Smaller firms often feel left behind or daunted by Industry 4.0, but that can be down to perception rather than reality. A few steps can form the kernel of a company strategy, reports Brian Attwood.
Like the boy who cried wolf, the warnings of the digital soothsayers must be wearing thin on that portion of their audience who are spectators, not participants, in the new industrial revolution.
There remains an appreciable number for whom the phrase Industry 4.0 is an uncomfortable reminder that times are moving on and, apparently, leaving them behind.
To some degree, it is a question of perception. The jargon of 4.0 may be unfamiliar to some, but not necessarily its implications and applications.
The problem is that the key benefit, connectivity, also presents the greatest challenge by the very act of integrating the value chain. Interconnection inevitably demands a high degree of consistency across different businesses within a manufacturing network. From the largest corporation to the smallest SME.
The smaller SMEs are, the higher risk that they will become victims instead of beneficiaries of this revolution
Lutz Sommer, Journal of Industrial Engineering and Management in 2015
How essential the latter are in this relationship can be illuminated by statistics from the Federation of Small Businesses. The FSB estimates that in 2016, 99% of all UK businesses in the private sector were small or medium enterprises that between them accounted for 60% of employment and 47% of turnover outside the public sector.
Not surprisingly, given that 4.0 investment favours economies of scale, large companies have been much quicker to adapt to the new industrial revolution. Yet ultimately their progress is tied to Source: Honeywell the willingness or ability of smaller partners to follow suit.
This dilemma isn’t unique to British small businesses. Germany – habitually cited as a European pioneer in 4.0 – has been concerned with the issue for several years and remains so.
Lutz Sommer, writing in the Journal of Industrial Engineering and Management in 2015, warned readiness and capability depended strongly on enterprise size: “The smaller SMEs are, the higher risk that they will become victims instead of beneficiaries of this revolution.”
Go forward two years and Christian Schroder’s 2017 report The Challenges of Industry 4.0 for Small and Medium-sized Enterprises suggests the country is actually behind the curve for take-up of higher cloud computing services within those EU countries surveyed.
Germany has most riding on the early implementation of 4.0: its manufacturing industry accounts for more than 20% of gross value added and, in the EU overall, manufacturing accounts for more than three quarters of exports.
Yet in the UK, where manufacturing gross value added is less than half that of Germany, the potential gains for GDP cannot be ignored. Nor can the contribution of SMEs in the process of industrial transformation.
You ask ‘how do I compete and what are the key things I need to do to compete better?’ and then you look at what technology’s available
Martin Strutt, consultancy director for the EEF
Embracing digitilsation remains a big ask for smaller companies. Return on investment is not guaranteed, there is little leeway to budget for failure or access to the R&D that might safeguard against it.
For the traditional manufacturing SME there are macro level concepts such as Big Data and cloud computing to address and, at ground level, the practicalities of purchasing the right equipment.
For most small-scale companies the need will be for an Industry 4.0 strategy that makes the most of existing resources and limits itself to a few achievable objectives.
Martin Strutt, consultancy director for the EEF, advises focusing on fundamentals, not tech. “You need to start from a perspective of ‘what is my business strategy?’ You don’t say ‘I want some 4IR [fourth industrial revolution] and how do I get it?’. You ask ‘how do I compete and what are the key things I need to do to compete better?’ and then you look at what technology’s available.”
It’s not of course a case of one size fits all, though, explains Strutt. For the food and drink sector the approach is built around closeness to customer; automotive is about connected supply chains and OEMs (original equipment manufacturers) requiring direct electronic links to suppliers; aerospace might emphasise Big Data and tracking products through life cycle; while consumer focuses on smart products. Ultimately, it’s a combination to varying degrees of smarter products, smarter production and supply chain improvements.
So the goal may be as straightforward as maintaining one’s place in the supply chain by aligning with the basic requirements of key partners. It is then a question of assessing existing capabilities – what can be utilised, what can be improved with greater efficiencies.
Schroder references that many German SMEs are adept at linking machines and IT systems and do not lack for data acquisition. Their shortcoming is a lack of evaluation procedures and the complete integration of IT that might enable external information exchange.
And here there is a particular challenge for the smallest companies. Collaboration is an essential part of the Industry 4.0 business model but especially for those with limited resources. That may mean embracing unequal partnerships and new ways of working – for example, cloud platforms and software capable of enabling communication between different systems and accessing better broadband services.
The EEF has been wise to the need for SMEs to learn by example, with its Manufacturing Connect seminars hosted by members who can demonstrate tested solutions onsite. Information sharing need not be confined to exchanges with larger partners in one’s own manufacturing network.
Just as Strutt recommends learning from other industries, SMEs in other countries (Finland and Denmark, for example) that have made notable strides in adapting to 4.0 offer the chance to tap into solutions and strategies tailor-made for the smaller business. And indeed the EEF is this year spearheading a study tour of Germany.
Collaborative clusters between smaller partners also provide the opportunity to overcome the limitations of scale by pooling resources and thereby reducing costs.
Companies where there’s a mentality of continuing to strive to improve and to eliminate waste and so on are well placed to benefit from the fourth industrial revolution
This all creates additional cyber security headaches for the small business, although these challenges are illuminated rather than created by the 4.0 environment – though one recent study suggests nearly two thirds of firms surveyed had no cyber breach incident response plan.
While a wealth of resources exists online from the likes of the National Institute of Standards and Technology (NIST), the essential for the SME Industry 4.0 strategy remains, paradoxically, people and their capabilities.
Data analytics is becoming a core capability for industrial company, notes PwC’s 2016 document Industry 4.0: Building the digital enterprise, adding: “The biggest challenge of industrial leaders isn’t technology – it is the people. While digital technologies are rapidly becoming a commodity, success largely depends on an organisation’s digital IQ.”
EEF’s Strutt goes further, emphasising the hiring of skilled recruits, the continuous upskilling of existing staff and the role of company vision, leadership and culture. “Companies where there’s a mentality of continuing to strive to improve and to eliminate waste and so on are well placed to benefit from the fourth industrial revolution. It’s just there are more tools now in the kitbag.”
For the smaller company playing catch-up on the tightest resources in terms of staff, time and money, it is people investment – whether in terms of new hires, contractors or upskilling – that may prove key.