Finding the ROI in Industry 4.0

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The transition towards a new digital age in manufacturing, often termed Industry 4.0, has captured the attention of many in our industry. And not without good reason; the significance of the opportunity to be at the forefront of a new era in productivity cannot be underplayed. 

While we often think of Industry 4.0 as a technology revolution, adding a layer of digital automation and data exchange to manufacturing processes, it’s also a business one. The technologies that make the smart revolution possible, including the industrial internet of things (IIoT), cloud, cognitive computing and artificial intelligence, all ultimately serve the purpose of delivering business results.

Few would doubt the long-term potential of this digital transformation, but until such impact can be quantified into hard figures on the company’s balance sheet it simply remains an unrealised vision. Any company serious about its modernisation efforts will at some point seek to address this challenge in order to make a compelling case for investment. There’s no clear-cut path here, and experimentation is naturally part of the process to finding tangible value.

Organisations grappling with these issues benefit from sharing their experiences – the good and the bad – and in learning from those of their peers. What emerges from events and seminars is that, in order for industry 4.0 programmes to be successful, they must deliver clear ROI to the manufacturing company. So, how can this be achieved?

The value challenge

Change is rarely easy. When it comes to complex manufacturing operations that have generated revenue for many years, making sweeping changes is even more difficult.

Even where specific opportunities have been identified and validated, such as introducing greater data analytics capabilities to quantify production performance, unanticipated challenges can emerge. Common issues include compatibility between systems, commitments with legacy equipment suppliers and requirements to upskill machine operators.

Yet, pushing through these challenges is where the real value is found. It may require bold decisions, awkward conversations and educated bets on what your organisation will need tomorrow, but by tackling these challenges head on you can make significant steps towards becoming a digital manufacturer.

Based on our experience of working with the industry, here are some key pieces of advice we’ve gleaned to help organisations face these challenges.

  1. Blend technical measures with business objectives
    Industry 4.0 offers a remarkable depth of detail into the performance of almost every aspect of the manufacturing process, including areas such as equipment performance, effectiveness, downtime, maintenance and repair. While it’s tempting to place firm focus on these layers of detail, don’t lose focus of softer, non-technical measures of success.Businesses need a story by which they can get a broad stakeholder base on board with the (often uncomfortable) change process. By tracking metrics around the speed of order fulfilment, customer satisfaction with order process and broader energy use/environmental targets, and building them into your case for change, you can help to demonstrate the real impact of the transformation. 
  2. Think end to end
    Digital transformation programmes can add immense value, but that value can only be fully realised where there is integration across systems and processes. Introducing digital systems into one part of the business can fall short when it fails to connect across departments, or with partners and other stakeholders.Industry 4.0 doesn’t stop on the shop floor level. It has to integrate sales, supply chain & order management, procurement and engineering, and those are just some of the stakeholders involved. Think about the flow of data across the entire process and identify potential gaps and bottlenecks in advance. In addition, a clear orchestration of cross-functional processes is required as-well and – from our experience – is a key component for a successful transformation to the new level of collaboration that is achievable with Industry 4.0.
  3. Connect C-level from the very start
    The C-suite plays a double-sided role in industry 4.0. On one side, they are a crucial stakeholder in facilitating change and corralling the organisation to pull in the right direction. On the other, they ultimately stand to be its biggest beneficiary – becoming a data-oriented company provides them with the ammunition for massively enhanced decision-making and for tracking improvements in quality and performance.Getting their buy-in, helping them to clearly communicate the business case and then providing them with the data they need to be able to show the ROI is critical to the overall success of the programme.
  4. Pilot programmes are valuable – but don’t mistake a successful pilot for real-world value
    We often see situations where organisations are enthusiastic to run a pilot around a new technology or innovation in order to highlight the capabilities it can bring. The logic here is that the new functionalities will become so indispensable that the value will speak for itself.In practice, this usually turns into a carousel of projects that rarely end up becoming embedded in business operations. The underlying issue is that its proponents haven’t built a business case and so find it difficult to define the expected ROI. This is why it’s important that the business drivers and KPIs need to be developed in advance, so pilots can be measured within a suitable framework. So remember to draw the structure first before you start laying the bricks, and never forget your core vision during the often tedious process of change.
  5. Don’t forget the human value
    One of the biggest pitfalls in transformation lies not at the machinery level, but at a process level. Disconnects between different business process networks can manifest at a human layer, blocking collaboration between teams and business lines.Successful industry 4.0 implementations require different teams to work together, from the shop floor and production planning department through to sales and customer service. Systems and processes therefore need to be designed around this objective, facilitating the flow of information between these departments and various IT platforms. This also means establishing a clear and well orchestrated set of interactions and a language standard to promote inclusivity and avoid the risk of ‘buzzwords’ and acronyms serving to alienate parts of the business.

Supporting Industry 4.0

Perhaps these challenges feel familiar. Maybe your organisation has taken steps towards modernisation that stumbled before they were able to demonstrate their value. If this is the case, then you’re not alone. What will likely separate the manufacturers that become Industry 4.0-ready from those that fall short is the desire to face each challenge and never give up. 

Often, this motivation comes from community and the sharing of success stories: it is necessary to understand how companies can manage transformation and integrate systems across their shop floor operations and supply chain. With this enhanced knowledge base, we’re helping manufacturers go beyond the Industry 4.0 promise to find the real value.

Oliver Reisch
Board of European MESA