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4 myths about manufacturing in the Fourth Industrial Revolution

Prices of robots are falling


Image: REUTERS/Stringer
04 Feb 2019

1. Ian CroninProject Lead, Future of Production System Initiative, World Economic Forum Geneva
2. Adrian WidmerEngagement Manager, McKinsey & Company
3. Diego Hernandez DiazEngagement Manager, McKinsey & Company

Like all good industry trends, the Fourth Industrial Revolution (4IR) for manufacturing
has come to mean many things. While most would agree that it involves the
incorporation and interconnectivity of new technologies across production systems,
questions remain around the business case to actually implement these solutions.

In a recent survey, manufacturing leaders cite “high cost of scaling” and “hard to justify
business case without short-term impact” as top reasons preventing the full adoption of
4IR technologies across the enterprise.
But are these roadblocks well-founded given the advances in the 4IR? Innovations in
manufacturing are far more accessible than many leaders realize.

As the futuristic possibilities of the 4IR are discussed, a number of myths have also
emerged that are holding back the transformative potential of this new era in
production.

Below are four of the most significant myths. Dispelling them has the potential to
accelerate the adoption and integration of 4IR solutions and unlock its inherent benefits
for production industries for every region of the world.

Myth #1 – 4IR technologies are too expensive

For decades “technology” and “innovation” have been synonymous with “expensive”.
Whether it was the first DVD player, flat screen TV, or tablet computer, the early
iterations of these technologies tended to come with high price tags.

However, the beauty of the 4IR is that so much can be done without breaking the bank.
For example, by connecting analytics software packages to a “data lake” consisting of
existing plant data, in combination with data captured from comparatively inexpensive
Internet of Things (IoT) devices, companies can generate insights from enormous
amounts of actionable data to make themselves more efficient and more agile.

While this does require a significant amount of upfront work to implement, it typically
translates into optimized processes, shortened cycle times, increased quality, reduced
energy losses, shorter downtimes due to maintenance, and improved overall equipment
effectiveness.

Even when we consider more capital-intensive 4IR investments like advanced robotics,
the cost/benefit continues to move in favour of manufacturers implementing these
technologies. Not only are prices of robots and automation falling, but they are doing so
as labour costs increase and robot capabilities are increasing.

For example, robots’ axes of operation – for example, the range of motion for robotic
arms – have increased six-fold in the last 25 years; their user interface is such that line
operators can adjust their behaviour and operation “on the fly” with recordable
programming; their capability to support human operation has increased as safety
standards have increased; and advances in AI continue to lower the cost of the
integration of such systems.

Robotics prices versus labour cost

Global manufacturers understand that the latest machinery, equipment, robotics, and
so on, would drastically transform the way they do business. However, there’s also a
broad awareness that refitting an entire factory requires significant investment.

Therefore, some manufacturers wait for technology prices to drop further before
investing in a broad scale-up. But, this “smart follower” strategy does not seem to pay
off in the 4IR due to the different economics related to data and connectivity.

A McKinsey Global Institute simulation suggests that the frontrunners in adoption of


artificial intelligence, a key 4IR technology, will increase their cash flow by 122%, while
followers will see only a 10% cash flow increase. The key driver is that higher transition
costs and capital expenditures of the frontrunners is over-compensated for by output
gains.
Economic gains by AI adoption frontrunners, followers and laggards

Myth #2 – 4IR will cause widespread unemployment

The 4IR in manufacturing is often associated with robots and smart algorithms taking
over tasks from humans, creating “lights-off factories” in which humans are no longer
needed. This vision fosters fear of massive unemployment and social unrest.

While there is no doubt that repetitive tasks will decline, recent reports provide a more
positive outlook for the workforce: “The Future of Jobs” report by the World Economic
Forum shows that 75 million jobs will disappear and 133 million new jobs will be
created by 2022 due to the 4IR, across all geographies, industries and functions. Not
only will there be more jobs, but the new jobs will also be more attractive compared to
the disappearing jobs, with more diverse and challenging tasks, and a higher emphasis
on creativity, problem-solving and interpersonal communications skills.

In manufacturing, while we expect a decline of tasks for assembly and factory workers,
material handlers, quality inspectors and maintenance technicians; this decline will be
counterbalanced by an increase of roles in the fields of data analytics, artificial
intelligence, software and application development and technologies. The challenge to
be overcome, then, is how to re-skill the existing workforce.

Efforts to build capabilities are at the forefront for leading organizations. So-called
“lighthouse” examples from some of the world’s most advanced 4IR factories are
investing significant resources on change management and upskilling their workforces,
with digital academies being deployed to train a large share of their employees.
These re-skilling endeavours are supported by the fact that new technologies are
becoming easier to implement – for example, employees without IT backgrounds can
learn how to develop apps using code-free app development platforms, and
collaborative robots can be “trained” without programming.

Expected average reskilling needs across companies, by share of employees, 2018-2022

Without doubt, the 4IR has a huge disruptive potential on the workforce in
manufacturing. It is essential that more organizations take an active role in reskilling
their existing workforce; that individuals approach lifelong learning proactively; and that
governments assist in these efforts; to ensure that the workforce and society will benefit
from the opportunities that are brought by the 4IR.

Myth #3 – Businesses must forgo profits to achieve sustainability

It is well-accepted that implementing more advanced technological solutions can help


make businesses more efficient and therefore more sustainable.

For many business leaders, talking about sustainability remains either a marketing
strategy, or a signal that the company is going to forgo greater profits to become more
“green”. It is this mindset – that one must choose between what is right for the bottom
line and what is sustainable – that must shift.

To do this, we need to first change the way we think and define sustainability. Today, it
is far more than planting trees or putting a few solar panels on the roof – although these
are still good things to do. Instead, we need to think about sustainability in terms of
sustained success, and in the broader context of contributing positively to the
workforce, society at large, and the environment.

Equally important, becoming sustainable does not have to mean massive changes. For
example, the installation of intelligent lighting controls can save over 40% of energy
used in lighting, and a building energy management system to optimize a plant’s
energy use can save up to 30% of energy consumption. Some of the easiest savings
can be made through managing off-time schedules more accurately.

Myth #4 – 4IR is only for large multinational companies in developed markets

There’s a common understanding that only large multinational companies in developed


markets can deploy and benefit from 4IR technologies. This is not always the case,
according to a recent World Economic Forum white paper “Fourth Industrial Revolution:
Beacons of Technology and Innovation in Manufacturing”, which details 16 of the
world’s most advanced 4IR factories.

For example, one of the “lighthouse” factories is owned by Rold, an Italian SME with
250 staff, which implemented 4IR technologies with a small team and limited
investment. The company created full transparency of its production process in order to
identify and resolve root causes for quality deviations and performance losses. After
only one year, the company achieved 7-8% revenue growth, enabled by an 11%
increase of the overall equipment effectiveness (OEE).

In addition, the network of lighthouses shows that 4IR technologies are not the
exclusive domain of developed economies. In fact, China is one of the leaders, with a
high number of lighthouses, and other lighthouses are located in Eastern Europe and in
the Middle East.

Enno de Boer, a partner at McKinsey, said: “The high number of lighthouses in China is
a clear sign of China’s ambition to retain and enhance its manufacturing base while
labour costs increase, to avoid a migration of manufacturing jobs to countries with lower
wages.”
Image: McKinsey Global Institute

If manufacturers can collectively come to see these four myths for what they are – self-
imposed barriers to attaining new heights of success – then we may finally unlock the
full potential of the 4IR for industry and usher in a new era of innovation, productivity
and inclusive growth.

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Written by

Ian Cronin, Project Lead, Future of Production System Initiative, World Economic Forum Geneva

Adrian Widmer, Engagement Manager, McKinsey & Company

Diego Hernandez Diaz, Engagement Manager, McKinsey & Company

The views expressed in this article are those of the author alone and not the World Economic
Forum.