The Industry 4.0 revolution goes well beyond concepts like the industrial internet and the digital factory. Industry 4.0 companies are completely digitizing their physical assets and integrating themselves into digital ecosystems that include partners all along the value chain, from suppliers to customers.
The PwC 2016 Global industry 4.0 survey reveals, more and more industrial companies worldwide are making Industry 4.0 digital transformation the focus of their business strategy. Globally, these companies plan to double their average level of digitization within five years, from 33% to 72%—and they’re investing over US$900 billion per year to do it. The message from our study is clear: the time for talk is over; the time for action and investment is now.
No one factor is driving Industry 4.0, but the unstoppable need for profitable growth is powerful. Customers are demanding more—yet insisting on lower and lower prices. Digital technologies offer a means to meet these demands, as well as a route to new and potentially lucrative products and services. At the same time, industry heavyweights have already begun their digital transformation, adding pressure on others to keep pace. And Industry 4.0 offers companies that can’t hope to compete on cost—like Canadian firms—the means to achieve sustained success in years to come.
The digital technology at the root of Industry 4.0 will enable companies to achieve a quantum leap in operational and financial performance that will completely reshape the competitive landscape.
In every sector we looked at, from aerospace to logistics, companies expect to become much more efficient and achieve significant cost reductions through heavy digital investment. They project efficiency to rise 4.1% per year on average until 2020—and costs to fall an average of 3.6%, or US$493 billion, per year over the same time. Staggeringly, one-third of companies in every industrial sector anticipate efficiency gains and cost reductions of 20% or more.
How will they achieve this? By investing in smart manufacturing initiatives, such as integrated planning and scheduling, that combine enterprise data with information from horizontal value chain partners about inventory levels, customer demand and more. Integrated shop floor planning will improve asset usage and product throughput. Predictive analytics will improve asset uptime by making the most of maintenance scheduling. And that’s just scratching the surface.
The sheer scale of these efficiency gains and cost reductions could provide companies that move quickly with a near-insurmountable lead on their competitors. If even half of companies’ projections are realized, many of their competitors may find themselves unable to compete because they simply can’t operate as cost-effectively as their peers.
But this new era of digital investment isn’t just about achieving lower costs and greater efficiency: Industry 4.0 is also creating significant opportunities to drive revenue growth. In fact, 86% of companies surveyed expect to cut costs and grow revenues through digital over the next five years.
Companies are using digital to introduce new products with digital features or augment their existing portfolios. They’re harnessing data analytics to create new digital services and solutions. They’re using data to better focus on high-margin businesses and to deliver proactive, customized products and services to customers. And companies expect digital efforts such as these to drive, on average, 2.9% annual revenue growth—US$421 billion—per year until 2020.
The way industrial companies have embraced digital technology means that their relationships with their customers are also rapidly changing. The old paradigm—make a product, sell it, move on—is coming to an end. Customers are playing a much more collaborative role now, as digital enables manufacturers to work with customers to create and deliver products ever more finely tuned to customers’ highly specific business needs.
Most companies we surveyed expect to build up their digital offerings to customers over the next few years, whether through new products or by adding digital elements to existing ones. Predictive analytics offers even more exciting opportunities, enabling companies to anticipate demands and speed customers towards their own goals. Nearly three-quarters of companies surveyed believe analytics will substantially improve customer relationships in the years to come.
Adopting the new Industry 4.0 mindset is key if Canadian companies are to capitalize on emerging digital opportunities. Companies that see themselves as makers of products and little more will view opportunities in a very narrow, limited way. But those that see themselves as delivering an experience to customers will be more inclined to search for other ways to deliver that desired experience. A manufacturer of mining equipment, for example, may find that providing customers with data-driven insights into how their equipment is performing—and how to use it more efficiently—creates value far beyond an ordinary product sale.
Around the world, manufacturers and industrial companies are harnessing data and digital technologies to establish new value-added services for customers. Many are doing so by moving from products to platforms—digital nexuses of exchange and interoperable technology that allow vendors and customers to connect and interact, such as product life cycle management systems and manufacturing execution systems. These platforms can provide enormous benefits to their owners in the form of customer data, which can be used to develop better forecasts, improve products and create new ones to meet emerging or unmet demands.
Those who own the platform typically own the customer—or at least access to the customer. And as some of the largest names in the software and internet industries show, those that move first—or quickly—can find themselves with very ‘sticky’ relationships with their customers. Owning the platform can lead to significant market share, if not outright dominance.
For all of Industry 4.0’s promise, companies face a significant challenge in bringing it to life—namely, nurturing the culture, organizational structures, leadership and skills needed to prosper in the new world of digitized industry.
Half of the manufacturers and industrial companies surveyed believe the lack of digital culture and training is the biggest challenge they face in the Industry 4.0 era—even for those companies who feel their own transformation was well underway. With companies in every imaginable sector desperate to recruit digital expertise, it’s little wonder manufacturers and industrial companies believe building up in-house skill sets is the best route to talent success.
Canadian companies have an important advantage over their competitors in many parts of the world. Canada has an abundance of the kind of talent so vital to Industry 4.0 success: software engineers, computer scientists, data analysts and more. Our schools continue to provide a steady flow of such talent each year. What’s more, our homegrown Silicon Valley-level talent is available far more cheaply than our counterpart in the US.
Manufacturing and industrial products have long been crucial to the Canadian economy, and their importance has been brought into sharp relief once again with the downturn in the energy sector. Yet while the sector is stronger and more competitive than ever, companies can’t be complacent as Industry 4.0 takes hold.
Industry 4.0 and digital transformation provide Canadian companies with their best chance to stay competitive and relevant in the years to come. The bottom line? Investment isn’t optional. Competitors worldwide will be investing more than US$900 billion each year to digitize their entire business. Supply chains will be transformed—and companies without the digital capabilities needed will find themselves unable to participate, much less compete.
Canadian manufacturing will not be able to compete with low cost jurisdictions on labour—those days are over. Yet what gets made must be designed, and Industry 4.0 offers Canadian companies a path forward in a rapidly changing digital world.
There’s no reason why Canadian manufacturers can’t exploit the digitization of their industry to become the disruptor rather than the disrupted.
But the transformation can’t wait. Canadian companies need to start their Industry 4.0 journey now. The window of opportunity is already closing.
National Managing Partner Industry & Regions, Strategy&, PwC Canada
Tel: +1 403 509 7483
National Energy, Utilities, Mining and Industrial Products Leader, PwC Canada
Tel: +1 416 687 8130
Digital Services Leader, PwC Canada
Tel: +1 416 687 8417