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Mar 16, 2018

What is Industry 4.0?: A primar


The idea of Industry 4.0 (I4.0), that started in Germany in 2013, has quickly caught the imagination of the manufacturing industry across the world. Called a new paradigm shift in manufacturing process, I4.0 envisages the integration of cyber-physical systems, big data, modern technologies and cloud computing, supported by reliable internet access, to transform the manufacturing industry globally.

This article starts of by explaining I4.0, its evolution, principles and major benefits. Then we  look at the integration of three elements, IIoT, Cloud Computing and Cyber-physical systems and discuss some of the challenges related to I4.0.

Since this blog focus on ERP, we also look at the features that an ERP Application should have to ensure a smooth transition to I4.0. We round of this article by looking at the role of Big Data and Analytics (5C Systems) in facilitating and benefiting from I4.0.


Consulting firm McKinsey defines Industry 4.0 as the next phase in the digitization of the manufacturing sector, driven by four disruptions: 

  1. the astonishing rise in data volumes, computational power, and connectivity, especially new low-power wide-area networks; 
  2. the emergence of analytics and business-intelligence capabilities; 
  3. new forms of human-machine interaction such as touch interfaces and augmented-reality systems; 
  4. improvements in transferring digital instructions to the physical world, such as advanced robotics and 3-D printing. 
Evolution of Industry 4.0

Manufacturing Industry has gone through four phases. Industry 1.0 was characterised by the use of steam & water power and manual labour. The use of electricity and assembly lines to help mass production in manufacturing plants signalled the arrival of Industry 2.0. Starting from about '70s, the use of computers and CNC machines for precision manufacturing and automation of production heralded the arrival of Industry 3.0

With use of technology expanding rapidly, Big Data supporting sophisticated and complex analytics, IIoT helping interactions between man and machines and also between machines, Cloud Computing supporting huge data storage and fast retrieval of data and finally, new Cyber - physical technologies like 3D Printing and Collaborative Robots (Cobots) that support rapid prototyping and faster roll out of complex designs, time has come to initiate the new phase, what can be called as Industry 4.0 (I4.0).

At a broad level, I4.0 refers to the change in production and manufacturing techniques that become possible because of the power of modern communication networks.

The following diagram illustrates this evolution.

At its starting point, I4.0 it’s all about networking, between enterprises, factories, machines and individual components so that information can be automatically collected, communicated, analysed, compared and used to improve manufacturing performance and efficiency.

The idea of Industry 4.0 was started in Germany and has quickly caught the fancy of the world. Every country is trying to move quickly to Industry 4.0. With its huge technology talent pool and a facilitating government policies, Indian manufacturing industry has a once in a lifetime opportunity to capitalize on the new trend and establish global competitive advantage.

I4.0 is a strategic initiative of the German Government with the objective of optimizing production across the country. Four companies, Festo, SAP, Siemens and T-Mobile has been included in the steering board. These four companies are responsible for identifying the most effective technologies for the practical aspects of Industry 4.0: enterprise and manufacturing management systems and big data analytics; the electronics, control systems and software; the communication and connectivity; and the physical actuation devices.

Germany has developed a long-term road map for Industry 4.0 covering the next 20 years, covering the short-term priorities and the long term goals. Over the next two or three years, standardisation with respect to communication protocols, CAD, visualisation and simulation platforms have been identified.

There are three reasons why today’s transformations represent not merely a prolongation of the Third Industrial Revolution but rather the arrival of a Fourth and distinct one: velocity, scope, and systems impact. The speed of current breakthroughs has no historical precedent. When compared with previous industrial revolutions, the Fourth is evolving at an exponential rather than a linear pace. Moreover, it is disrupting almost every industry in every country. And the breadth and depth of these changes herald the transformation of entire systems of production, management, and governance.

Comparison between factory of today versus factory of I4.0
Principles of Industry 4.0

There are four design principles in Industry 4.0. These principles support companies in identifying and implementing Industry 4.0 scenarios.
  1. Inter-operability: The ability of machines, devices, sensors, and people to connect and communicate with each other via the Internet of Things (IoT) or the Internet of People (IoP)
  2. Information transparency: The ability of information systems to create a virtual copy of the physical world by enriching digital plant models with sensor data. This requires the aggregation of raw sensor data to higher-value context information.
  3. Decentralised decisions: The ability of cyber physical systems to make decisions on their own and to perform their tasks as autonomously as possible. Only in the case of exceptions, interference, or conflicting goals, are tasks delegated to a higher level.
  4. Technical assistance: First, the ability of assistance systems to support humans by aggregating and visualizing information comprehensibly for making informed decisions and solving urgent problems on short notice. Second, the ability of cyber physical systems to physically support humans by conducting a range of tasks that are unpleasant, too exhausting, or unsafe for their human co-workers.

Major Benefits
  1. Optimized factories: Using technology at the design stage to optimize space utilization and smoothen material flow
  2. Improved productivity: Using technology to ensure resource movement within the shop floor to ensure minimal movement. Optimization of material flow leads to cycle time reduction.
  3. Cost savings: Optimum usage of resources ensures reduction in conversion costs.
  4. Analytics based insights lead to better and informed decision making.
  5. Decentralised decision making ensures quick decision making leading to improved turnaround time.
  6. Improvement in employee health and safety by proper design of man machine interaction. In addition, optimum floor design can ensure quick response during emergencies.
  7. Faster response to Job / Configured / Made to Orders, leading to improved customer satisfaction.
  8. Creation of new opportunity sectors, especially in the high technology area.
As per McKinsey, Organizations are already reaping significant benefits through effective use of Big Data, Advanced Analytics, Human Machine Interfaces, Digital to physical transfer etc.

Impact on the business

On the whole, there are four main effects that the Fourth Industrial Revolution has on business—on customer expectations, on product enhancement, on collaborative innovation, and on organizational forms. Whether consumers or businesses, customers are increasingly at the epicentre of the economy, which is all about improving how customers are served. Physical products and services, moreover, can now be enhanced with digital capabilities that increase their value. New technologies make assets more durable and resilient, while data and analytics are transforming how they are maintained. A world of customer experiences, data-based services, and asset performance through analytics, meanwhile, requires new forms of collaboration, particularly given the speed at which innovation and disruption are taking place. And the emergence of global platforms and other new business models, finally, means that talent, culture, and organizational forms will have to be rethought.

With production data available for the asking (through big data), the key tasks for companies will be to structure their data so as to eke out business intelligence out of it. 'Digital Compass', as proposed by McKinsey can help the organizations to do exactly that. The compass consists of 8 value drivers and 26 practical industry levers. Companies can identify the levers that are best suited to solve their specific problems.

Opportunities presented by Industry 4.0

These are a few possible areas where I4.0 could deliver customer value:
  1. Flexible production with 'Plug and Produce' capabilities that deliver smaller lot sizes at competitive prices and quick turnaround times. This will bring 'Assembly Line' to 'Configure / Make to Order' industry. To achieve this, the production systems must be able to make these individualised products directly from Online Order Instruction, without any human input.
  2. Process standardization across various platforms
  3. Energy management: Effective production planning and scheduling to avoid peak energy consumption, energy efficient production processes, optimal loading of machines based on real time information are some of the ways I4.0 can help to conserve energy.
  4. Logistical process: By effective production planning, production can be matched to demand. This reduces wastage and buffer stock. In addition, integration with GPS tracking devices help organizations plan their logistics operations more accurately and provide accurate delivery information to the customer to plan their operations more effectively.
  5. Predictive Maintenance: Sensors linked to machines can communicate any impending operational issues and machine to machine communication can help down a production line and reroute the production to another available line, thereby reducing the downtime.
  6. Transportation and communication costs will drop, logistics and global supply chains will become more effective, and the cost of trade will diminish, all of which will open new markets and drive economic growth.
  7. For Indian IT companies, providing 'Smart Factory', or 'Factory in a Box' as a SAAS offering can be a huge opportunity. 
Facilitating Technologies

Some of the advanced technologies being used currently in manufacturing include:
  1. Artificial Intelligence: The theory and development of computer systems able to perform tasks normally requiring human intelligence, such as visual perception, speech recognition, decision-making, and translation between languages.
  2. Composite Materials: A material made from two or more constituent materials with significantly different physical or chemical properties that, when combined, produce a material with characteristics different from the individual components. The individual components remain separate and distinct within the finished structure.
  3. Quantum Engineering: Uses the field of Quantum Technology for Engineering Applications.
  4. 3D Printing (Additive Manufacturing)
  5. Collaborative Robots (Cobots): These are light weight robots that can do mundane and precision tasks more efficiently than human beings.
  6. Cloud Computing is the delivery of computing services—servers, storage, databases, networking, software, analytics and more—over the Internet (“the cloud”). 
  7. Big Data and Analytics
  8. Industrial Internet of Things (IIOT) is a term for all of the various sets of hardware pieces that work together through internet of things connectivity to help enhance manufacturing and industrial processes. The term includes sensors, devices and machines that contribute to physical business processes in industrial settings.
  9. Digital Twin: A digital replica of every physical machine, that will help the managers to perform Scenario Analysis.
Most of these technologies are already available as islands of expensive technology. I4.0 will use the power of Internet and communication networks to integrate these disparate technologies to help smooth deployment.

  1. An over reliance on automation could shrink job creation, a risk especially for a highly populous and young nation like India.
  2. Increase in social inequality between 'low skill / low pay' and 'high skill / high pay' jobs.
  3. Data security on the cloud is a huge challenge. Many companies have patented manufacturing technologies and will be wary of moving the processes to the cloud.
  4. Lack of a clear definition of I4.0. At present, even a simple use of mobile app to perform approvals is being included under the current broad definition.
  5. Availability and access to talent, eg. data scientists
  6. Availability of a strong technology provider ecosystem
  7. Infrastructure to re-skill and up-skill existing workforce
  8. Ability to adapt business processes and systems to embed technology
  9. For SMEs, even getting access to the new technologies and identifying business use cases are a challenge
  10. Different legal requirement in different countries will pose a challenge to global rollout of I4.0 by companies. For example, Indonesia do not allow data to be shared outside the country. 
  11. Disparate system to handle different business challenges (One system to handle predictive maintenance, another to handle production etc) will end up negating the benefits of the technology integration.
How ERP Systems can become ready for Industry 4.0

It is important that the ERP System, being the central information hub, support I4.0 technologies. Globally 7/10 ERP Vendors are developing I4.0 ready solutions. I4.0 demands digitization of products as well as processes. Since transactions generated by IIOT creates a lot of information, it is important that ERP system is capable of quickly processing this information and take correct decisions.

Any ERP System, to be I4.0 compatible, should, in the minimum, have the following features.
  1. Simple and scalable core application architecture: The world of I4.0 is dynamic and new technologies and processes get quickly added. The ERP system architecture should be flexible and should quickly adapt to the new requirements without significant changes to the core architecture. Any new patches should not significantly impact the current processes. Architecture should also allow extensions without impacting the program code. SOA architecture is a good example.
  2. ERP System should make real time data available to all department: ERP System should be the single source of truth. ERP System should be able to easily integrate with other applications like MES for accurate real time information to be available from it. This will enable intelligent decision making based on real time data.
  3. Should provide a 'Networked View' of the business: In addition to Production data, the ERP System should also be able to capture Customer Data, Market Data and should have the analytic capability to make sense of the data. In this way, while your CRM systems can portend a change in customer tastes, the same can be communicated to the ERP system to make the necessary process changes as required. 
  4. Integrated data model for Cloud and On Premise: One of the pillars of I4.0 is cloud computing. This means that your ERP System should be cloud enabled. One of the challenges in Cloud enabling is the 'Either / Or' binary. Since the data models are different between On-premise and Cloud, Organizations are forced to take a binary decision. If your ERP system has the same architecture and data model for both On-premise and cloud, Organizations can seamlessly toggle between On-premise and cloud, HQ being On-premise with subsidiaries being on cloud, for example. Information from Machine Sensors can flow to the cloud servers from where they can be easily updated on your On-premise ERP System / Data Warehouse and the notification can flow to the tablets. 
  5. ERP System should be IIOT Compliant: When a machine needs a maintenance, it can send information to the ERP System, which in turn can raise a maintenance work order, run MRP Planning Engine to check for spare parts availability, raise purchase requisitions and send the same for approval etc. In addition, ERP System should also do real time analysis of the available information from the machine sensors and help in tactical decision making like capacity scheduling, sales planning etc.
ERP System is the backbone of I4.0 architecture. Since manufacturing world is rapidly moving to advanced technology, ensure that the ERP System is in lock step with these changes. 

Role of Big Data and Analytics (5C Systems)

From the perspective of I4.0, Manufacturing can be considered as a 5M system consisting of Materials (properties and functions), Machines (precision and capabilities), Methods (efficiency and productivity), Measurements (sensing and improvement) and Modelling (prediction, optimization and prevention).  Additive manufacturing integrates the 5M approach to create new products. 
I4.0 envisages the integration of Cyber-Physical systems and Cloud Computing in Big Data environment. While collecting the data is important, it is far more important that these data provide the right information for the right purpose at the right time. Connecting sensors to machines and machines with each other is only a first step. A good MIS should be enhanced with 5C functions. These are:
  1. Connection (sensor and networks)
  2. Cloud (data on demand and any time)
  3. Content (correlation and meaning)
  4. Community (sharing and social)
  5. Customization (personalization and value add)
An NIST (National Institute of Standards and Technology) sponsored workshop has defined cyber-physical systems as consisting of computational and physical components, seamlessly and closely integrated to perceive changes in the real system. For example, (a) future machines will have a twin (an Avatar) integrated in both the physical and cyber spaces; (b) self-aware sensors can perceive changes in machine behavior with precision meaning; and (c) machines can form communities to enable peer-to-peer comparison. This will help create value in the manufacturing of future.


Industry 4.0 as an idea that started around 2014, has gained momentum over the last 3 years. The advance has been facilitated by growth of new technologies including cyber-physical systems, big data and analytics and cloud computing. While these technologies even prior to 2014, what makes them Industry 4.0 compliant is the networked nature of deployment.

As with any paradigm shift, there are bound to be challenges, however, as the various demonstrable examples show, companies that have adopted these technologies have reaped rich rewards in form of cost reduction and improvement in productivity and efficiency.

Any initiative of this nature will not be successful without strong back office support with a strong ERP application. Industry 4.0 places lot of demand on the ERP system to be comply with the standards. Any ERP system that can meet the critical requirements will be the winner in the future. 

  1. India must try to profit from ‘Industry 4.0: Karan Billimoria, The Hindu, Feb 18,2016
  2. The India Potential: Bosch India Blog: Dr.Andreas Wolf - Feb 12,2017
  3. Are Manufacturers in India Ready to Adopt Smart Manufacturing? Apr 25,2017
  4. Industry 4.0 / IOT - Products and Solutions: Festo India: 
  5. Industry 4.0 and the Retrofit Opportunity: Festo Global
  6. Industry 4.0: A world of new business models and markets: Festo Global
  7. India and Germany must collaborate to take Industry 4.0 to the next level
  8. Industry 4.0: The future of Indo German Collaboration
  9. Industry 4.0 as a service for digital manufacturing: Forbes India: Jan 10,2017
  10. What is the prospect and future of Industry 4.0 in India? : Quora
  11. What is Industry 4.0?: Quora
  12. 10 Questions and answers about Industry 4.0: Georgio Stergiou: Nov 28,2017
  13. What the Fourth Industrial Revolution means for India: Prajal Sharma: Oct 03,2017
  14. Do countries benefit from I4.0?: Gary Coleman: Jun 21,2017
  15. Industry 4.0 should be India's battle cry: Akash Gupta: Livemint: Jun 09,2017
  16. Industry 4.0 can transform India's manufacturing: ET GBS: Feb 13,2018
  17. Towards smart manufacturing: Industry 4.0 and India:
  18. How to respond to Industry 4.0: Klaus Schwab: Jan 14,2016
  19. Manufacturing's next act: McKinsey: June 2015
  20. Is your ERP ready for IIOT Challenge?: Terri Hiskey: Epicor
  21. Recent Advances and Trends of Cyber Physical Systems and Big Data Analytics

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