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Exploring the world of connected
enterprises
Industry 4.0 and manufacturing ecosystems
Monika Mahto
Monika Mahto is an assistant manager with Deloitte Services India Pvt. Ltd and a member of
Deloitte’s Eminence Center of Excellence. Over the last seven years, she has been involved in
research focused on the strategic implications of advanced technologies related to manufacturing
and consumer products industries.
Mark J. Cotteleer
Mark J. Cotteleer is a research director with Deloitte Services LP, affiliated with Deloitte’s Center for
Integrated Research. His research focuses on operational and financial performance improvement,
in particular, through the application of advanced technology.
Acknowledgements
The authors would like to thank Steve Shepley and Alan Brady, both of Deloitte Consulting LLP,
for their contributions to this article.
Deloitte Consulting LLP’s Supply Chain and Manufacturing Operations practice helps companies
understand and address opportunities to apply Industry 4.0 technologies in pursuit of their
business objectives. Our insights into additive manufacturing, IoT, and analytics enable us to help
organizations reassess their people, processes, and technologies in light of advanced manufacturing
practices that are evolving every day.
Exploring the world of connected enterprises
Contents
Introduction | 2
Looking ahead | 17
Conclusion | 19
Endnotes | 20
1
Industry 4.0 and manufacturing ecosystems
Introduction
2
Exploring the world of connected enterprises
the digital information from many different (IVL). We then review the impact of the IVL
sources and locations to drive the physical act on the manufacturing value chain. In the
of manufacturing. In other words, integrate remainder of this article we will:
information technology (IT) and operations
technology (OT) to forge a stronger manu- • Explain the term “Industry 4.0,” its history,
facturing organization—a state that we and and the expanding breadth of the concept
others refer to as Industry 4.0.7 Also known
as SMART manufacturing or Manufacturing • Review the fundamentals of Deloitte’s IVL
4.0, Industry 4.0 is marked by a shift toward a framework and its relation to Industry 4.0
physical-to-digital-to-physical connection.
In this report, we offer a perspective to help • Identify two strategic areas—growing the
manufacturers navigate toward an Industry business and operating the business—and
4.0 future. We do so by examining the flow six transformational plays that encompass
of information in intelligent production and the core opportunities for manufacturers to
connected supply chains—that is, systems that create with Industry 4.0 technologies
inform and coordinate the manufacturing, dis-
tribution, and aftermarket process—through • Uncover key challenges for Industry
the lens of Deloitte’s Information Value Loop 4.0 deployments
3
Industry 4.0 and manufacturing ecosystems
• Increasing use of
Third industrial revolution:
cyber-physical systems (CPS)
Electronic automation • In January 2011, Industry 4.0
was initiated as a “Future
Second industrial revolution: • Development of the first Project” by the German
Industrialization programmable logic controller federal government
(PLC) in 1969 • With the introduction of IPv6
• Introduction of the assembly • Growing application of in 2012, virtually unlimited
First industrial revolution: line in slaughterhouses in 1870 electronics and IT to automate addressing space becomes
Power generation • Electrification drives mass production processes available
production in a variety of • Governments, private
• Introduction of the power industries companies, and industry
loom in 1784 associations have been
• Mechanization of production focusing on Industry 4.0 and
facilities with water and making investments since
steam power the 2010s
Sources: Germany Trade & Invest, “INDUSTRIE 4.0—Smart manufacturing for the future,” July 1, 2014; National Academy of Science and
Engineering, “Securing the future of German manufacturing industry: Recommendations for implementing the strategic initiative Industry 4.0,”
April 2013; Deloitte analysis.
Graphic: Deloitte University Press | DUPress.com
4
Exploring the world of connected enterprises
Deloitte has developed in-depth research and analysis focused on the impact of the Internet of
Things and the ways in which the flow of information can enable organizations to create and
capture value. Visit http://dupress.com/collection/internet-of-things/ to read the full series,
learn more about the Information Value Loop, the functions of its various stages and value driv-
ers, and see examples of its application in various sectors and scenarios.
5
Industry 4.0 and manufacturing ecosystems
digital and physical realms. It is here that the become better understood.17 Currently, a
overlap between the concepts of Industry 4.0 host of connected technologies is advancing
and the IoT becomes apparent. rapidly, including high-quality sensors, more
The IoT is a crucial—perhaps the most reliable and powerful networks, high-perfor-
crucial—element of Industry 4.0.16 The IoT mance computing (HPC), robotics, artificial
concept has gained traction in recent years intelligence and cognitive technologies, and
as the importance of connectivity—both in augmented reality.18 Taken together, these
creating products and services and increasing technologies can change manufacturing in pro-
satisfaction among customers and clients—has found ways. Our analysis of the resulting flows
of information motivates a framework that
It is the leap from digital back to captures the series and sequence of activities
through which organizations create value from
physical—from connected, digital information: the IoT Information Value Loop
technologies to the creation of a (IVL) (see figure 2).
The IVL is initiated through an action.
physical object—that constitutes the
Measurement of the state or behavior of things
essence of the Industry 4.0 concept. in the physical world gives rise to (creates)
Augmented ACT
Sensors
behavior
MAGNITUDE
Scope Scale Frequency
ANALYZE CREATE
RISK
Security Reliability Accuracy
TIME
Augmented Latency Timeliness
intelligence Network
COMMUNICATE
AGGREGATE
Standards
VA LU E D R I V E R S S TAG E S T E C H N O LO G I E S
Source: Deloitte analysis. Graphic: Deloitte University Press | DUPress.com
6
Exploring the world of connected enterprises
Physical-digital-
physical link
ACT
MAGNITUDE
Scope Scale Frequency
ANALYZE CREATE
RISK
Security Reliability Accuracy
TIME
Latency Timeliness
COMMUNICATE
AGGREGATE
S TAG E S VA LU E D R I V E R S
For further information about these and other advanced, connected technologies, please visit the
Deloitte University Press series:
• Analytics: http://dupress.com/collection/analytics-emerging-technologies/
7
Industry 4.0 and manufacturing ecosystems
• Signal aggregation
• Optimization and prediction
Digital
• Visualization and POU delivery
• Cognitive and high-performance computing
• Additive manufacturing
• Advanced materials
Digital physical
• Autonomous robotics
• Digital design and simulation
8
Exploring the world of connected enterprises
10
Exploring the world of connected enterprises
11
Industry 4.0 and manufacturing ecosystems
Use data to track asset condition, and part and system failures
to predict customer needs and maximize uptime; perform fleet
Improve the aftermarket experience
performance/operation analytics; enhance the user experience
through sensor-enabled apps
Use of data to put the right products with the right dealers at
the right time to better manage inventory; remotely track usage,
Optimize performance and distribution
performance, and location of products; optimize distribution of
products
12
Exploring the world of connected enterprises
real-time data, with the goal of analyzing it John Deere uses augmented reality
and providing insights to both patients and
their physicians.31 to allow customers to test and
provide feedback on early design
Engineers: Accelerating concepts, so that it can adjust and
innovation and design cycles
At the start of the manufacturing value
redevelop designs.
chain, products are developed and designed.
Various Industry 4.0 technologies—notably Industry 4.0 technologies can drive
OT technologies such as additive/advanced improved engineering effectiveness via digital
manufacturing and IT, digital tools such as design and simulation. This can take the form
CAD, and simulation—can come into play to of virtual product development and testing.
impact the process in several key ways (table John Deere uses augmented reality to allow
5). customers to test and provide feedback on
The use of digital-to-physical manufactur- early design concepts, so that it can adjust and
ing technologies such as additive manufac- redevelop designs. The company estimates that
turing in rapid prototyping can speed up the having its engineers use virtual reality simula-
design process as well as the production of tions to design the air-handling subsystem on
end-use products, thus reducing supply chain its JD 7760 cotton harvester reduced the design
dependencies.33 Ford estimates that its use of cycle time from 27 months to 9 months, and
rapid prototyping during vehicle design can reduced design costs by more than $100,000.36
save it weeks, with additively manufacturing These tools can also take the form of open
prototypes taking hours to fabricate rather source innovation, allowing freelance design
than the 4 to 6 weeks taken by typical machine to improve products through open sharing
tooling approaches, bringing automobiles of intellectual property. Local Motors, for
to market months earlier.34 Using advanced example, crowdsources many designs among
manufacturing technologies can also enable customers and enthusiasts in the community,
engineers to optimize manufacturability, as holding design competitions and allowing cli-
they can evaluate product design options based ents to have a strong hand in the design of its
on the eventual assembly process.35 cars. The company takes an open approach to
intellectual property, and maintains that doing
so fosters innovation and collaboration.37
Use data to anticipate design flaws and correct for them; design
products and simulate usage based on total cost of ownership
Better link design to product intelligence
and supply implications; evaluate product design options based on
manufacturability
13
Industry 4.0 and manufacturing ecosystems
Industry 4.0 technologies also enable For example, Ridgeline Pipe Manufacturing,
improved operations. In the “plan,” “source,” a manufacturer of polyvinyl chloride (PVC)
and “make” stages of the value chain, various pipes, dealt with constantly changing customer
physical-to-digital and digital-to-physical con- demand and short lead times. The company
nections can transform planning, support, and needed to anticipate and plan in the face of
factory operations. uncertain demand, rapidly adjust to unfore-
seen changes, and reduce production change-
Planning: Predicting changes over time. Using legacy systems, waste, costs,
and inflexibility had risen to unacceptable lev-
and responding in real time els.38 The company adopted a flexible produc-
When planning for production, manufac- tion platform, in which automated production
turers often encounter a host of uncertainties controllers managed the manufacturing equip-
across the manufacturing value chain. IT and ment while providing access to information on
OT can support several transformations in this diagnostics and performance.39 The system also
area (table 6). analyzes production data to offer predictive
Demand sensing and planning using IT (for failure analytics.40
example, sensors, signal aggregation, optimiza-
tion, and prediction) enable manufacturers to
gather data throughout the value chain. Data
Factory: Creating a digital
can be analyzed to uncover patterns, track link between OT and IT
movements, and, ultimately, understand what Perhaps no other segment better encap-
customers want, and where—so they can better sulates the physical-to-digital transformation
plan to provide it at the right time and place. inherent in Industry 4.0 than the intelligent
factory. The industry 4.0-enabled factory
14
Exploring the world of connected enterprises
15
Industry 4.0 and manufacturing ecosystems
required regular, ongoing maintenance for When responding to field failures, wear-
an escalating series of ongoing breakdowns, ables and augmented reality can allow remotely
realizing that technicians had been addressing located technicians to walk users through
symptoms rather that root causes for a quality maintenance procedures. An industrial equip-
issue. Analysis enabled Schneider to address ment manufacturer, for example, faced chal-
the root cause—thermal expansion prob- lenges as it expanded its operations to China,
lems—before they led to “symptoms”—bearing including increased operational costs and more
vibration—that caused equipment shut- frequent downtime of machinery. These issues
downs. The company estimates that predic- were, in large part, rooted in a shortage of sea-
tive maintenance offers millions of dollars in soned talent to train employees within the new
potential savings along with far fewer days of manufacturing facilities. The manufacturer
equipment downtime.48 piloted a smart-glass, wearable technology so
In another predictive analytics example, that remote experts could see alongside the
Caterpillar is partnering with a company equipment operators in the facility, and offer
named Uptake, analyzing data gathered step-by-step instructions and training. These
through telematics devices in its machinery to improvements were also accompanied by risk
predict failures and engage in proactive repair. reductions in the overall production process
The companies see future opportunities to due to better quality management.50
monetize this capability by offering new data
products and services to customers.49
16
Exploring the world of connected enterprises
Looking ahead
17
Industry 4.0 and manufacturing ecosystems
their particular sphere, and perhaps even often comes at the cost of higher power
beyond. As this information can be used to consumption. This security-power trade-
drive product improvements, use of com- off becomes more important as deploy-
ponents, and efficiencies within the supply ments scale. Retrofitting old systems to new
chain, it is particularly valuable. Managers Industry 4.0 applications may also increase
should therefore pay close attention to the security risks, as the old systems were not
covenants they sign related to data owner- designed to be connected in this way. In
ship and access. Identifying and controlling order to manage security risks, companies
bottlenecks in the flow of data is likely to need to secure their systems, be vigilant to
yield important opportunities for value avoid new risks, and be resilient to limit
creation and capture.57 the damage and restore operations.59 As a
result, managers should adopt a proactive
• Security—In addition to data owner- stance toward cybersecurity. When it comes
ship, security is often cited as a concern to planning for Industry 4.0, the time to
in implementing Industry 4.0 practices.58 address security issues is up front, rather
Complex cryptographic algorithms might than as a follow-on task.
improve the security of devices, but this
18
Exploring the world of connected enterprises
Conclusion
19
Industry 4.0 and manufacturing ecosystems
Endnotes
1. Germany Trade & Invest, “Smart manufactur- offers extensive treatments of a variety of these
ing for the future,” http://www.gtai.de/GTAI/ technologies at www.dupress.com: see for
Content/EN/Invest/_SharedDocs/Downloads/ example http://dupress.com/collection/3d-
GTAI/Brochures/Industries/industrie4.0- opportunity/, http://dupress.com/collection/
smart-manufacturing-for-the-future-en.pdf; internet-of-things/, and http://dupress.
National Academy of Science and Engineering, com/collection/cognitive-technology.
“Securing the future of German manufacturing 7. Germany Trade & Invest, “Smart manufac-
industry: Recommendations for implement- turing for the future”; National Academy
ing the strategic initiative Industry 4.0” of Science and Engineering, “Securing the
2. John Hagel III, John Seely Brown, Duleesha future of German manufacturing industry”.
Kulasooriya, Craig Giffi, and Mengmeng 8. Ibid.
Chen, The future of manufacturing: Mak-
ing things in a changing world, Deloitte 9. National Academy of Science and
University Press, March 31, 2015. Engineering, “Securing the future of
German manufacturing industry.
3. For more information see Michael E. Raynor
and Mark J. Cotteleer, The more things change: 10. Germany Trade & Invest, “Smart manufac-
Value creation, value capture, and the Internet turing for the future”; National Academy
of Things, Deloitte University Press, July of Science and Engineering, “Securing the
27, 2015; Joe Mariani, Evan Quasney, and future of German manufacturing industry.”
Michael Raynor, Forging links into loops: The 11. Germany Trade & Invest, “Smart
Internet of Things’ potential to recast supply manufacturing for the future.”
chain management, Deloitte University
12. Ibid.
Press, July 27, 2015; Jonathan Holdowsky,
Monika Mahto, Michael Raynor, and Mark 13. Holdowsky, Mahto, Raynor, and Cotteleer,
Cotteleer, Inside the Internet of Things (IoT): Inside the Internet of Things (IoT), Deloitte
A primer on the technologies building the IoT, University Press, August 21, 2015.
Deloitte University Press, August 21, 2015. 14. Note: In Deloitte’s view, the GTAI’s original
4. For further information about how the definition of Industry 4.0 is so close as to be
Internet of Things impacts choices about identical to the concept of the Internet of
“where to play” and “how to win,” see Raynor Things that we have discussed it extensively
and Cotteleer, The more things change. as part of our IoT campaign. See for example
Holdowsky, Mahto, Raynor, and Cotteleer,
5. For further information, see Hold-
Inside the Internet of Things (IoT), and Michael
owsky, Mahto, Raynor, and Cotteleer,
E. Raynor and Mark J. Cotteleer, “The more
Inside the Internet of Things (IoT).
things change”, http://dupress.com/articles/val-
6. Malte Brettel, Niklas Friederichsen, Michael ue-creation-value-capture-internet-of-things/.
Keller, and Marius Rosenberg, “How virtualiza-
15. For additional information on the design
tion, decentralization and network building
process as it relates to AM, see Joann
change the manufacturing landscape: An
Michalik, Jim Joyce, Ross Barney, and Grey
Industry 4.0 perspective,” World Academy of
McCune, 3D opportunity for product design:
Science, Engineering and Technology: Inter-
Additive manufacturing and the early stage,
national Journal of Mechanical, Aerospace,
Deloitte University Press, July 2015, http://
Industrial, Mechatronic and Manufacturing
dupress.com/articles/3d-printing-product-
Engineering 8, no. 1. Furthermore, Deloitte
design-and-development/#sup-3.
20
Exploring the world of connected enterprises
16. In our experience, there are those who consider prosthesis using computed tomography, 3-di-
the overlap between the IoT and Industry 4.0 to mensional photographic imaging, and additive
be so substantial that they are the same thing. manufacturing: A clinical report,” The Journal
As we shall explain, our view differs somewhat. of Prosthetic Dentistry, 2011;105:78-82. See also
17. For further information regarding the role Glenn H. Snyder, Mark J. Cotteleer, and Ben
customers play in companies’ IoT strategies, Kotek, 3D opportunity in medical technology,
see Brenna Sniderman and Michael Raynor, April 28, 2014, http://dupress.com/articles/
“Power struggle: Customers, companies, additive-manufacturing-3d-opportunity-in-
and the Internet of Things,” Deloitte Review medtech/ and Jeff Crane, Ryan Crestani, and
17, July 2015, http://dupress.com/articles/ Mark Cotteleer, 3D opportunity for end-use
internet-of-things-customers-companies/. products, October 16, 2014, http://dupress.
com/articles/3d-printing-end-use-products.
18. For a deeper review of specific connected
technologies inherent in the Internet of Things, 26. UCLA, “UCLA-led team wins grant to tackle
see Holdowsky, Mahto, Raynor, and Cotteleer, concussions among football players,” http://
Inside the Internet of Things (IoT), Deloitte newsroom.ucla.edu/releases/ucla-led-team-
University Press, August 21, 2015; Deloitte wins-grant-to-tackle-concussions-among-
and Council on Competitiveness, Advanced football-players, accessed October 15, 2015;
technologies initiative: Manufacturing & inno- Loughborough University, “Loughborough
vation, November 2015, http://www.compete. student puts safety first with his prototype for
org/storage/documents/Deloitte_and_Coun- an ‘intelligent’ polo helmet,” http://www.lboro.
cil_on_Competitiveness_Advanced_Tech_Re- ac.uk/news-events/news/2015/june/armis-
port_11-17-15.pdf, accessed January 6, 2016. polo-helmet.html, accessed October 15, 2015.
21
Industry 4.0 and manufacturing ecosystems
help build a new mindset,” Deloitte Review 18, 46. Mariani, Quasney, and Raynor,
January 25, 2016, http://dupress.com/articles/ “Forging links into loops.”
behavioral-research-for-3d-printing-adoption. 47. Raynor and Cotteleer, The more things change.
36. Jerry R. Duncan, Ph.D., “Evolution of 48. Schneider Electric Software, “Predictive asset
digital tools used in complex product analytics at power utilities,” December 2015,
design,” presentation given at James Watt http://software.schneider-electric.com/pdf/
Institute for High Value Manufacturing, industry-solution/predictive-asset-analytics-
2010, http://www.jwi.hw.ac.uk/Conference/ at-power-utilities/, accessed January 6, 2016.
Deere_Duncan.pdf, accessed January 7, 2016.
49. Michal Lev-Ram, “Caterpillar digs into
37. Venkat Ramaswamy and Ozcan Kerimcan, data analytics—investing in hot startup
“Strategy and co-creation thinking,” Strategy Uptake,” Fortune, March 5, 2015, http://
& Leadership, 41, issue 6 (2013), pp. 5–10. fortune.com/2015/03/05/caterpillar-digs-in-
38. Rockwell Automation, “Ridgeline Pipe to-data-analytics-investing-in-hot-startup-
Manufacturing’s new integrated, information- uptake/, accessed February 1, 2016.
enabled facility delivers parts fast to electrical 50. Based on client work.
customers,” December 2012, http://www.
tag-inc.us/shop/images/RUB-AP001A- 51. Ben Woo, “Combating the big data skills
EN-P_web.pdf, accessed October 16, 2015. shortage,” Forbes, January 18, 2013, http://
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com/portals/factory-discrete-automation/ 53. Sniderman, Monahan, and Forsythe,
motion-control-motors-drives/rockwell- 3D opportunity for engineers.
automation-controls-ridgeline-pipe- 54. For more information about IoT-enabled
manufacturing, accessed October 16, 2015. supply chains, see Mariani, Quasney, and
41. Jay Lee, Hung-An Kao, and Shanhu Yang, Raynor, “Forging links into loops.”
“Service innovation and smart analytics for In- 55. For further information about interoper-
dustry 4.0 and big data environment,” proceed- ability challenges for IoT-enabled devices, see
ings of the 6th CIRP Conference on Industrial Sniderman and Raynor, “Power struggle”.
Product-Service Systems, 2014, pp. 3–8.
56. Markus Eurich, Nina Oertel, and Roman
42. David Essex, “Manufacturing IoT takes Boutellier, “The impact of perceived privacy
the lead on connecting devices,” Tech- risks on organizations’ willingness to share
Target, December 7, 2015, http://search- item-level event data across the supply
manufacturingerp.techtarget.com/feature/ chain,” Electronic Commerce Research is-
Manufacturing-IoT-takes-the-lead-on- sue 3 (December 2010), pp. 423–440.
connecting-devices, accessed January 7, 2016.
57. Raynor and Cotteleer, The more things change.
43. Drew Robb, “Internet of Things adds intel-
58. Germany Trade & Invest, “Smart manufac-
ligence to supply chain,” Enterprise Apps Today,
turing for the future”; National Academy
December 8, 2015, http://www.enterpriseapp-
of Science and Engineering, “Securing the
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internet-of-things-adds-intelligence-to-supply-
chain-1.html, accessed January 7, 2016. 59. For a discussion of IoT-related security impli-
cations, see Irfan Saif, Sean Peasley, and Arun
44. James R. Hagerty, “How many turns
Perinkolam, “Safeguarding the Internet of
in a screw? Big data knows,” Wall
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accessed September 13, 2015.
22
Exploring the world of connected enterprises
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