Smart manufacturing, Industrial IoT, Industry 4.0, factory of the future are some of the most popular buzzwords in vogue these days amongst the political, bureaucratic, industrial and academic circles as a panacea for our manufacturing industry that has been struggling to meet world-class productivity and quality standards. There have been numerous fora where speaker after speaker from all walks of the manufacturing community have extolled the virtues of Industry 4.0 and encouraged the industry to adopt. However, some finer points that will decide the fate of its adoption and penetration in the Indian manufacturing industry are worth having a look at.
I will differentiate between Industry 4.0 and advanced manufacturing (also called Industry 3.0) for the purpose of bringing about some clarity on these, as I hear the technologies related to both these revolutionary stages being used interchangeably in India. Advanced manufacturing or Industry 3.0 includes application of automation, process technologies, computer and information technologies, control systems, high precision manufacturing, custom manufacturing and sustainability technologies and robotics in the factory.
On the other hand, Industry 4.0 is the usage in manufacturing of high performance computing technologies such as cloud computing, cyber security, Big Data analytics, machine-to-machine communication, IoT, Artificial Intelligence, Augmented Reality, digital twinning and Additive Manufacturing, across the enterprise. The objectives in both the cases are the same – that of improving productivity and quality by reducing dependence on human errors. The difference between the two is that Industry 4.0 attempts to automate decision making across the enterprise, while Industry 3.0 is mostly limited to the factory floor.
Evolution in manufacturing
Industry 4.0 with its reliance on mechatronics, Big Data analytics and extensive use of internet, communications and computing technologies comes with its own challenges compared to the more homogeneous contemporary manufacturing systems. Manufacturing technologies from the Industry 3.0 stage are well within the domain of the industrial and manufacturing engineers, who, in most cases are a consolidated part of the manufacturing organisation.
On the other hand, Industry 4.0 expertise is fragmented and resides with various stakeholders outside the manufacturing organisation such as the platform and data analytics (software) solutions provider, the mechatronics (hardware) solutions provider and internet service providers. The unique situation we face in India today is that while the solutions providers seem more ready with their offerings, the manufacturing organisations, especially the large majority of mid-size players have a long way to go in terms of awareness, understanding, motivation and preparedness for Industry 4.0. One needs to understand the evolution of manufacturing in the rich economies and their drivers and the benefits.
Towards manufacturing efficiencies
Advanced manufacturing (Industry 3.0) has been in usage in the USA, Western Europe and Japan for almost three decades. The manufacturing industries in these geographies have used Industry 3.0 to sustain or extend their productivity gains to offset the adverse impacts of high labour costs and aging demographics. Low value & low-scale manufacturing have more or less shifted out of these economies to the emerging economies such as China, India, South Americas and South-East Asia driven primarily by low labour costs. On the other hand, high value & large scale integrated manufacturing continues to be competitive out of the USA, Western Europe and Japan. This is almost entirely due to the extensive penetration of advanced manufacturing (Industry 3.0) in these economies, besides having an enabling ecosystem. For example to run a robotised welding process, both uninterrupted power supply and the quality of power supply (fluctuations) are being met today in India by dedicated power supply and power conditioning units by the user despite having grid power, whereas in the advanced economies, such redundancies (and costs) are eliminated as the grid power itself is of high quality. High value operations such as laser or electron beam welding would not be competitive in India under such circumstances. Poor quality infrastructure (power, IT, transportation) would be a disaster for Industry 4.0, which envisages connectivity and operational precision on a mega scale.
Industry 3.0 investments were ‘discrete’ investments, focusing on technology only to improve manufacturing efficiencies (automation, computerisation, process technologies, etc), and had little to do with other enterprise aspects. Industry 4.0 aims to improve organisational efficiencies by using technologies across the enterprise, such as in business processes & systems, services, security, strategy, business models and risk management. The investments, therefore, can reap returns only if the organisation spans a large part of the value chain (sourcing, manufacturing, distribution, sales, service) or product life cycle (system & component design, prototyping, test & validation, manufacturing, warranty).
Very few Indian manufacturing organisations fall in this category (select industrial equipment manufacturers, OEMs). Thus, one can argue that Industry 3.0 are the discrete components of Industry 4.0 focused on improving efficiencies in the factory, and these are the pre-requisites for implementing Industry 4.0 to tap enterprise efficiencies. Incidentally, such manufacturing organisations that are Industry 3.0 ‘complete’ and ready for Industry 4.0 happen to be present mostly in the rich economies. The relevant point being widely debated in industry circles is whether Indian manufacturing should leapfrog to Industry 4.0.
Improving profitability of organisations
The Indian manufacturing sector employs over 30 million people and contributes about 16% to its GDP but only 2.9% to the world manufacturing value add. Almost 85% of industries in India are in the micro sector (employs less than 10 people). Our manufacturing industry has long depended on low cost inefficient labour and continues to rely on them to run organisations that are largely low in scale and integration and focus on low value or commodity products. In other words, we are still running Industry 2.0 at a very inefficient level. The next step of evolution to Industry 3.0 has been attempted by a minority who are competing in the global market but to a limited extent, since they can still afford low cost labour due to favourable demographics. As such there is still a large scope of improving efficiencies (low hanging fruits) in the vast majority of players by extensive use of productivity tools such as TPM, TQM, Six Sigma, TOC, Lean etc.
Manufacturing organisations that can afford to invest in advanced manufacturing (employing more than 100 employees or revenues more than INR 5 billion) constitute less than 2500 units in India. Besides, Indian manufacturing is composed primarily of small and mid-end automotive manufacturing, textiles, leather, pharmaceuticals and capital goods. Compare this to 16,000 units in the USA that have implemented Industry 3.0, in three decades, mainly in aerospace, electronics, computers and industrial equipments (high value) or Europe that has high end automotive, aerospace, and industrial machinery. It is clear that as an industry, we are about 40 years behind USA or Europe, which are contemplating Industry 4.0 usage today, as they seem to have the right mix of prerequisites; extensive Industry 3.0 penetration, high value manufacturing, large number of mid-sized players and a reliable ecosystem. Studies on Industry 3.0 implementation in mid-size companies ($10 million - $1 billion in annual turnover) in USA have concluded that such advanced manufacturing techniques improve profitability of organisations without any negative impact on employment. However, the companies who invested in advanced manufacturing were all in the higher end of the spectrum (turnover $100 million - $1 billion), indicating a minimum scale required to absorb the costs of Industry 3.0.
The path forward for Indian manufacturing has to be unique as our demographics have charted out an evolution that is different from other economies. We have an abundance of labour for the next three decades and our economy is significantly underperforming while not creating sufficient jobs. Our manufacturing industry, especially the mid-size organisations have to move up the value chain, show an appetite for investments in technology and create capabilities in R&D and supply chain management. The average R&D investment as a percentage of revenues has to go up to 3-4% (compared to less than 1% today). This will spur Industry 3.0 without negatively impacting jobs as well as improve margins and competitiveness. Infrastructure improvement has to have a long term outlook with an aim to create an ecosystem for collaboration and technology adoption. I expect these initiatives to bridge the productivity gap in the next two decades by forcing penetration of Industry 3.0 in our industry. Till that time, those that have the scale and value chain or product lifecycle integration should implement only the technology component of Industry 4.0. Our industry will be ready for a complete enterprise wide Industry 4.0 once these two converge – complete penetration of Industry 3.0 and an enabling ecosystem. An aggressive guess is 2030.
The article is authored by Dr Ravi Damodaran, President - Technology & Strategy, Varroc Engineering