Economists and technology experts say we’re entering a fourth industrial revolution, and equipment manufacturers that best position themselves to capture the value of these Industry 4.0 trends will experience growing success in the years ahead.

The growing digitization of manufacturing processes and the interconnectivity of the goods they produce is what’s driving these opportunities, according to Richard Kelly, a partner at the international consulting firm McKinsey & Co. At the Association of Equipment Manufacturer’s most recent Thinking Forward summit at AEM headquarters in Milwaukee, he made the case that there are five areas in which manufacturers can capture value from new technology, as long as they adhere to five best practices that are critical to achieve a successful Industry 4.0 transformation.

But above all else, he stressed that manufacturers should start with a problem and work toward a technological solution, rather than implementing new technology for technology’s sake.

“There’s a theme that we think is very important here, which is making sure we look at this through the lens of business transformation and business value rather than cold technology,” Kelly says. “When the latest iPhones come out, people will just rush to the store. They don’t calculate the ROI of going and buying the latest iPhone. But sadly, in the world of B2B, that doesn’t really exist. We need a business case, we need a roadmap, and we need ROI.”

When Industry 4.0 solutions are properly implemented, Kelly says manufacturers will find new value in these five areas:

1. Resource productivity and efficiency. “This is basically, if you will, taking out the next level of waste from your operations, either through digitizing more processes, or from generating more data to improve the cost and quality further,” Kelly says. “It’s that efficiency and operational effectiveness that happens,” cutting waste and padding profit margins.

2. Speed to market. Kelly says new technologies like advanced computer modeling and 3D printing allow companies to spend less time prototyping and more time innovating. “It’s how you use those concepts of digital twins and simulations of products to speed up the ability you have to develop products, test them and bring them to market,” he says.

3. Customization to individual customer needs. While product production becomes more efficient, Kelly says successful manufacturers will find ways to offer their customers a wide suite of customization options. “In industrial equipment, I know we’ve been there for some period of time,” he says. “But how do you, perhaps for larger volume product lines, more effectively and efficiently start customizing to individual customer needs and still produce cost-effectively?”

4. Agility to changing customer needs. Production ramp-ups and shipping logistics are bottlenecks that can make or break an operation in today’s world. “As demand goes up and down, as the world changes, how do we have more agile operations, particularly as demand swings between different countries?” Kelly asks. He cites companies that are adopting more modular production facilities, and even mobile factories that can easily be redeployed between developing nations.

5. Value opportunity through new services. Increasingly, onboard sensors and continuous monitoring will prevent untimely breakdowns and maximize uptime. But most equipment manufacturers have yet to determine how best to structure this business model. “How do I bundle together predictive maintenance with my equipment for my customers,” Kelly asked the group at the Thinking Forward summit. “I’m sure many of you in this room have already started to look into that field.”

McKinsey & Co. research has found growing optimism among U.S. manufacturers that Industry 4.0 technology will yield positive results, Kelly says. But he says a smaller group is increasingly skeptical as well, and he blames the failures of improperly-executed attempts to adopt new technology.

“One of the failure modes we’ve seen is people just trying to do everything, and relying on sort of a focus on cold technology as opposed to asking, what is my most critical business need that I want to use this technology to serve,” Kelly says.

He notes that, as a sector, the manufacturing field generates more data each year than any other sector of the economy. But he also says very little of that data is actually used to inform decision making at the highest levels, leading to a disconnect over its value.

Kelly says these five elements are critical to achieve a successful Industry 4.0 transformation:

  • Focus efforts on a limited number of high-value applications. “Don’t try and do everything,” Kelly says. “Ask what are the use cases and applications that have value for your business right now?”
  • Adopt an agile approach to developing, piloting and refining digital solutions. “Historically, we would plan a project, then we would go execute the project, and then the project was finished and we had our solution,” Kelly says. Instead, he says interconnected technology allows manufacturers to innovate on-the-fly. “Let’s not plan everything and we’ll implement it all at once and assume it will be perfect. Modern technology allows us to be a bit more agile in the same way that, on our smartphone, we constantly get app updates that make it run better.”
  • Build or join an Industry 4.0 ecosystem to leverage best practices and access ‘best of breed’ solutions. Manufacturers should focus on being connected to each other, to technology providers and to institutes and universities that can expose them to a broader range of problem solutions. “It’s very hard to predict right now exactly where things will be in three to four years,” Kelly says. “So having an open architecture and an ability to, as new opportunities come up, plug those in, we feel, is very important, rather than betting the house on one thing right now.”
  • Treat it as a business transformation, not a technology project. “Where we’ve seen this struggle is where the effort has been delegated to a mid-management level in technology, and it doesn’t register on the C-Suite priorities,” Kelly says. “Then, you don’t have that drive across an organization’s silos, and it comes back into that world of a discussion between technology and operations.”
  • Build organizational capability and actively adapt processes and culture. Technology should serve the people who use it, but your workforce also has to be capable of taking advantage of the efficiencies that it provides. Kelly says this can mean hiring tech-savvy employees or training existing workers, but sometimes contracting out to a tech firm is a better solution. “In some cases, it’s actually going to be easier, because otherwise I’m competing with New York to hire the world’s best data scientists, and that’s not necessarily something I’d like to get into,” he says.

Richard Kelly was one of several speakers at AEM’s Thinking Forward conference in Milwaukee, WI at AEM headquarters.