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Ignoring Industry 4.0 leaves firms vulnerable

June 06, 2019

Federal and private R&D portfolios are investing heavily in designing and refining the key innovation components of the transition to cyber-physical systems of production: artificial intelligence, automation, IoT, advanced materials, and dynamic, decentralized decision making to name a few elements. There also is a fair amount of buzz about Industry 4.0 from the big manufacturing consultants and around industry trade shows.  Innovation and optimization, however, appear to be two very distant points on a continuum for both U.S. companies’ implementation of Industry 4.0 and public policy response to the opportunities and potential socio-economic impacts.

A March 2019 survey of 230 executives of mid-market manufacturers across the U.S., found very little action toward implementing 4.0 change into their companies. Specifically, BDO USA, a professional services firm providing companies assurance, tax and advisory services, found 99 percent of the executives interviewed were “at least moderately familiar” with Industry 4.0 — yet only 5 percent of them are currently implementing or have implemented an Industry 4.0 strategy. 

Two-thirds of the executives surveyed by BDO recognized that waiting too long to begin implementation or standing on the sidelines while all of the changes for the new technological, process, business methods and human skill requirements are sorted leaves their firms critically vulnerable to disruption from industry outsiders or to falling behind their competition.  

The BDO survey reports identifying appropriate or optimal pilot projects “will be their Industry 4.0 challenge.”  A separate January 2019 paper, however, suggests companies pursuing individual pilot projects, versus going “all in” might not outpace their disruptors or competitors. Prepared by the World Economic Forum in collaboration with McKinsey & Company, Fourth Industrial Revolution: Beacons of Technology and Innovation in Manufacturing profiles and quantifies the outcomes and challenges experienced by nine “lighthouse” companies across the world that have embraced Industry 4.0 throughout several aspects of their business.

Only one of the lighthouse company examples in the WEF report was in the U.S. and it was a greenfield development outside Chicago. As in the BDO report, existing U.S. manufacturing operations seem slow to embrace the changes necessary to stay competitive.

While most of the focus of attention has been toward helping manufacturers get up to speed on the rapidly changing environment in which they are increasingly finding themselves, examples of public policy responses – across all levels of government – regarding how to prepare for and address the on-the-ground socio-economic implications and promise of Industry 4.0 are scarce.  

The implications of joining in Industry 4.0 or trying to wait it out might be significant for many manufacturing-intensive communities across the country — large and small.  Smaller communities, more dependent economically on one or a few mid-sized manufacturers deep in an original equipment manufacturer (OEM) supply chain, could feel outsized impacts from Industry 4.0 implementation,  whether implemented or not. Additionally, the decision might not belong to the local managers anyway if they operate a branch plant or supplier. 

For manufacturing dependent regions, the stakes are even greater. For instance, Automation Alley’s new 2019 Technology in Industry report lays out the potential employment impact ahead for Southeastern Michigan. The authors highlight research suggesting the region should expect 30 percent of the current middle skilled jobs to disappear during the next decade; large companies in the area have cut several thousand white-collar jobs so far this year alone.

A sense of urgency might be slowly growing toward shifting local economic development priorities away from inducement incentives and toward Industry 4.0 priorities. Possibilities include strategic, public-private investment to simultaneously help companies plan for and finance the adoption of Industry 4.0 strategies, train/retrain employees for the new work, help redundant workers find new employment or create new firms through technology entrepreneurship, and pick up the pieces left by the firms that choose to remain on the sidelines too long.

industry 4.0