Industry 4.0 could have an estimated value-creation potential for manufacturers and suppliers of $3.7 trillion in 2025,1 and hopes are high that it could bring the next industrial revolution to discrete manufacturing. Yet only about 30 percent of companies are capturing value from Industry 4.0 solutions at scale today. Companies tend to envision technology development going forward instead of identifying the areas of largest impact and tracking these back to Industry 4.0 value drivers. Furthermore, governance and organizational anchoring are often unclear. The consequent hurdles—resulting from limited resources, high cost of scaling, a lack of clarity about business value, and an overwhelming number of potential use cases—leave the majority of companies stuck in “pilot purgatory” (Exhibit 1).
To provide a perspective on how to get “unstuck,” our new report—Industry 4.0: Capturing value at scale in discrete manufacturing—illuminates two key issues: where to focus and how to scale.
Drawing on the latest McKinsey research and a series of interviews, we arrived at a number of key insights.2
Where to focus: Factory archetypes and industry-specific key value drivers
We see two main dimensions that differentiate factory types with regard to their Industry 4.0 key value drivers: number of variants produced in a factory and average lot size. Along these dimensions, we have identified three factory archetypes, with specific productivity imperatives that help to identify industry-specific key value drivers (Exhibit 2):
- Small-lot manufacturing aims to remain efficient down to lot size 1.
- Mass-customized production focuses on enabling a certain degree of product variance while upholding high throughput and consistent quality.
- High-volume production aims for fully automated production and maximized overall equipment effectiveness (OEE), with enough flexibility to adapt to the product mix.
For each factory archetype, the relevant key value drivers are crucial for generating impact at scale. Industry 4.0 target pictures for machinery (small-lot manufacturing), automotive (mass-customized production), and consumer electronics (high-volume production) provide real-world examples of how to capture Industry 4.0’s impact.
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Machinery: Target picture in a small-lot manufacturing industry
With a long tradition of flexible factory layouts and the craftsmanship of skilled specialists, machinery is a perfect example of a small-lot manufacturing industry. Driven by three trends—high volatility in demand, a shift in demand toward developing markets, and the increasing demand for customization and integration—three Industry 4.0 key value drivers are especially relevant:
- An integrated product data model from engineering to commissioning enables efficient production throughout a global footprint and supply chain, as well as an efficient path to manage the increasing product complexity driven by demand for customized system solutions.
- The digital enablement of workers is a key value driver for companies with an increasing number of temporary workers and for those facing an overall decline in skilled workforce availability. Related solutions can help train employees rapidly or break tasks into small steps that unskilled laborers can manage easily.
- The data-driven optimization of OEE can create a good deal of value if companies generate significant value added for their products through internal machining. This value driver is therefore relevant only for the heavy-operations side of machinery.
The resulting factory-of-the-future target picture for the machinery industry shows how these three key value drivers break down into tangible, value-driven use cases (Exhibit 3).
Automotive: Target picture in a mass-customized production industry
Automotive manufacturing led the adoption of modern production principles, such as Lean and Six Sigma. The underlying production systems are designed to cope with the complexity of mass-customized products. However, stricter emissions standards, the consumer-demand trend for greater personalization, and the cost degression and increased capabilities of robots require the industry to further transform itself. Three Industry 4.0 key value drivers promise to have an impact at scale:
- Industry 4.0–enabled flexible routing, scheduling, load balancing, and performance management, based on an integrated manufacturing IT infrastructure and advanced analytics, can significantly improve productivity in final and preassembly.
- Closed control loops through sensor-based, in-line quality inspection ensure minimal rework thanks to the early recognition and correction of process deviations. Such loops can capture value at scale, especially when new processes and short learning curves are needed to deal with shifts in the value chain and process landscape (induced, for example, by the increased use of lightweight materials).
- Given the trend toward less expensive robots with increased capabilities, the extension of automation to final assembly (for instance, through perception systems powered by artificial intelligence or through co-bots that enable fenceless robotics) will reduce labor costs significantly.
Our automotive factory-of-the-future target picture further details the key value drivers in tangible value-driven use cases, and our report provides examples of successful implementation (Exhibit 4).
Growth dynamics in industrial robotics
Consumer electronics: Target picture in a high-volume production industry
In the past two decades, most consumer-electronics OEMs have sought to outsource major parts of their production networks to contract-manufacturing (CM) companies. Complex value chains focused on high-volume production emerged as OEMs aimed for a lower cost base enabled by economies of scale on the CM side, as well as the fixed-cost variabilization that their own manufacturing capacities would imply. Looking ahead, the industry will face several trends: shorter product technology life cycles, higher demand for product variants, increasing competition, new workforce characteristics, and a shift toward a more circular economy. These trends will increase the potential of Industry 4.0 to provide competitive advantages through key value drivers:
- Addressing the problem of manual labor through automation—especially in final and preassembly lines, testing, and packaging—will counteract pressure from increasing wages and the decreasing availability of skilled labor. Automation will also further reduce waste (in the face of an increasingly complex product mix) and enable closed control loops.
- Closed control loops through sensor-based, in-line quality inspection reduce waste and increase yields by detecting process deviations early on and through root-cause analysis and automatic correction. This in turn helps to accelerate learning curves and to accommodate more frequent product changeovers. It also makes manufacturing more resource efficient overall, and thus both more economical and greener (through lower waste). Furthermore, closed quality-control loops and the increasing degree of automation have great value, as human error is avoided and it becomes possible to correct deviations automatically.
- Making components and products traceable throughout the supply chain enables transparency from basic materials processing and refinement to on-the-shelf products to recycling. Traceability has not only facilitated warranty claims and recalls but also allows OEMs and contract manufacturers to zero in on the suppliers, component batches, and specific process steps that led to particular defects. Traceability is also a key enabler of a circular economy and supports the anticounterfeit measures of OEMs. In addition, it helps to control the production process by establishing the link between potential product flaws and the precise parameters used in the manufacturing process.
The consumer-electronics factory-of-the-future target picture provides tangible, value-driven use cases, further detailing the key value drivers (Exhibit 5).
How to scale: Focus on value, mobilize the organization, and innovate the infrastructure
Three key principles guide the capture of value through Industry 4.0 at scale:
- Think value backward, not technology forward. A focus on key value drivers and a compelling Industry 4.0 vision are crucial.
- Be people-centric, not tool-centric. Backed by top management, companies need to focus their Industry 4.0 transformations on capability building and pursue them as strategic organizational endeavors. The transformation should therefore be informed by a clear business-leadership mind-set, not just an engineering or IT-process one.
- Innovate with infrastructure toward an integrated technology stack and a clear target picture. Infrastructure should enable local operations before it is scaled globally, since many use cases deliver value through on-premises infrastructure.
Download Industry 4.0: Capturing value at scale in discrete manufacturing, the full report on which this article is based (PDF–2.2MB).
