 would measure up to $420bn net profits and savings in capital employed. What’s more, 6.7 million new jobs could be created in the service sector alone and the share of manufacturing jobs would be 12% of the total in 2035.
No change without trust
While all of this is being forecast, there is still the issue of digital trust. Digital ecosystems can only function if all the involved participants trust the storage of their data and the protection of their intellectual property to open source systems and cloud computing. This transformation is inevitable and the European Union will benefit greatly from it.
According to a recent report from the Strategic Policy Forum on Digital Entrepreneurship, this new dynamic will create 400,000 to 1.5 million new jobs and increase performance up to 10 times. In addition, according to the same report, digitisation will bring the European manufacturing industry sectoral growth from 15% up to 20% by 2030.
Germany, in particular, is proof that technological growth brings employment. It has projected that SMEs could create 670,000 new jobs by using technology effectively. A global McKinsey survey of SMEs showed that 2.6 new jobs were created by the internet economy for every job destroyed by technology.
Go digital or go home
It is obvious that the way we do things will change. For example, the construction industry has already made major steps towards digitisation through BIM – utilising technology to transform a previously segmented industry into a group unified by information modelling.
Adam Matthews, chairman and head of international at the EU BIM Task Group, points out that Europe has become the hub for the greatest regional concentration of government-led BIM programmes in the world.
Finland and Norway were first to set standards for BIM implementation on public construction projects, followed by the UK, Netherlands and Italy, and most recently joint government and industry initiatives from France, Germany and Spain.
BIM today is a global phenomenon and that could not have been possible without the drive towards digitisation, interoperability and technological upheaval that characterises Industry 4.0 as well.
The German case
In following the route of Industry 4.0, the German industry has improved its ROCE (return on capital employed) over the past 15 years. Industry profitability increased by 80% between 2000 and 2014. In addition, the use of production equipment rose from 85% in 1998 to 95% in 2014.
Considering the fact that about a decade ago, Germany was facing continuously rising costs of labour, energy, significant skilled shortages, as well as the need to renew infrastructure these figures are a big win for Germany. That is why the country is putting its faith in the development of 4.0 solutions as a means of ridding itself from the last century’s stagnation.
Consequently, Industry 4.0 has become part of Germany’s national trade strategy representing a major opportunity for the country to establish itself as an integrated industry-led market and insight provider.