S T H G I S N I O CO BEYOND MAINSTREAM ING RIN T 3 D P rative in Luc es s busin ic niche dynamarkets m DREAM FACTORY Intelligent machines: Yesterday's Hollywood vision is today‘s reality CYBERCRIME Strategies to guard against attacks from the internet INDUSTRY 4.0 BMW Board member and CEO designate HARALD KRÜGER on the potential of connectedness – AND the hard facts about going digital 0 WHAT MAKES A COO AND A COMPANY SUCCESSFUL IN THE CONTEXT OF INDUSTRY 4.0? THINK ACT // COO INSIGHTS INDUSTRY 4.0 Q & As "TACTICAL SAVVY!" COVER PHOTO: THOMAS DASHUBER; ILLUSTRATIONS: BEN KIRCHNER JEAN - CAMILLE URING THE KEY TO SUCCESS in fiercely competitive markets lies in products tailored to the individual customer, globalized value chains, shorter product lifecycles, quality, flexibility and time to market. Industry 4.0 makes all that possible. We can all see that existing models and standard procedures impose restrictions. Focusing on KPIs and strict reporting proce dures keeps our sights trained on the line between yesterday and today – and leads us to neglect tomorrow. Yet the sheer pace and complexity of change compels us to improve our inno vative capabilities. Industry 4.0 tools clear the way to better process control. They enhance quality and flexibility and reduce costs at the same time. If we want to take this path, the critical issue is to leverage the strengths of our highly educated people. We must cultivate the skills we need to implement new techniques and technologies. Multidisciplinary skills and the ability to integrate specialized resources on the fly are vital if we are to be agile and efficient in the future. We have long since left a stable universe behind us. But Industry 4.0 may not be enough to make up for an unstable business climate. What we also need is a new style of manage ment. A strategic vision and tactical savvy, the ability to act flex ibly in modular organizations and relational intelligence. That is what makes a successful COO – and what will ultimately decide whether Industry 4.0 is to be or not to be. Small and medi um-sized enterprises (SMEs) are a good training ground, be cause their pragmatic approach already helps many of them to operate very successfully in volatile, uncertain markets. If you are targeting an ambitious career in management positions, you should therefore definitely spend a few years as COO at an SME. JEAN-CAMILLE URING is COO and member of the Executive Board of French industrial engineering company FIVES CINETIC. He also serves as President of CECIMO, the European Association of the Machine Tool Industries. BASED ON TALKS WITH MANAGEMENT and associations, we know that companies are feverishly working on the hori zontal integration of their business processes. Only then does the next step – vertical integration – drill down to the level of the machines. Industry 4.0, the comprehensive interconnec tion of processes in production, logistics and services, is a huge issue at practically every large manufacturer in Europe. Yet not all companies have identified and tackled the resultant opportunities. We are dealing with a powerful innovation driver. Manage ment‘s creativity and its ability to think and act in an inter connected way is what matters now. Although not everyone is moving at the same speed, we see positive pressure on com panies in all industries. Because they want to continue being among the best, the demand for business model innovations is rising. The COO thus has the chance to assume a decisive leader ship role. Leadership means clearly communicating the urgency of this topic, standing up for a digital vision, grasping the overall complexity and developing a roadmap that gives the company focus and direction. Top managers need the courage to tread new paths. Mental barriers and institutional hurdles need to be overcome: employees who are worried about losing their jobs and influence; customers who fail to recognize the potential; proven facilities and steady-state processes. It will be crucial to determine new KPIs, build a business case for digital innovation and find allies in the network economy. Industry 4.0 is a huge opportunity for the competitiveness of production "made in Europe". The future has already begun. "THE COURAGE TO LEAD!" THOMAS RINN THOMAS RINN is Senior Partner and – jointly with Max Blanchet – Global Head of Operations Strategy, Roland Berger Strategy Consultants. THINK ACT // COO INSIGHTS INDUSTRY 4.0 3 8 Radical integration A NS HUM INE S? C A H OL OR M L L CON T R I W S ' O W H M O RROW N TO UC T IO PROD 50 THINK ACT // COO INSIGHTS CONTENT 24 INDUSTRY 4.0* 6 STATEMENTS 24 Is 4.0 fact or fiction? Politicians and business leaders have their say 8 19 4 INTERVIEW 37 How digitization is changing car production: an interview with Harald Krüger, Chief Production Officer at BMW and CEO designate COVER STORY Industry 4.0: How fully digitized production is revolutionizing the value chain 32 PREQUEL 34 Dream factory: Hollywood pioneers 4.0 "Leaner, faster, more stable" Preparing a tour de force: China wants to become a high-tech supplier 40 KPIs Where the really interesting business models are springing up THINK ACT // COO INSIGHTS INDUSTRY 4.0 CYBER-CRIME How businesses can guard themselves against attacks from cyberspace Measuring the fourth industrial revolution 3D PRINTING EASTERN PROMISE 43 INTERVIEW Airbus' Chief Technology Officer Jean Botti on new security requirements 40 * A FACTORY The invisible threat UNTO ITSELF INDUSTRIAL REVOLUTION IN FOUR ACTS 43 "Greater vulnerability" 1.0 End of the 18th century: In England, a STEAM ENGINE powers a loom for the first time – the dawn of mechanical production. 2.0 End of the 19th century: ELECTRIFICATION enables mass production to be broken down into specialized activities on the production line – in American abattoirs to begin with, and later in the auto industry. Quality improves, prices decline. 3.0 50 years ago: Aided by microelectronics and IT, and in particular by programmable logic controllers, the AUTOMATION of production gains ground. Machines take ever more complex tasks out of human hands and raise productivity. 19 More science than fiction 46 COO WORKSHOP Opportunities spawned by digitization: projects and publications 50 FAMOUS LAST WORDS Insights and prospects as seen by futurologist Andreas Neef 51 34 Print-ready SERVICE Publishing information Online publications THINK ACT // COO INSIGHTS INDUSTRY 4.0 4.0 Today: Cyber-physical systems (CPS) are central to the DIGITIZATION of production. Workpieces, tools, production plant and logistics components with embedded software are all talking to each other. Smart products know how they are made and what they will be used for. Customized mass production – in "segments of one" – is on the march on affordable terms. Nor does the creation of value still end at the factory gate. Smart, interconnected products that can stay in touch with the manufacturer even after they are sold open up the possibility of new services and business models. Producers are offering value-added services to their customers. Companies no longer sell an engine: They sell thrust – including preventive maintenance, for example. Trust in a secure and reliable technological infrastructure is allowing deregulated and highly competitive markets to emerge. 5 "4.0" – FACT OR FICTION? THERE WON'T BE MANY WHO BUILD GREENFIELD INDUSTRY 4.0 FACTORIES. FOR THIS REASON, ONE OF THE KEY THEMES OF INDUSTRY 4.0 WILL BE RETROFITTING EXISTING FACTORIES AT LOW COST. Dr. Thomas Kaufmann, Vice President Corporate Supply Chain, Factory Integration, Infineon Technologies (… AND WHERE DO WE GO FROM HERE?) STATEMENTS The internet of things is a huge transformative development. David Cameron, British Prime Minister THE COMPANIES — AND NATIONS — THAT ACT NOW TO SEIZE ITS PROMISE WILL THRIVE IN THE 21ST CENTURY. THOSE WHO ARE DEVOTED TO INCREMENTAL CHANGE AND FAIL TO ENGAGE IN SMART MANUFACTURING WILL RAPIDLY FALL BEHIND. Sujeet Chand, Chief Technology Officer, Rockwell Automation LIKE ALL REVOLUTIONS, INDUSTRY 4.0 IS EFFECTING A REDISTRIBUTION OF WEALTH. Tom Comstock, Vice President of DELMIA Strategy & User Experience, Dassault Systèmes 6 THINK ACT // COO INSIGHTS INDUSTRY 4.0 STATEM ENTS INDUSTRY 4.0 We need not just scientific excellence, not just detailed solutions here and there, but ideas we can earn money with. IS LIKE AN INTERNATIONAL RACE. TEAM GERMANY HAS LINED UP, BUT JUST BECAUSE YOU START FIRST DOESN'T NECESSARILY MEAN YOU'LL BE THE WINNER. Prof. Dr.-Ing. Dr. h.c. Detlef Zühlke, Scientific Director, German Research Center for Artificial Intelligence Prof. Dr. Dieter Wegener, Head of Advanced Technologies and Standards, Siemens WE NEED THE KIND OF START-UP CULTURE YOU SEE IN AMERICA. Eberhard Veit, Chairman of the Management Board, Festo We must not let things get to the stage where Google manufactures products such as cars and televisions and European companies are left to play the part of suppliers. WHEN EVERYTHING AND EVERYONE BECOMES CONNECTED, AND COMPLEXITY IS FREE AND INNO VATION IS BOTH DIRT-CHEAP AND CAN COME FROM ANYWHERE, THE WORLD OF WORK CHANGES. Günther Oettinger, EU Commissioner for Digital Economy & Society Thomas Friedman, author and journalist, New York Times Virtual factory, real value. In Industry 4.0, service isn't about making repairs. It's about the promise of avoiding defects. Arnold Stokking, Director Industrial Innovation, TNO, Netherlands Dr. Jochen Schlick, Head of Cyber-Physical Systems, Wittenstein THINK ACT // COO INSIGHTS INDUSTRY 4.0 7 STORY C O V E R R Y 4.0 T IN D U S RADICAL INTEGRATION Products and processes, data and services, factories and methods: INDUSTRY 4.0 means non-stop communication – on all levels. That is revolutionizing the way value is added and creating room for new business models. 8 ILLUSTRATION: PETER KRÄMER THINK ACT // COO INSIGHTS INDUSTRY 4.0 9 C ould the concept of "Industry 4.0" – the phrase coined by the German government as part of its strategy to computerize the manufacturing sector – become as popular and relevant as "Web 2.0"? It was Dutch Professor Willem Jonker who first threw this question into the ring. The mathematician and information technology expert at the European Institute of Innovation and Technology (EIT) has been commissioned by the European Union to apply his mind to the computerization of industry, the intelligent integration of research and business – and how a better growth and innovation policy could help Europe to become more competitive. Jonker's conclusion? For now, Industry 4.0 is still seen as little more than a buzzword. Like Web 2.0, however, it neatly encapsulates the sheer force with which digitization is permeating every aspect of manufacturing routine and turning the relationships between producers, suppliers and customers on their head. This force has the potential to raise companies – and with them whole economies – to a new level of competitiveness. The global battle to add value is intensifying – and that in markets that are growing ever more complex and less predictable. Companies must call their business models into question, and then do it again. The demands placed on speed and the sheer diversity of product variants are increasing, even though it is often not possible to accurately predict likely sales volumes. Flexibility is thus an imperative on 10 STORY C O V E R R Y 4.0 T IN D U S every level – in product portfolios, in customer and supplier relationships, in process technologies, in IT systems and in production locations. Distributed organizations with largely autonomous units are the best way to stand up to so many different demands. To put that another way: Industry 4.0 is bringing fundamental change to competi tion in today's "VUCA" world of volatile, uncertain, complex and ambiguous markets, because value chains are contracting. Two of the key aspects currently in transition (see also page 17) are: SPEED: Product development-to- market and order-to-shipment lead times are growing shorter. Outages too are being reduced as remote monitoring and predictive maintenance eradicate expensive downtime for machinery and industrial plant. FLEXIBILITY: Digitization, connectedness and virtual tool planning open the door to custom-tailored mass production. Very small series – batch sizes of one, ultimately – can be produced and sold at a profit. The bottom line is that resources are used more efficiently while people and machinery work far more productively. COSTS DOWN, MARGINS UP Tire manufacturer Pirelli has already taken the plunge into integrated production. Tire production is, essentially, high-volume customization. Gregorio Borgo, General Manager Operations, refers to the Italian company's culture of innovation as "open and cross-functional", stressing that Industry 4.0 is being driven from all quarters within the group. "The Pirelli Group's factories are increasingly digitized in their functions, processes and machine maintenance." The higher the class of car, the higher the demands placed on the tires. "In this context, talking about manufacturing, we need a balanced organization," Borgo says, noting that part of the responTHINK ACT // COO INSIGHTS INDUSTRY 4.0 sibility lies with IT in the form of integrated manufacturing execution systems (MES) and production machinery, electronic kanban systems, automated quality control via RFID labels, data mining and so on. "On the other hand, we concentrate on giving our people a broad array of skills with which to master ever-changing processes and technologies." Pirelli sees the Modular Integrated Robotized System (MIRS) that enable it to condense the 14 traditional phases of tire production into just three as one aspect of its next-generation IT landscape. The MIRS robots deployed in Europe and the USA produce tires seamlessly, without interruption. There is no need to add semi finished products, no interim stocks are needed and less energy is consumed. The average lead time from raw material to finished product has been cut in half. Every part of the process is controlled by integrated software, from robot motion to raw material replenishment, from tire size selection to vulcanization and quality control. The Mini Cooper S was one of the first cars to be fitted with tires made in this way; the new Bentley was the most recent model to follow suit. Pirelli's productivity has jumped sharply. Introducing Industry 4.0 has brought similar success to motorcycle producer Harley-Davidson. The venerable US company manufactures its 1200 Custom and Street Bob models at a factory in York, Pennsylvania, 100 miles north of Washington. Customers use the Bike Builder to design their own customized machine online and then order it from a dealer. This data is accessed not 21 days (as in the past) but a mere six hours before production begins. That gives customers the flexibility to make changes – to the wheels, seats, handlebars, position of the foot rests, paintwork, optional safety features, you name it – right up to the last minute. Harley-Davidson has significantly shortened its lead times with this strategy, and production is completed in a single day. On the automated production line, A NEW WORLD THAT ADDS (MORE ) VALUE * YESTERDAY'S SUPPLIER, TODAY'S PARTNER*: THE CHANGING ROLES OF INDUSTRY PLAYERS 2000 COMPONENT PRODUCTION Metalworking Supplier: Brinks Metaal Customer: Power-Packer SUB-ASSEMBLY Hydraulics Supplier: Power-Packer Customer: Edscha SYSTEMS INTEGRATION Complete sunroof system Supplier: Edscha Customer: BMW Value chain 1980 EXAMPLE: CAR INDUSTRY From raw metals to sunroofs 2020 Outsourcing Research & development Design & planning Prototyping & industrialization Component production Systems integration Sales & service 1980 Component outsourcing 2000 Outsourcing of links in value 2020 Integrated supplier TRADITIONAL ROLE SPLIT TING: Suppliers contribute individual parts to production. CHANGING ROLES: Supply chains become more complex and OEMs farm important production steps out to specialists. THE FUTURE IS NOW: OEMs are "lean", suppliers share responsibility for complex systems and processes. Sources: Brainport Industries, Roland Berger THINK ACT // COO INSIGHTS INDUSTRY 4.0 11 12 THINK ACT // COO INSIGHTS INDUSTRY 4.0 STORY C O V E R R Y 4.0 T IN D U S humans and machines work hand in hand (so to speak!), developing models in 3D, planning and monitoring every step online, visualizing work instructions on-screen. The costs are going down, the margins are going up. Success stories such as these are putting wind in the sails of Industry 4.0, which goes by a variety of names: "advanced manufacturing" in the USA and the UK, "les usines du futur" (the factories of the future) in France, "made different – factories of the future" in Belgium, and "smart industries" in the Netherlands. Former SAP chief Henning Kagermann, one of the people who originally coined the term Industry 4.0, hopes Germany will lead the way. Angela Merkel allegedly sets great store by retaining the original German spelling – "Industrie 4.0" – even in English publications to make sure everyone knows this "brand" was made in Germany. The issue at stake is nothing less than global innovation and market leadership. Kagermann, now President of Acatech, cience Germany's National Academy of S and Engineering, is much in demand as a speaker, even beyond Germany's shores. "The Chinese, eager to press ahead with automation, came to us first," he says, "followed by the Dutch, who wanted to know how to get so many different players together around one table. After them the Americans and Britons wanted to increase manufacturing's share of their economies." Kagermann fully understands why interest is so pronounced: "The vision of Industry 4.0 is simple but compelling." ILLUSTRATION: PETER KRÄMER STRIKING A NEW BALANCE BETWEEN HUMANS AND MACHINES Industry 4.0 might sound like the latest production software release, but it is so much more than a straightforward update. It creates a new and radically integrated production system. Humans, machines and resources communicate directly with each other. Smart products know their production process and where they will be deployed in future. As a result, they actively support both production and documentation. This vision of seamless, connected production is rooted in cyber-physical systems (CPS): workpieces, tools, production plant and/or logistical components that are hooked up to the internet via embedded (software) systems. They perceive and influence the surrounding environment, build distributed networks and optimize themselves autonomously. Their virtual model of the real world is thus constantly being updated – in real time or near-real time – with the aid of up-to-the-minute data. At the same time, staff control the production system via multimodal interfaces and augmented reality applications. Cyber-physical systems usher in the next level of decentralization: at the level of objects in the factory and organization. Smart factories' interfaces to smart mobility, smart logistics and smart grids make them a pivotal element in tomorrow's intelligent infrastructures. When two or more firms are linked together by this kind of information flow, that changes the way players interact in the network economy. People are already talking about the next level of "coopetition" – of cooperative competition in a context of maximized specialization. So is this the brave new world ahead of us? Not everywhere. Not yet. Because that would require companies to kiss goodbye to the traditional tools of production management. One of these is Microsoft Excel, the most widespread piece of software in manufacturing execution systems (MES) and hitherto an integral part of both production and resource planning and the evaluation of process data. Depending on firms' willingness to invest, many experts believe that this situation will change significantly between now and 2030. Industry 4.0 is a dynamic process of evolution. Yet if revolutionary change is the prize at the end of the evolutionary path, now is the time for pioneers to take the first bold steps. Notwithstanding, THINK ACT // COO INSIGHTS INDUSTRY 4.0 SMART FACTORIES ARE LIKE SOCIAL NETWORKS Humans, machines and materials communicate and interact in real time. Global production facilities A network of global production facilities is the beating heart of Industry 4.0. Intimate interaction with partner firms boosts profitability thanks to tighter coordination cycles, for example, enabling production processes to be constantly optimized and adjusted. Empowered machine operators Augmented reality: This technology gives the people who operate machines an enhanced, virtual overview of production, helping to accelerate maintenance and repair work, for instance. Armed with smartphones, tablets and data glasses, workers become "augmented operators". Social machines Social machines are knowledge-based, sensor-assisted and geographically distributed elements of autonomous production systems. They share newly acquired information with other machines. No additional configuration is needed. Smart products Smart products can be identified and located at any time. All information about the course of production is stored in the product itself – in RFID chips, for example. Smart products control their own production processes. Virtual production A digital model of the real-world factory links all the people, machines and materials together and visualizes the processes currently in progress. Within this virtual production environment, data can be analyzed and future statuses simulated in order to optimize production. 13 STORY C O V E R R Y 4.0 T IN D U S many companies are still hesitant, wanting to know what technologies are even ready for market yet? Jochen Schlick believes that is the wrong question: "Industry 4.0 is not a new technology," the man in charge of the forward-looking discipline of cyber-physical systems at Wittenstein AG says. An engineer by trade, Schlick recently moved from the German Research Center for Artificial Intelligence (DFKI) to one of the world's leading manufacturers of mechatronic drive systems. The basic technologies behind the internet of things have been around for some time, Schlick argues: automatic identification, embedded systems, broadband wireless networks, digital control and communication. He adds that promising applications are now emerging at the points where information from the material world can be captured efficiently and processed effectively in the digital realm. To put that another way: What used to be separate information sources are now becoming compatible. Making things compatible sounds easy enough. Yet having seen many companies fall at precisely this hurdle, Schlick recommends looking for "media discontinuities in routine manufacturing practice" – the points at which inefficiency is tangible. Some time ago, that was the case at Wittenstein's intralogistical set-up and production planning, two areas in which the masters of their craft were still working out the fine details on paper. INEFFICIENCY – A THING OF THE PAST The company manufactures products that are used in aircraft engines, oil-drilling platforms and pacemakers. The failure to synchronize workpiece transportation processes with actual production used to waste time and resources. The lack of a digital model of production planning meant that management didn't have access to order-, line- or machine-specific data at any given time. Wittenstein has 14 now plugged the gaps in its data and communication streams with QR codes, smart workpiece carriers, tablet PCs and digital planning boards. Integrating the legacy systems turned out to be the biggest challenge, but Wittenstein was clearly up to the task. Its success was made possible by a network of 22 external partners who were responsible for mechanical aspects, software, and integration in the cloud. Schlick's arguments are sober and rational, but his mindset is to challenge customs. He acknowledges that companies everywhere have long been seeking to optimize production. Nor have their goals changed along the way: Everyone wants punctual, accurate delivery, lower costs and better quality. On a methodological level, the paradigms of lean production have proved useful, he says. Yet he is adamant that the theoretical possibilities inherent in the process chain have often not been realized. Eliminating these inefficiencies, he says, is where comprehensive digitization of the value chain reveals its real potential. Industry 4.0 means tackling the goals of maximizing cost and resource efficiency in production in a different way: not with more automation or better components, but with fewer interfaces to break up the data stream. Schlick says the flow of information that accompanies the movement of goods delivers "recommendations for action by well-informed decision makers" – rather like SatNav systems do for drivers. Users do not even have to fully understand every aspect of this kind of driver assist system. There is thus a very real possibility that the knowledge needed to interpret data might be beyond the core competency of the users: a new market for service providers who support the management of corporate processes. Bernd Häuser, Head of the Corporate Department for Manufacturing Coordination at Bosch, believes that the question of what exactly these services are will not become relevant until further down the line. His attention is focused squarely on THINK ACT // COO INSIGHTS INDUSTRY 4.0 the here and now. The strands of 50 different pilot projects at the Bosch Group come together in his hands. His response to the question of services fits perfectly with his basic credo: Industry, he says, must rid itself of the notion that you can know today exactly what sensors a machine will need in five years' time. Rather, we must build a platform for developing solutions that can adapt to the future. Häuser says that, in individual projects where the initial outlay exceeds immediate cost reductions or e fficiency gains, commercial cost/benefit calculations are often misleading. Far-sighted managers know enough to trust that data links will one day yield benefits in unexpected places, too. But do lots of sensors mean lots of benefits? No, the Bosch manager categorically refutes this argument. What companies do need, he says, is a vision of full data transparency that looks beyond the straitjacket of project accounting. Sensors now cost only a few cents, and readers won't break the bank either. Häuser has no doubts: "Low-cost solutions will unleash the full force of Industry 4.0." TREND TOWARD RETROFITTING Market observers perceive a strong trend toward retrofitting, with companies upgrading older equipment rather than rushing to splash out on brand-new 4.0 production plant. That helps them protect past investments with lengthy depreciation periods. And this reasoning alone proves the point: Industry 4.0 is not about radical, overnight upheavals. Its technologies and possible implementations are filtering down into the economy only gradually. The ABB Group, a manufacturer of energy and automation systems with a global reach, expects the traditional automation pyramid to essentially remain in place. A 4.0 network will merely be superimposed on it, adding access to production at certain points. Read access – for data analysis and troubleshooting purposes, for example – will be granted at these communication nodes. Write authorizations in the control system enable central calibration and maintenance services to be made available during live operation. Service technicians do not have to wait until defects occur before they go hunting for the causes: The plant recognizes its own status, reports and analyzes imminent damage and orders replacement parts. This avoids expensive outages and yields huge gains in efficiency. Like many other companies, ABB already supplies hardware and software components for remote diagnostics and predictive maintenance. Weidmüller Interface GmbH & Co. KG, a producer of control and connectivity technology and measuring and monitoring systems, is another Industry 4.0 system supplier. The latter ensure that an injection molding machine, for example, can beam its oil pressure and operating temperature data straight onto the internet. Machine operators see the data in the browser on their tablet or smartphone, use it to visualize issues, diagnose problems, quickly spot anomalous patterns – and can thus keep the machines running smoothly. Markus Köster, an engineer at Weidmüller's technology development unit, is matter-of-fact: "Monitoring is possible, but there is not so much demand for automated readjustment. Not yet," he stresses. Why is that so? Speaking from experience, Britta Hilt, Managing Director of Saarbrücken-based IS Predict GmbH, points out that "In many cases, people simply want to sit in the middle and keep control of things". IS Predict is a youthful, 20-strong part of the Scheer Group that specializes in predictive analytics. Concepts and recommendations about optimal machine control position the company as one of myriad new players in a growing market. Hilt is nevertheless well aware of one of the biggest obstacles that still stands in the way of Industry 4.0's more widespread introduction. Despite measurements taken from the plant and GLOBAL COMPETITION How much governments are forking out in the race for the future of production. UK 312 million euros have been channeled into Britain's Advanced Manufacturing Supply Chain initiative since 2011. The Department for Business, Innovation and Skills launched an additional 127 million euro fund in spring 2014. The latter money is being used to advance research and development in the automotive and aviation sectors. France President François Hollande has announced a 3.7 billion euro package for "La Nouvelle France Industrielle". Selected industry projects will be subsidized in 34 government-backed plans of action, including "les usines du futur" ("the factories of the future"). France has only 35,000 production robots, compared to 65,000 in Italy and 150,000 in Germany. Germany Federal government is pumping 200 million euros into "Plattform Industrie 4.0" within the framework of its "Hightech-Strategie 2020" action plan. The aim is to bundle the expertise of research organizations, the leading mechanical engineering associations and the ITC and electrical/electronic engineering industries. Europe Between now and 2020, the European Commission will invest 1.15 billion euros in Factories of the Future (FoF), a private/public partnership initiative. SMEs in particular are to see their technological manufacturing base strengthened by adaptable machines, innovative materials and modern IT for production environments. USA The Obama administration set aside around 1.6 billion euros (converted) for projects relating to production research in 2013 alone. The prospect of 500 million euros' worth of funding for smart factory networking has been held out to the Smart Manufacturing Leadership Coalition (SMLC), a nationwide interest group with more than 30 corporate members. China By 2017, Beijing wants to invest some 1.2 trillion euros to modernize and transform its industry, though not all of this sum will have a bearing on Industry 4.0. The goal? To transform "made in China" into "created in China". Sources: EU, GTAI, db research, Roland Berger, etc. THINK ACT // COO INSIGHTS INDUSTRY 4.0 machinery itself, she says, roughly half of all companies have no really useful data as a valid basis for value-added services. What data they do have is not collected often enough, is not stored or cannot be converted. Like in the good old days, the only solution is often a brisk walk to the nearest printer. That is why Europe is working flat out to craft a harmonized data structure and shared standards that will vastly simplify machine-to-machine communication. "Plattform Industrie 4.0", a German organization that brings industry associations, companies and research institutes together, is currently plotting a "standardization roadmap". In the USA, the Smart Manufacturing Leadership Coalition is tackling the same issues. New standards will open new markets. Industry 4.0 will stand or fall by these efforts at standardization. Once an open system is up and running, every entrepreneur can join in the game. Metcalfe's law should probably then apply. This law states that the value of a communication system grows in proportion to the square of the number of connected users. The more production becomes interconnected, the more the entire value chain will be worth. Fifty billion "intelligent objects" could be communicating with each other as early as 2020 – ten times as many as today. Originally a forecast aired in its own interests by network equipment provider Cisco, this number is now widely held to be plausible. FAST GAME, NEW RULES The unrestrained pace of growth is itself changing the rules of the game. "We must master the standards very quickly," explains Professor Wolfgang Wahlster, the head of DFKI and an advisor to the German Chancellor. "This is a genuine power play." Wahlster believes Europe in general and Germany in particular are well placed, even though it is often said that America's software giants could have an advantage 15 STORY C O V E R R Y 4.0 T IN D U S if value creation is in future controlled by those who possess the data. But who does the data actually belong to in each case? How do you dice and slice it into a workable business model – not to mention all the security issues (see page 40). GOOGLE BUYS ROBOTICS FIRMS BY THE DOZEN At its factory in Michigan, US auto maker Ford runs Siemens software that delivers virtual navigation throughout the production environment. The aim is to improve international collaboration across the company's plants. The Google Earth infrastructure lets users take 3D walks through Ford's worldwide production facilities, down to the level of the individual workspace. Customers certainly benefit as a result. The question is, who ends up with the better deal? Siemens, the supplier with a similar background that already employs 17,500 software engineers and has long seen itself as a digitizer? Or maybe it is new giant Google, which is just lurking in wait to pounce on so much lucrative business with so much data? Google's most powerful information collection point is the Android operating system, which is installed on 80 percent of the world's smartphones and 60 percent of all tablets. One aspect of connectivity is that, at some point, it becomes impossible for both the users and providers of rival systems to resist established standards. And Google never rests – witness its Project Tango, in which developers are trying to implant a human-scale understanding of three-dimensional space and motion in smartphones and tablets. Universities, research organizations and industrial partners from nine countries around the world – including Bosch, Infineon, ETH Zurich, the George Washington University and the Open Robotics Foundation – are involved. The prototype hardware and software records motion and creates a model of the environment in 3D. Using Android, of course. With sensors supporting more 16 than 250,000 measurements per second, the position and orientation of the device is constantly updated in real time. For the time being, Tango is targeting consumer applications. Yet its potential in industry is obvious: Smarter navigation, driverless vehicles, drone control, augmented reality apps and the control of workpieces and machines are just a few of the possibilities that spring to mind. To date, the project has gone largely under the public and business media radar. As soon as that changes, however, it will only add to the palpable sense of unrest that began to permeate the manufacturing industry when Google snapped up eight robotics firms in 2013 and commissioned Android inventor Andy Rubin to build a robot development line that is expected to grow fast. The fragmentation of existing industrial IT systems has so far protected European machinery and plant engineering. How ever, Bosch's Bernd Häuser is not alone in his view that US software companies could soon roll up the market. Long production plant lifecycles have kept many IT giants from cultivating an interest in this market, he says. But their reluctance is now softening. "We machine makers have long underestimated the threat." EUROPEAN IT STANDS UP TO THE USA Europe's companies are now sitting up and taking notice. As market leaders for embedded systems, they are focusing on their strengths, such as excellence in sensor technology. Germany's front-runners in this race are the likes of Continental and Sick, Infineon and SAP. In the Netherlands, a country replete with sophisticated industry suppliers, NXP Semiconductors – formerly Philips – stands out from the crowd. Switzerland boasts a world-class machinery and plant engineering sector, while northern Italy is home to technology transfer researchers and companies. France is currently pulling out all the stops to make up a two- to three-year deficit. THINK ACT // COO INSIGHTS INDUSTRY 4.0 Diversity, not size, is what matters, according to Wolfgang Wahlster: "Intel is gigantic, but it has stayed away from the table." Europe holds a few trump cards in big data mining, too: the Hana databases from SAP, Software AG's Terracotta and the Berlin-born big data analysis tool Stratosphere, which was only accepted as an Apache incubator project in April of this year. "We have the edge in technology. The Americans are better at networking and business model innovations," says Wahlster, the other progenitor of the term Industry 4.0. "We will reach agreement." Endress+Hauser, a Swiss measurement and control technology firm, reckons that businesses can already afford horizontal digital integration, by which it means measuring instrumentation and communication systems to capture and transfer the data. These systems automatically track orders, storage, delivery and inventories. The company is also convinced that vertical integration is realistic. It involves forging digital links between the layers of the automation pyramid, i.e. factory and business processes, interconnectivity between enterprise resource planning (ERP) and the production process. Endress+Hauser nevertheless frankly admit that talk of end-toend digital engineering is still premature: You still can't go out and buy "4.0 as a package". Like Wittenstein, however, that is where Endress+Hauser want the connected road to lead them. Don't hang around. Get going! Martin Marx advises manufacturing companies to quickly start out along the road to Industry 4.0. Marx is Sales Director at the Harting Technology Group, a company that earns 500 million euros a year with its plugs, cables and electromechanical connectors – and that wants to make a name for itself as a digital system supplier. "We are starting small," Marx says. "We need to build trust, establish the first networks and, step by step, show customers the benefits of 4.0." Demand must be cultivated gradually. Harting is one of more than 30 industry partners that have teamed up to form the 4 POWERFUL ARGUMENTS BENEFITS OF INDUSTRY 4.0 Proximity to the market Flexibility and closer customer relationships thanks to new business models and services Quality thanks to process transparency and reproducibility in terms of batch sizes and variants: customized mass production Speed ILLUSTRATION: PETER KRÄMER thanks to shorter lead times and less outages THINK ACT // COO INSIGHTS INDUSTRY 4.0 17 STORY C O V E R R Y 4.0 T IN D U S WORKABLE BUSINESS MODELS Industry 4.0-centric business models are taking root everywhere – at Bosch in Homburg, for example. Production of hydraulic butterfly valves for tractors – 2,200 variants in small quantities – began here, close to Germany's borders with France and Luxembourg, in June 2014. Customers send their orders straight to the production plant, which configures itself autonomously, picks the parts it needs and constantly analyzes data about the production status. "The investment in the new production line pays for itself very quickly," says Bosch manager Häuser. Machines are more productive because they no longer need to be converted or refitted. Employee productivity improves, too, because staff no longer have to waste time typing in individual orders. Dortmund-based drinks bottler KHS has likewise shortened its value chain. Thanks to its award-winning digital technology Innoprint, KHS can now print thousands upon thousands of PET bottles in 18 parallel, all with no labels. That guarantees maximum flexibility, reduces the time to market and paves the way to very small batch sizes. The ink is removed again when the bottles are recycled, all of which saves time, money and tons of waste. The digitization of business processes has now also birthed a very special variety of customized mass production: contract manufacturing. Take 247TailorSteel, for example, a web-based procurement portal for contract manufacturing services relating to sheet steel and tubes. The company expanded from the Netherlands into Germany some years ago. Every workflow from the drawing board to CAD is optimized to meet customers' individual requirements. Quotations are generated in minutes at the click of a mouse and guarantee "top quality that is reproducible at any time", in the company's own words. As far as the technology is concerned, the claim is certainly credible, with production of the workpieces handled by laser cutters from Trumpf. This is how digitization is giving firms such as 247TailorSteel a satisfied customer base. CUSTOMERS LEAVE COMPANIES NO CHOICE Do our highly advanced economies even have a choice? No, asserts Professor Thomas Bauernhansl, because customers and markets – not technologies – are the drivers of modularization and greater flexibility. Bauernhansl oversees the IFF Institute for Industrial Production and Factory Operations at the University of Stuttgart, as well as heading the Fraunhofer Institute for Manufacturing Engineering and Automation (IPA). His reasoning is simple: A large share of manufacturing these days equates to significant progress and dynamic growth. Between 2000 and 2010, productivity rose by 30 percent in German industry – twice as fast as the increase in the service sector. In 2010, manufacturing accounted for nearly 90 percent of R&D spending. For Bauernhansl, it is therefore only right and proper THINK ACT // COO INSIGHTS INDUSTRY 4.0 that the EU wants to raise manufacturing's share of gross value added from 16 percent today to 20 percent by 2020. Reorganizing the value chain opens up vast stores of economic potential, although the conditions in place across Europe vary very considerably: France currently has only 35,000 production robots, compared to 65,000 in Italy and 150,000 in Germany. These figures come from the French government, which has announced its intention to invest in the EU-backed Factories of the Future (FoF). The question is whether industry will seize the associated opportunities. Jean-Camille Uring, COO of Fives Cinetic and President of CECIMO, the European Association of the Machine Tool Industries (see page 3), speaks of a divide in the French economy. In his capacity as Fives manager, he knows what it means to design and ship plant and machinery for the world's biggest industrial groups in industries from aluminum and aerospace to sugar and steel. And in his capacity as advisor to the government, he helped draft organizational and financial aspects of the vision of the "usines du futur", together with plans for individual industries. Uring is aware of the lack of competitive edge among small and medium-sized enterprises in France. New machines alone, he notes, are not the solution for global markets. Europe must therefore build on its strengths. Many see Germany as the front- runner in digitizing the economy. Yet that is only ever a momentary snapshot. In the fiercely competitive Industry 4.0 environment, there is no time for complacency. ILLUSTRATION: PETER KRÄMER non-profit Smart Factory KL e.V. organization, a vendor-independent platform that seeks to integrate mature information technologies in factory automation. Companies in the network use test modules to demonstrate how even competitors can use harmonized interfaces to share the task of specialized production. Each module recognizes its neighbors and can be swapped or replaced at any time. "Technologically, our system was already more advanced in 2013," says Professor Detlef Zühlke, the chairman of and driving force behind the technology initiative. "Today, we are more concerned with workable business models than what is technically feasible." Zühlke mentions contact with renowned customers who, for the first time, seriously want to buy something: a component manufacturer from the aircraft industry, an auto maker, a plant monitoring firm. EL NOT AT ALL PREQU THINK ACT // COO INSIGHTS INDUSTRY 4.0 19 HOLLYWOOD PIONEERS 4.0: THE DREAM FACTORY REPEATEDLY CHURNS OUT FILM M ATERIAL THAT PAVES THE WAY TO NEW AND VERY REAL BUSINESS MODELS. SOBER VISIONS AND BOLD REALITIES – SNAPSHOTS OF A JOURNEY THROUGH TIME. SCIENCE FICTION PHOTO: ISTOCKPHOTO BY GET T Y IMAGES PHOTOS: ACTION PRESS; PARROT SA THE DARK KNIGHT RISES Batman tested drones in "The Dark Knight Rises" in 2012 – before even Amazon and DHL showed an interest. Today, civil drones inspect high-voltage power lines and photograph every millimeter of dams to produce 3D models that are detailed and precise. At the Volkswagen plant in Germany's Baunatal valley, they whizz around the spacious production halls to spot compressed air leaks high up in the rafters. 20 PHOTOS: PICTURE-ALLIANCE; ULTRA GLOBAL TOTAL RECALL Back in 1990, we thought boarding a self-drive "robotaxi" was the exclusive preserve of Arnold Schwarzenegger in "Total Recall". Far from it: Fully automated driverless vehicles are already in service at London's Heathrow Airport, whose Personal Rapid Transit system ferries passengers around the airport on demand, following dedicated guideways and with no stops along the way. Meanwhile, US companies are already considering the next step: having Google's self-driving car travel on public highways and cope with the traffic autonomously. 21 PHOTOS: ACTION PRESS; BMW GROUP In the 2012 comic strip film "The Avengers", superhero Robert Downey Jr. taps videos with his fingertip, swipes his hand across screens and operates control sliders on holographic displays. "Ironman" remotely controls all kinds of systems – excelling as a pioneer of preventive maintenance. Today, autos can project their current speed and direction arrows onto the windscreen for navigation purposes. For the time being, pedestrians make do with Google Glass. THE AVENGERS 22 PHOTOS: ACTION PRESS; GOOGLE PROMETHEUS 23 In "Prometheus" in 2012, film director Ridley Scott picks up where he left off in his 1979 megahit "Alien". When the spaceship enters an alien cave, hovering spheres are sent out to survey the terrain. They record everything they see to produce a holographic map. Right now, Google Tango is emerging as a real-life analogy. Smartphones are being fitted with sensors that let them piece together a 3D picture of their environment, opening the door to a completely new kind of navigation – in museums, in factories and even at home. AT ITS US PLANT IN SPARTANBURG, SOUTH CAROLINA, BMW USES COLLABORATIVE ROBOTS IN DOOR ASSEMBLY. THE Y HELP THE HUMAN WORKERS – PRECISELY, QUICKLY AND AS OF TEN AS NECESSARY. "LEANER, FASTER, MORE STABLE" HARALD KRÜGER, Chief Production Officer at the BMW Group, talks about the promise of Industry 4.0, possible shifts in the value chain and future interaction between humans and machines. Interview: Jochen Gleisberg, Philipp Grosse Kielmann and Thomas Reinhold Mr. Krüger, some see Industry 4.0 as a buzzword. How do you at BMW define the term? As the link between the digital world and the real world – as connected smart production and connected systems. That is how we have defined it to date. Sounds fairly mainstream. What do you see as special about this topic? The BMW Group always puts people at the center of its production systems, and Industry 4.0 must support those people. 24 That is absolutely fundamental. Industry 4.0 won't replace people. It is different to past developments such as computer-integrated manufacturing, which conjured up visions of deserted factories devoid of all human agency. I am convinced that human beings, their skills and their competencies will remain the pivotal success factor. They will be flanked by Industry 4.0, which will improve the ergonomic aspects of certain things, make processes THINK ACT // COO INSIGHTS IndustrY 4.0 more robust and provide information that has not been available hitherto. So we are not talking about pure automation. Does that mean the evolution of or a revolution in production? For me, it is not a revolution that involves some huge digital leap forward. It is not as if what is valid today suddenly no longer applies. But one thing will change significantly: BMW, like other companies, needs people with a keen interest in a knowledge of Photo: BMW Group PHOTOS: Thomas Dashuber PHoto: Thomas Dashuber iew Interv rüger K Harald THINK ACT // COO INSIGHTS IndustrY 4.0 25 iew Interv rüger K Harald systems. We will learn to focus more on systems and to think along integrated lines. We will see the whole system, not just individual work and process steps. To keep things in perspective: Do you believe Industry 4.0 is over-hyped or underestimated? I believe every company must look for the potential inherent in it. Industry 4.0 is not a panacea. But it is another opportunity to tackle things in a more joined-up way, to inject greater reliability into lean processes, to achieve higher productivity and superior quality. Yet that alone will not help us make the industry more competitive. BMW has recently been praised for its advances in productivity. Why does BMW need to open itself up to the world of Industry 4.0 at all? Connecting the entire value stream from raw material to end product, to the finished automobile, harbors potential that has not yet been exploited. The BMW Group is a company whose innovation sets it apart again and again – through the use of carbon fibers in the electrically-powered i3 and i8, for example. If you want to drive innovation in products, you've also got to drive innova26 tion in processes. Industry 4.0 promises to make us more innovative and perhaps faster, for example by reducing the number of tests involving hardware. We are already moving toward more digital modeling: in prototype construction, in product and process development. Time is a very important factor in the competitive context. A shorter time to market – the time from development to the placement of a product on the market – is regarded as one of the main benefits of Industry 4.0. That is why we are interested in it. We began with small pilot projects like the one at our US plant in Spartanburg, South Carolina. The collaborative robots deployed there in door assembly help the human workers – precisely, quickly and as often as necessary. The movements of both people and robots have been optimized and harmonized to ensure there are no collisions. That is what I call intelligent networking. That is the production of the future: interaction between humans and machines. We also had research partners on board. Our people won't be replaced, but the robots help make the process even more stable, thus THINK ACT // COO INSIGHTS IndustrY 4.0 providing even greater quality assurance. This ergonomic assistance makes the production system sustainable. We are also trialing similar elements in other settings. That is driving progress in efficiency and quality – thanks to connectedness. And this is the opportunity that Industry 4.0 has to offer: enhanced connectivity that improves the overall result. How will Industry 4.0 change your relationship with suppliers? Will there be shifts in parts of the value chain? We are an OEM, so we will always concentrate on vehicle assembly, on the car itself. But maybe we will move toward more preassembled modules that are supplied to us in connected digital processes. That goes as far as simulated assembly, in which we develop one part of digital door assembly while the supplier develops the other part. The whole development and production system can be simulated, even across international facilities. Working together with our suppliers, we can make things leaner, faster and more stable. This will further optimize the way we interact, but I don't think it will lead directly to shifts in the make-up of the value chain. Photo: Thomas Dashuber "BMW always puts people at the center of its production systems. That is absolutely fundamental." 11 4 on Won't more connectedness tend to increase the importance of suppliers? The majority of the value added in our chain is already in the hands of the suppliers. Especially in the premium segment, car production only works if suppliers and OEMs collaborate seamlessly. There are obviously all kinds of chains and different kinds of suppliers. Some contribute an entire system, including development. They develop a door panel and do the testing, too. But there are also component manufacturers and parts suppliers. In the context of connected production, we will intensify our cooperation with system suppliers, because the early phase of product development is important. We want integration to take place as early as possible. That way, we can align interfaces so that parts can be optimized collaboratively for lean, fast production from an early stage. That is how connectedness will increase. Having said that, Industry 4.0 will not fundamentally change the importance of our suppliers. They are already very important. What concrete research projects are you conducting, and with what goals? We are conducting projects to connect software. In the BMW Group, we work with project teams and without too much organization. Our Industry 4.0 strategy targets three objectives: First, projects in research and predevelopment. The collaborative robots in Spartanburg originally came from the predevelopment phase of production. We are interested in new, lightweight construction, a different kind of automation, new combinations of materials, easier fastening, and simpler concepts for shorter production lead times. Second, we refine and improve ideas in the routine setting of volume manufactu ring. We are currently investigating how we can deploy these elements for future model series and products: building smart networks to tap quality, cost and one-time expenditure potential. Third, we work with elements of Industry 4.0 in relation to the planning of new product projects and new production structures. THE BIGGEST PRODUCTION FACILITIES IN THE BMW GROUP Adding value around the globe: Spread across four continents, the eleven biggest BMW facilities are located in the USA, Germany, the UK, Austria, South Africa and China (vehicle production in thousands per year). Oxford is the home of the Mini. 342.6 Dingolfing 297.3 295.5 Spartanburg Regensburg 247.3 Munich 186.7 176.0 Leipzig Oxford 126.9 125.6 Dadong Graz 65.6 Rosslyn 3.0 88.0 Tiexi Goodwood USA GB D A RSA CN Source: BMW Group THINK ACT // COO INSIGHTS IndustrY 4.0 27 iew Interv rüger K Harald Can you explain that in a little more detail? Let me give you an example. We are currently expanding our international production network, including a new plant in Brazil and one in Mexico. The factory in Spartanburg is also being ramped up significantly. New production structures are emerging that will take the online simulation of lead times and processes to a higher level. At an earlier stage and more intensively, we are mapping aspects of traditional technical planning into a connected, digital planning base that involves the suppliers. If we build a paintshop, for example, we commission a large plant engineering firm to deliver the whole thing. For BMW, the OEM, the important aspects are the lead times, the cool-off times, the stability of the entire production chain. A ssembly processes are another example. We will leverage the benefits of collaborative robots to make our vehicle assembly more productive in other locations, too. Does that pay off? If you look at the example of Spartanburg, it certainly does! The production workers are delighted. Right now, we are evaluating the potential, we are learning. Industry 4.0 is all about ongoing development and improvement. It is early days, but the initial signs look very positive. Workers will obviously be delighted if a robot carries the doors for them. But is the commercial manager in you equally delighted? He is indeed. Efficiency and productivity are always important to me. Point number one: This robot technology is very reliable. I am not at all delighted when production gets disrupted. We produce a new car every 60 seconds, so every second of downtime is a loss to us. Point number two: Everything can be implemented and integrated much more quickly. We need fewer big superstructures, no safety bars and no cages. Our new robots are small and flexible. It takes less time to integrate and switch them, so they can even be deployed 28 more quickly in new production settings. There are several aspects of this technology that I get excited about. How do you rate the overall potential of Industry 4.0? I don't think there will be a digital leap of 20 to 30% in productivity. But I am happy about small, day-to-day productivity gains. Just 5% would be a lot if you map that onto two million vehicles a year. We build about 8,000 cars a day, so our responsibility is to be efficient day in, day out. In your capacity as Chief Production Officer, where do you see other positives from the introduction of Industry 4.0? There are three good arguments for Industry 4.0: One is the demographic "Three good arguments for Industry 4.0: demographic change, time savings, quality" change in Germany. At BMW, the number of employees aged 50 and over is steadily increasing. Optimized ergonomic relief means efficiency gains thanks to a healthier work force. The second is speed. Today, we want to get products to market quickly and rapidly expand production capacity whenever the market demands that we do so. Less effort thanks to digital connectedness and improvements at the interfaces between subcontractors, system suppliers and OEMs saves us time – a genuine competitive advantage. The third argument has to do with quality and reliability. THINK ACT // COO INSIGHTS IndustrY 4.0 Customized mass production – another promise of Industry 4.0 – should be nothing new to you. In theory, there are more possible variants of every car than BMW ever sells. Yes, we do have a very large number of variants. But Industry 4.0 will give us still greater flexibility. We assemble our 3 Series, for example, in South Africa, China, Munich and Regensburg. So if I can relatively quickly slot a new technology into place at four locations, hook them up globally and get them working reliably, that opens up considerable potential. Simulation covers not just production, but also the logistics, all flows of goods and all delivery concepts. That way, you can quickly see whether an extra door panel variant also requires new logistical processes or a bigger warehouse. Which brings us back to thinking in terms of systems. Industry 4.0 will make that far more vital, requiring staff who have an extensive range of skills and who enjoy forging links between technology and IT. Speaking of which: Is information technology increasingly taking control of production in Industry 4.0? Industry 4.0 adds to the importance of IT, but that does not constitute a fundamental shift. We already have lots of people working at the point where IT dovetails with traditional production planning. The BMW Group has always seen that as part of its core competency. Will BMW acquire IT specialists if necessary? We will always give top priority to developing our in-house IT expertise and recruiting graduates and researchers from universities. The proportion of employees with a knowledge of software is tending to increase as a function of the rise in in- vehicle electronic content. Internationalization, too, is driving much greater connectedness. If you are building one type of vehicle at multiple sites, you have to have those bases covered globally – in the bill of materials systems for logistical purposes, for example. Ultimately, production planning has itself become a much more globalized discipline. Photo: Thomas Dashuber "It is early days for Industry 4.0, but the initial signs look very positive." Who is responsible for driving this issue at BMW? The CFO, who is looking to cut costs? The CIO, who sees his or her position becoming more imp or tant? Or you, the Chief Production Officer? I believe each of us will drive this issue within our own sphere of influence. That is also something we do together as a company. To take one example: The head of technical assembly planning at the BMW Group used to be in charge of production IT. He was the one who made the infrastructure and, in particular, the application software available. Now he is responsible for the technical planning of assembly activities. That helps him achieve the targets I set him for absolute and relative production costs, for one-time expenditures and for capital spending. He is familiar with both sides. It is not unusual to have people at BMW change their perspective in this way. One department or one function alone cannot leverage the full potential, which is why it is so important for people to work well together. People are the drivers of connectedness. Without their curiosity about new things, we would never have seen carbon fiber-reinforced car bodies, for example. The requirements placed on your team are changing. What is changing for you personally? How do you deal with new assignments? One of the things asked of me is that I concern myself with this issue more intensively in order to better understand the potential of Industry 4.0. Why? Because I have to implement it in new product and structural projects, or pass it on as a target for others. I have to weigh up the opportunities and risks. I also ask myself where we might be able to engage in other forms of collaboration with universities and suppliers, and what that might mean for the BMW business model. Lastly, I apply myself every day to internationalizing the BMW Group network. It is of no use to me to have a perfect model factory in Germany if we ignore alternatives in other places. Are the structures in, say, South Africa so much different to the ones in Regensburg? They are, yes. In South Africa, local suppliers normally roll out smaller quantities than in Europe, where we are supplied by a number of large OEMs. That often leads to processes that are far less automated; and that is where commercial considerations come in. Last year, we produced over 60,000 cars in South Africa. Now, you might find that a given THINK ACT // COO INSIGHTS IndustrY 4.0 technology is worthwhile for 300,000 units, but not for this number. These are the same calculations we used to perform for automation when thinking about whether robots would pay for themselves given a certain volume and labor costs. What is your vision for digital production? We still have in mind this image of the collaborative robots in Spartanburg, which are essentially a form of ergonomic tool… which is just one sample application, because we are still right at the beginning. Okay, point taken. But are we also talk ing about pure machine-to-machine communication in which human workers have nothing more to do than use their tablets to watch what happens? We could also talk about vehicle-to- machine communication. At BMW, a lot of information is exchanged between the vehicle as it goes through the production processes and the machinery – all the quality, process and environmental data that is generated here and can be put to good use. Our vehicle knows what model it will be, what color it will have, what extras will be fitted. We may even be able to add further variants later in production. We simply have to remain open. 29 Iew Interv rüger K Harald And where, in your opinion, do we go from here with Industry 4.0? It is still too early to say exactly where all this will lead at BMW. That depends on so many factors. How will the technology develop? At what prices? Which processes can we model and which ones can't we? Take the haptic and visual properties of a car, for example: Does the vehicle look and feel like what you would expect of a BMW? Whatever happens, Industry 4.0 will not leave the people involved in manufacturing complex vehicles standing on the sidelines and merely monitoring automated processes on their tablets. Who do you believe has the edge in the international race for connected production? europe or the USA? Opportunities tHe LOGIC OF BMW'S SUCCeSS GLOBAL PRODUCTION, MORE MODELS, A BROADER SALES FOOTPRINT exist in both markets. The USA has a lot of innovative developments in application IT. In Europe, and not just in Germany, we have an unrivaled SME segment with many innovative smaller firms. We know suppliers and universities that are concerning themselves intensively with production logistics and production software. As things stand, Europe is more connected. I'm talk- FACtOrIeS A GLOBAL NETWORK OF ADDED VALUE NO. OF PRODUCTION SITES GERMANY REST OF WORLD 2013 19 8 2004 15 7 RollsRoyce 4 BMW 23 Mini 7 2013 34 RollsRoyce Mini 2 MODeLS NEW VARIET Y IN THE PRODUCT RANGE 1 2004 17 BMW 14 PreMIUM FOr ALL Full range: Models such as the i3, Mini Countryman and BMW X6 are targeting new swathes of buyers SALeS MORE BUYERS IN EMERGING MARKETS 2013 Source: BMW Group 30 2004 1.21 million PHOTOS: BMW GROUP 1.97 million iew Interv rüger K Harald Photo: Thomas Dashuber Talking to BMW Board of Management member Harald Krüger: Roland Berger Partners Jochen Gleisberg (at left) and Philipp Grosse Kleimann ing about research, predevelopment and production – not the development of services, but of real industrial products. But I am not saying things can't develop along similarly positive lines in the USA. What part does this kind of consideration play for BMW as a global enterprise that is only historically based in Munich? We are driven by a strategy focused on balanced global sales distribution. Production follows the market. In other words, we need a successful production base in all markets. That means employees who have the right skills, and partners and suppliers who connect and cooperate with us. Twenty years ago, when we set up Spartanburg and built up our operations there, many suppliers followed us and opened their first American branches. The internationalization of the market causes the supplier structure to internationalize with it. In the USA as in Germany and China, we strive to optimize our quality, efficiency and speed. The collaborative robot – by way of example – was introduced first in Spartanburg, but had already been used in Germany in research and predevelopment. That is how things will develop throughout our network. Is your head office still the breeding ground for such topics? We naturally have many good specialists in Germany. But our research effort has a global footprint. We have been running a Technology Office for development and production in California for more than ten years. We have another one in Japan. We receive fresh ideas from here and other parts of our global network, for trend scouting and production volumes, too. Innovation is no longer confined to just one place. Where do you see your international rivals with regard to Industry 4.0? I believe Europe is out in front on this score. That is what my view of Germany and the European networks tells me. We shouldn't be looking only at OEMs, though, but also at Europe's extensive supplier network. On the subject of industrial capabilities: Can smart technologies help Germany in particular corner a larger share of the value chain? I believe Germany has the chance to play a lead role in Industry 4.0. We have been through the arguments already, and there is also our strong plant engineering sector. Germany is giving the topic a great deal of attention. Via the agency of Acatech, for example, the BMW Group has been involved in drawing up recommendations for federal government on the implementation of Industry 4.0. But we must not underestimate global developments. Speed is also a factor in competition between locations. THINK ACT // COO INSIGHTS IndustrY 4.0 It sounds like everything is rosy in the garden. But what about the competition? Surely BMW has to get ahead and not just get connected! You always have to face up to competition. You do it again and again, day after day. Where we believe Industry 4.0 gives us a chance to gain a specific competitive advantage, we will seize that opportunity. But there is another side to connectedness: If you believe the opportunity lies in standardization, you need to achieve consensus. That is why we will see both dimensions. Where do you stand right now compared to other companies? I believe the BMW Group is not doing badly at all. But market transparency is only now beginning to emerge. As things stand, different companies attach widely differing significance to Industry 4.0. The spectrum ranges from "very important" to "nothing will change for us". Siemens sees itself as having reached Industry 3.8. What about you? We're not going to invent a name, because that would run counter to the philosophy of continuous improvement. For us, it is an important topic, and one to which we are applying ourselves intensively. We are only at the very beginning of a very pro mising development. But that is what makes it so exciting. Harald Krüger Born in Freiburg in 1965, studied in Braunschweig and Aachen, earned a degree in mechanical engineering from RWTH Aachen University in 1991. Joined BMW AG as a trainee in Technical Planning/Production in 1992. Involved as a project engineer in the build-up of the Spartanburg plant (USA) in 1993. Held various management posts in Munich and the UK from 1997. Appointed as a member of the Board of Management on December 1, 2008, initially with responsibility for HR and social affairs and later for the Mini, BMW motorcycle and Rolls-Royce brands and for after-sales. Has overseen production throughout the BMW Group as a Board member since April 1, 2013. At its meeting on December 9, 2014, the Super visory Board of BMW AG appointed Harald Krüger to become next Chairman of the Board of Management effective the end of the Annual General Meeting on May 13, 2015. 31 K P Is The fourth industrial revolution is be ginning to unleash its potential. What do businesses and economies stand to gain? And who will the winners be? | GROWTH ENGINE | | REGIONAL COMPETITION | Industry 4.0 outpacing the global economy Initial handicap for Europe Shares of the global ITC market (2013) 1 2 USA 27.1% EU 21.3% BRIC 18.7% | DIGITAL UNIVERSE | 62% GLOBAL GDP: USD 82 trillion Annual growth through 2020: 2.5% GLOBAL INDUSTRY 4.0: USD 13.1 trillion Annual growth through 2020: nearly 6% of the world's data traffic volume in the year 2020 will come from China and India. 3 32 THINK ACT // COO INSIGHTS INDUSTRY 4.0 54% | VALUE ADDED | | MARKET ANALYSIS | EUR 78 Billion in productivity gains (23%) are feasible in six German industries between now and 2025. Mechanical and plant engineering, electrical engineering and chemicals in particular stand to benefit from Industry 4.0, along with ITC, the auto industry and agriculture. 4 31% 26% 17% 15% | RESOURCE PRODUCTIVIT Y | USD 30 BILLION CAN BE SAVED OVER THE NEXT 15 YEARS IF THE USE OF INDUSTRY 4.0 TECHNOLOGIES ENABLES KEROSENE CONSUMPTION TO BE CUT BY 1%. 5 | CEO AGENDA | 4% INTENSIVELY Mechanical engineers Plant operators 7 6 45% NOT AT ALL Supply still has the edge Survey: "How intensively are you tackling Industry 4.0?" Established at top management level Survey: "Who at your company concerns themselves with Industry 4.0?" 52% SPORADICALLY Production Business management IT | GOVERNANCE | 41% OF RESPONDENT COMPANIES HAVE NOT YET APPOINTED SOMEONE WITH OVERALL RESPONSIBILITY FOR INDUS TRY 4.0 TOPICS. 6 34% SOURCES Wikibon; Roland Berger 2 Bitkom/EITO ICT Market Report 2014/15 3 IDC Study "Digital Universe", 2012 4 Bitkom/Fraunhofer IAO, "Industry 4.0 – Economic Potential for Germany", 2014 5 GE Report "Industrial Internet", 2012 6 Experton user study "Industry 4.0", covering German ITC decision makers, 2014 7 IDC, "Industry 4.0 in Germany", survey of German manufacturing companies>100 FTEs, 2014 1 33 Ctrl. P Additive Manufacturing alias 3D printing captures the imagination like no other production method. The most fascinating business models are rooted not in mass production, but in dynamic niche markets. There was certainly no lack of hype in the media and on the stock exchanges in New York and Frankfurt in 2013. Since then, expectations placed on the manufacturers of 3D printers have been toned down and are more realistic. Stock prices are trading sideways at best. Forecasts still point to a fourfold increase in the market over the next decade – to eight billion euros generated by sales of plant, materials and component manufacturing. That adds up to rapid growth from a narrow base: 3D printing machines account for less than 1.5% of the machine tool market. Yet even if the optimistic predictions come to pass, these machines are not going to replace any existing production technologies in the medium to long term. Most promising is not the mass market for metal or plastic parts. 3D printing – production technicians speak of generative or additive manufacturing (AM) – creates significant benefits for (very) 34 small series. It also opens the door to new business models. The latter derives from three disruptive paths: the rapid, low-cost manufacture of individual products; new geometries, materials and processes; and distributed production. All three will profoundly influence the production industry and both B2B and B2C business models. DIGITAL DESIGN: THE SKY IS THE LIMIT Compared to conventional methods, AM delivers a series of advantages. The fact that the CAD data is channeled directly into the part or component leads to extremely short process chains. Relatively little investment is therefore needed to distribute production. Batch size has no bearing on the cost of parts, which favors the production of highly specialized small series and prototypes. Nor do costs depend on geometric THINK ACT // COO INSIGHTS INDUSTRY 4.0 complexity, but are linked merely to the weight of the manufactured component. Virtually unlimited digital design options allow high-strength materials to be fashioned into new geometric forms that conventional production methods have never been able to cope with. New component functions can thus be implemented that further reduce lifecycle costs. New repair strategies for high-value parts save time and money. Resource efficiency improves, too, as production consumes exactly the quantity of raw material that corresponds to the weight of the finished part – no more, and no less. There are still a few clouds in the additive manufacturing sky, however. Severing the link between cost and batch size can be both a blessing and a curse. If parts that are currently rolled out in medium to large series were to be manufactured "as is" using 3D printing techniques, the unit cost would increase by a factor of between 10 and 50. The cost PHOTO: FRED SMITH ASSOCIATES NTI 3D PRI NG would quickly fall, of course, but not by enough to make up this discrepancy. Why? Because 3D printing knows no economies of scale. The first component costs just as much as the hundred thousandth component. Better leverage can be achieved with small series and prototype production. Robust prototypes can be rolled out overnight, without the need to procure complex tools. That shaves months off development and testing cycles in sophisticated industrial development programs. For highly customized products such as dental crowns, medical implants and even designer jewelry, 3D printing is already an established and competitive production method. If no tools are needed, industrial products can be manufactured on demand – and even outsourced to partners if necessary. 3D printers for metal components cost between 400 and 1.5 million euros, depending on the need for Application in medical engineering: The model shows how perfectly the 3D implant fits the aperture in the skull – an excellent example of advanced customization. THINK ACT // COO INSIGHTS INDUSTRY 4.0 35 NTI 3D PRI LIGHTER, FASTER, CHEAPER cient combustion processes allow aircraft, sports vehicles and racing cars to benefit from lower fuel consumption. General Electric, for example, has improved fuel injection nozzles for use in aircraft. SHORT CYCLES FOR CREATIVE IDEAS Customers can offset the cost of production against the far weightier factor of fuel savings during the product lifecycle. It is therefore no surprise that all the major aviation groups are working on 3D printed components, including efficient engines with new flow properties and optimized combustion. The first series production runs are expected in 2015. 2 R&D departments will likewise have to adapt the way they work to this new technology. Development timelines are shrinking from months to days. Creative ideas can be implemented in short cycles. Software is becoming more important than ever – as a tool to support development and production, but also as part of the product itself. Leading German manu facturers are thus taking a close look at the creative agility with which software giants control their development processes and reduce complexity using the empirical, incremental and iterative Scrum framework. Further new developments are conceivable: large, complex structures (aircraft wings), combinations of materials (metals and synthetics) and the combination of additive manufacturing with cutting machines (for turning, grinding and drilling). For production purposes, additive manufacturing is the next step in the digital transformation. Even as an industrialized niche technology, however, it will not lead to the demise of traditional methods. Additive manufacturing builds (or "prints") threedimensional parts in (additive) layers. Plastics, ceramics, glass, sand and/or metal are processed in line with the 3D data for the part which engineers create in a Computer-Aided Design (CAD) environment. The processes from design to production are more flexible, more efficient and less expensive – a prime example of the digital transformation taking place within the framework of Industry 4.0. 1 Airbus, for example, fits bionic cabin brackets made of titanium powder in its A350 aircraft 1 : These brackets are 30% lighter than their predecessors, and production generates 90% less raw material waste. Both production and operating costs are down as a result. 3 General Electric "prints" cobalt-chromium fuel injection nozzles for aircraft engines 2 . Every gram counts in motor racing, too. Made of aluminum powder, this partially hollowed upright joint from EOS 3 is 35% lighter and has 20% greater torsional rigidity. 36 THINK ACT // COO INSIGHTS INDUSTRY 4.0 PHOTOS: AIRBUS GROUP; RENNTEAM UNI STUTTGART; GENERAL ELECTRIC quality, overall dimensions and build rate. Professional systems for plastic parts production start in the tens of thousands of euros and can go up to six figures. The quality of these professional systems is vastly superior to the "home printers" that sell for a few hundred euros. In the B2B segment, a highly specialized infrastructure has sprung up in which service providers optimize customers' parts and handle the actual production. Web platforms such as shapeways.com and manufacturing.materialise.com also serve the B2C segment. Using AM becomes especially lucrative where a product's costs, such as repair costs, can be reduced over the entire lifecycle. Siemens, for example, grinds down worn out gas turbine burners and rebuilds them using additive methods. More lightweight designs and more effi- NG N E A S T E RS E PROMI PREPARING A PHOTO: ISTOCKPHOTO BY GETT Y IMAGES TOUR DE FORCE To realize China's ambitious plan to become a global high-tech supplier, the government and the corporate community are driving the implementation of Industry 4.0 concepts. Yet the country still faces daunting hurdles. THINK ACT // COO INSIGHTS INDUSTRY 4.0 37 N E A S T E RS E PROMI T he Hannover Messe trade show in 2011 prompted the first stirrings of change. Chinese firms, government officials and industry associations feasted their eyes on new approa ches to smart production: Industry 4.0 prototypes developed by leading German companies. Curiosity quickly morphed into vision. Chinese industry experts report that Industry 4.0 has since been understood as an opportunity to raise broad swathes of the country's industry to a new technological level – a level of intelligent, digital, webbased business models and production methods. HUMAN WORKERS WILL STEP BACK If that is to happen, however, the country must take a huge leap forward in technology. Domestic experts describe the new era thus: Production will shift away from the time-honored model of "people analyzing and deciding and machines producing", moving instead toward the organizational principle that "machines analyze, decide – and produce". The human factor very definitely recedes into the background in this equation – a distinctively Chinese take on the theme of Industry 4.0. By contrast, experts in Europe believe that skilled workers will remain indispensable even in the new epoch of digital, connected production. Accordingly, the Old Continent is already debating the kind of education and qualifications that Industry 4.0 businesses will need. Time will tell who is nearer to the truth. Either way, Chinese industrial companies can be sure to enjoy the fullest backing of the state. As early as 2012, the Chinese Ministry of Industry and Information Technology published its 12th Five-Year Plan, part of which is devoted exclusively to high-end equipment manufacturing and intelligent production. The term Industry 4.0 is not mentioned explicitly. Nor did the original definition of intelligent production 38 include combining production with the internet. However, the concepts and measures since developed do indeed very closely match Industry 4.0 approaches. According to the government's 2012 plan, China's industrial sales are to grow by an average of more than 25% per annum and should top one trillion yuan for the first time in 2015. A volume of more than three billion yuan is projected for 2020. Intelligent production is to be one of the drivers of this growth. A more sober analysis of China's industrial base nevertheless shows that a wide gulf still separates this vision from reality. One striking macroeconomic fact is that, for all the country's political and economic endeavors in recent years, its manufacturing industry continues to lag far behind competitors in the Western industrialized world when it comes to accumulating technological expertise and putting it into practice. Most Chinese manufacturers still compete only on products that add little value and generate thin margins. China's share of the markets for high-end and special sensors, intelligent instruments, automated and digital control systems and robotics products, for example, is less than 5%. Most companies are still some way away from being able to assert themselves on the global market as system and solution providers. Compared to Western rivals, their capabilities to innovate are modest at best. On the microeconomic level, most Chinese companies are still in a transitional phase from Industry 2.0 (production without the use of digital technology) to Industry 3.0 (production involving basic digital technologies). The competence gap is equally apparent from the lack of transparency in internal information and the piecemeal design of information systems – not to mention the mismatch be tween standards and actual processes, as well as the fact that some industrial processes are heavily dependent on individual behavioral patterns. Even in companies THINK ACT // COO INSIGHTS INDUSTRY 4.0 that have completed the transition to extensively connected information technologies, data management cannot be described as satisfactory. To date, a number of Chinese firms have, for example, neglected to use data mining to leverage the benefits of intelligent production. THREE STEPS TOWARD 4.0 To help companies quickly lay a firm foundation for expansion in the direction of Industry 4.0, the experts at Roland Berger recommend a three-step roadmap. The first challenge is to optimize both the manufacturing base and capacity in research and development, to ramp up quality controls and to advance employees' development and education. At the same time, companies must nurture the credibility of their products and cultivate brand awareness. If they want to narrow the technology gap to Western competitors, they must develop a new agility with the aim of leveraging product and process innovations to fuel faster growth. Second, leading manufacturers must be encouraged to consider the development of Industry 4.0 especially in sectors in which they are internationally competitive – in components and plants for power generation, transmission and distribution, for instance. Market prospects are similarly promising in mining and in agricultural machinery. Manufacturing, however, remains at the core of Industry 4.0, driving development toward the end-toend digitization of production. Global leading players are already using the Industry 4.0 concept for remote diagnostics, predictive maintenance and other intelligent processes, products and services that are gaining ground on the Chinese market. Domestic firms would do well to take this to heart. Chinese companies that boldly and resolutely back Industry 4.0 are already reaping the first fruits. One of them is the Daquan Group, a digital monitoring tech- COMPARATIVE VIEW OF 4.0 IN EUROPE IN THE MIDST OF A TOUR DE FORCE Four clusters, four leaders – China does not yet make the cut. RB Industry 4.0 Readiness Index 5 Germany Belgium Finland Sweden Denmark 4 Ireland FRONTRUNNERS Netherlands POTENTIALISTS Austria UK France 3 Czech Republic TRADITIONALISTS Slovakia Slovenia Hungary Italy Spain Estonia 2 Lithuania Portugal Poland HESITATORS Croatia nology specialist whose remote-controlled transformers have made quite a splash. Another is the Shengyang Machine Tool Group, which launched mass production of a new generation of intelligent cloud-based machine tools in 2014. Third, governments, associations, universities, research organizations and other stakeholders must observe market principles more closely. Here are a few suggestions: The Chinese government could drive the development of industry standards, complementing this strategy by creating tax incentives to modernize industry without distorting competition. Industry associations could support companies by providing advanced training courses and promoting cross-industry dialog regarding the implementation of Industry 4.0. Universities and research organizations could work together more closely to come up with new and intelligent Industry 4.0 solutions. Industry 4.0 is nothing short of a culture change that will demand a veritable tour de force on China's part. China Bulgaria 1 1 2 3 4 5 Manufacturing as a % of GDP While China warms to the idea of Industry 4.0, many industrialized countries in Europe have already moved on. The Roland Berger Industry 4.0 Readiness Index (see vertical axis) shows that the field is still patchy. On the one hand, we grouped the state of development in production processes and automation, employees' level of education and the intensity of innovation together under the heading "industrial excellence". On the other hand, the value added, the openness of the industry, innovation networks and digital maturity were also bundled together. Combining the evaluation of the individual scores determines a country's position in the "RB 4.0 Readiness Index" – from the hesitators to the traditionalists, from the potentialists to the frontrunners. THINK ACT // COO INSIGHTS INDUSTRY 4.0 39 CYBERCRIME The invisible threat 40 THINK ACT // COO INSIGHTS INDUSTRY 4.0 r acula Spect oopholes rity l secur daily cybe be make appear to alls s itf threat rm. Most p ted. c the noain undete can rem mpanies fend Yet co tion to de c take ahemselves. t A t the latest since the Stuxnet worm attacked a production automation system in an Iranian nuclear facility in 2010, traditional value chains have lost their cyber-innocence. We have a few things to say on the subject. PHOTO: F. SCHMIDT/FOTOLIA COMPANIES' SECURITY IS AT RISK Three developments sparked off the current debate about data security. First, traditional IT is permeating every business process to an ever greater ex- tent. Advances in the virtualization and digitization of business processes, electronic interaction in networks with suppliers and customers, and the consumerization of IT – the tendency to follow habits of use that stem from the world of personal smartphones and tablets – are driving this development. Second, the public at large has become more aware of existing weaknesses. We analyzed the associated problems in a 2010 Roland Berger and SAP study of success factors for cloud services in Europe. Managers outside this community are likewise gradually becoming aware of the THINK ACT // COO INSIGHTS INDUSTRY 4.0 threats – thanks to the revelations of Edward Snowden, the debate about stolen intellectual property in the context of industrial espionage, and the role the internet has played in geopolitics (such as in the Ukraine crisis and the "Arab Spring"). As widely as these examples differ, they have nevertheless prompted decision- makers around the world to put the topic of data security high on their agenda. Third, numerous web-based digital business models have become established in relation to connected vehicles, e-commerce, e-health, e-energy and In dustry 4.0, for example. Although tradi41 CYBER CRIME DATA SECURITY CHECKLIST 1 Analyze where and how you are exposed to THREATS. 2 Cultivate security AWARENESS. FEWER DISRUPTIONS, MORE PROFITS 3 Build security systems and processes with clearly defined RESPONSIBILITIES. 4 Verify your company's COMPLIANCE, both internally and in collaboration with suppliers. 5 Change your organization's MINDSET. Nurture a philosophy that integrates security from the earliest stages of product design. 6 Lead by EXAMPLE. tional security management is a mature discipline in commercial IT circles, these digital business models still raise new questions: Is enough being done in the development of connected vehicles to rule out unauthorized electronic access? Are the manufacturers of aircraft, power plants and production lines taking adequate precautions to ensure that embedded software components from third parties are innocuous. Is companies' most valuable intellectual property really safe? TOP MANAGEMENT NEEDS TO RESPOND New digital lines of business often lack clear security guidelines, organizational 42 systems as necessary. The third thing they must do is map out comprehensive and sustainable systems, processes and spheres of responsibility. For those areas that are currently unguarded, management systems for data security must be established or adjusted. principles and management tools. There are three things businesses must do to institutionalize a high level of security in their organization. The first is to gain a clear picture of the threats and weaknesses inherent in the value chain. We advise companies to identify risks from two perspectives: from an end-to-end process view; and in light of all company's key assets, including intellectual property, proprietary process knowledge, physical and digital products and the principal components thereof. Second, having achieved transpar ency, firms must prioritize the need for action. Above all, they must quickly set up initial solutions to deal with urgent white spots, defining or adapting security THINK ACT // COO INSIGHTS INDUSTRY 4.0 Preparing a business case for security is not easy. Some threats – such as production outages – are comparatively easy to quantify. Putting numbers on other risks is much more difficult, how ever, with the loss of human life due to product defects topping the list. Yet damage to the company's reputation and/or its brand value is equally hard to pin down. Statutory and regulatory compliance requirements are many and varied, especially for top managers and governing bodies. It is therefore vital to strike a fine balance between robust quantitative analysis and qualitative management assessments of risks and their impact. As hard as it is to cost a business case for investments in data security, it is a worthwhile exercise. The true returns are measured in terms of minimized incidents and disruptions. SIMPLE GUIDELINES CAN HELP A few pieces of guidance and advice to companies and their employees can make a huge difference to data security. Don't overdo the rules and procedures. Leave a balanced measure of flexibility between the needs of your operating business and the requirement for data security. Ultimately, even when faced with potential threats, your company still has to be able to act quickly and flexibly on the markets it serves. More security must not come at the expense of agility. IEW INTERVOTTI B JEAN "Companies have become more vulnerable" PHOTO: AIRBUS GROUP I, B O T T al N A J E echnic T us Chief TO) of Airb lists r (C Office p, even en sters Grou vvy young t a ns tech-sguard agai . ks to ity ris secur Monsieur Botti, Industry 4.0 means more and more interfaces to the outside world. That increases the threat to security. How does Airbus Group deal with this situation? Security is very important. It is a critical factor to which we give top priority. But if we are honest, we have to admit that you will never have total security. We will never have 100 percent, bullet-proof production, and none of our competitors will either. Everyone has to ask themselves what price they are willing to pay for security. Our strategy is to identify the crown jewels and set THINK ACT // COO INSIGHTS INDUSTRY 4.0 p riorities. We have improved the situation significantly and we have limited the level of risk. How do you adapt to the threats? Within this enterprise, harmonized processes, methods and tools lead to greater efficiency and security in aircraft develop43 IEW INTERVOTTI B JEAN ment and production. But also the data exchange with our suppliers in the socalled "extended enterprise" has to meet highest security standards. Which means? The first question is: How do you get the data back and forth? How do you protect it? To answer this question, the Airbus Group joined forces with other big players in 2008: Thales, Dassault and Safran. We called the project "BoostAeroSpace". What was the project focus? The main purpose was to set up a secure digital hub where we can exchange data on both sourcing and engineering. That speeds up the deployment of electronic processes and tools from the OEM to our suppliers, "We work together with top notch experts. That is extremely helpful." 44 most of whom are SMEs. Further companies such as Liebherr Aviation have joined the hub, too. A recent survey said that companies suffer from more than 120 successful cyber-attacks a week. What is the figure for Airbus? We don't want to disclose that information. But no major company will seriously claim to have been spared this kind of threat so far – except where the threats go undetected. And how do you protect yourself from these threats? A year ago we put together a cyber-security board, which I am chairing, to protect our interests – our in formation and products – as best we can. All key stakeholders are represented on this board. We also have the people in charge of cyber-security at Airbus Defense and Space. That used to be a p urely IT topic, but it has become much broader now. Indeed, it ranks among the eight most important goals for our company in 2014. We have set a clearly defined budget for security. How much do you spend on security every year? Believe me, it is a lot of money. And it is absolutely necessary. Airbus Group is a European company with many stakeholders. How do you tackle the problem of security on an in ternational level? To be frank, it is scar cely possible to please everybody. In the US you have one federal government to deal with. In Europe it is a bit more complicated: There is Germany, there is France, the UK and Spain; and each government has its own specific agenda. So we don't have a unified structure within which we protect our data. We are always having to respond to varying demands from different countries. Do you believe data security is driven more by regulation or by concrete threats? It is driven by both. Of course we cannot ignore what our governments want. Authorities formulate very specific THINK ACT // COO INSIGHTS INDUSTRY 4.0 requirements – France in particular, if it is defense we are talking about. We have to find sensitive answers to their questions. At the same time, we also have to deal with concrete threats day in, day out. Regulation adds to the complexity, but we have a clear strategy. The link between IT and process security on the one hand and product security on the other hand is vital for us. Does that change the role of your suppliers? We rely on very close relationships. Every supplier of software for passenger aircraft now has a digital signature and is part of our Aircraft Security Management System. Irrespective of whether they deliver just a small piece of software or any other part of the equipment for our aircraft. Do your suppliers differ in terms of security awareness? Not all suppliers are like Safran or Rolls-Royce. Some don't have the money to guarantee nogaps security for their own systems. That is why we help SMEs to protect themselves, which is ultimately in our own interests. Hackers will always look for the weak links. BoostAeroSpace provides SMEs with a level of security that is indispensable to us in a 4.0 setting. Has the threat become more serious or just more complex in recent years? It has become both more complex and more serious, because hackers are growing more intelligent, tricky and sophisticated all the time. Companies have become more vulnerable, and that demands a different approach to what we used to do in the past. Who poses the greatest threat to you? You read the newspapers the same as I do. Some players are more vulnerable to product piracy and cyber-attacks than others. We used to see fairly simple attacks on a small scale, but what we are seeing today are threats on an enormous scale. We talk about an advanced per- A CTO IN HIS FIELD THE SECURITY ARCHITECT JEAN BOTTI, born in 1957, master's degree and PhD in mechanical engineering, Toulouse/Paris, MBA in Michigan; Chief Technology Officer of the Airbus Group and member of the Airbus Group Executive Committee since 2006. Botti has previously worked with Renault, General Motors and automotive supplier Delphi in the USA and France. THE NETWORK PHOTO: AIRBUS GROUP THE AIRBUS GROUP operates at more than 170 locations worldwide, employs around 140,000 people and has machine maintenance hubs on five continents. Airbus gives work to 35,000 suppliers on its domestic markets alone. The volume of external delivery agreements – nearly 40 billion euros – equates to almost two thirds of Airbus' revenues. sistent threat, from outside. Attacks are often coordinated, concealed and come from different directions. That makes it difficult to generalize. It must have come as a shock last year when German security consultant Hugo Teso showed how easy it was to remotely attack an airplane's communication system. All he needed was a radio trans mitter and some software he had bought on eBay. It wasn't a shock. What he said was wrong, for several reasons. He was never able to take full control of an airplane. However, the mere fact that he was a smart hacker with a pilot's license made his scenario extremely credible, and we were obliged to react. How? We have been working together with top notch experts for more than ten years. That is extremely helpful. The Airbus team in charge of aircraft security is always open to discussions about potential weaknesses. We have conclusively proven to the aviation safety authorities that everything is okay. I have every reason to trust in the work we do and the competent people we have on board. We are doing everything in our power. The threats are changing constantly. How do you learn about new security gaps? To give you just one example: We work together with tech-savvy young THINK ACT // COO INSIGHTS INDUSTRY 4.0 sters who help us recognize future threats – to anticipate them rather than merely react to them. That is especially important because airplanes have such a long lifecycle. How do you make sure that you always keep your nose in front? Our people are highly connected, they are top-notch specialists and they know the hacker scene. It is a small world. Lots of experts work for us. They spend half of their time working on a certain product or for a certain division at our company. The other half they devote to attending prominent events in the USA, France, Germany, the UK and sometimes even China. This was an important condition when we recruited them. We normally look for experienced specialists, but not in the field of cyber-security. Here, we look for younger people, because we need creativity more than anything else. Do you coordinate with competitors to ward off criminal attacks? That's not easy. We have tried to agree on harmonized security standards. We engage in intensive dialog with our competitors, especially with regard to aircraft security. Every year, Airbus hosts an Aircraft Security User Panel that is attended by various players in the industry. Future threats, common standards, past experience, customary solutions are all discussed in this forum – with out excluding competitors from anything. We also participate in the Aviation Information Sharing Working Group, a US-led initiative whose aim is to encourage industry and governments to share ideas on the subject of data s ecurity. And the outcomes? When it comes down to the details, many companies keep their cards close to their chest. So we first try to resolve our problems internally. Looking ahead, I see an urgent need for us all to collaborate and strengthen each other. That is something we still need to ingrain in our culture. 45 COO WORKSHOP | ROLAND BERGER INDEX | IS YOUR COMPANY READY FOR INDUSTRY 4.0? What must companies do to boost their efficiency, quality and speed as they implement Industry 4.0? How can managers tap their company's potential? On top of its economic maturity index (see p. 39), Roland Berger Strategy Consultants has now also prepared an analytical index for managers and e ntrepreneurs. The four most important factors are infrastructure, processes, data traffic and work models. These factors enable us to calculate a com pany-specific maturity index value highlighting how all departments must pull together. Our study is due out at the beginning of 2015. COMPANY ANALYSIS BASED ON ROLAND BERGER'S MATURIT Y MODEL FOR INDUSTRY 4.0 (generic model) ELEMENT INDICATOR INFRASTRUCTURE Sensor technology LEVEL 1 Industry 3.0, basic digital capabilities LEVEL 2 Maturity, but principles of Industry 4.0 not implemented ● Use of precision engineering technology Production design Planning and control ● ● ● Logistics Maintenance DATA WORK MODELS ● ● Internal data integration External interfaces ● ● Flexible work force ● Management models 46 Industry 4.0 implemented ● Flexible production plant PROCESSES LEVEL 3 ● THINK ACT // COO INSIGHTS INDUSTRY 4.0 COO P HO WORKS 77% | STRATEGY | ENGINEERING Western European companies' sales and engineering footprint 41% SALES | ENGINEERING EFFICIENCY | More efficiency, please! As Western European companies enlarge their footprint throughout the world, the question of how best to serve local customer needs takes on new urgency. Three typical mistakes are often made when entering a new market: 1. Developing products that are too complex for emerging countries 2. Failing to ensure that products are suitable 712 2003–2013 350 1973–1983 for the mass market 3. Allowing an imbalance to arise between sales on domestic markets (41%) and the personnel expenses incurred in development in these markets (77%). Our "Engineering Efficiency 2014" study outlines a roadmap to more marketable technologies and more customer-orient ed products. | TECHNOLOGY GROUPS | GIANTS'END? Change or die? HP is splitting its business, eBay is jettisoning Paypal, Facebook wants to be rid of its Messenger. Technology magazine "Wired" concludes that the important thing is to focus on one thing and do it really well. 350 companies dropped out of the Fortune 1000 between 1973 and 1983. Between 2003 and 2013, the number was 712. The half-life of bu sinesses is declining. Agility is the order of the day, and is rewarded by investors in companies big and small. Industry 4.0 creates conducive conditions. THINK ACT // COO INSIGHTS INDUSTRY 4.0 LEARNING FROM NETFLIX Today's companies must make complex strategic decisions against a backdrop of unprecedented uncertainty. Digitization, growing uncertainty about political regulation, the need to manage emerging markets and the need for organizational agility are just some of the many imponderables. Charles Edouard Bouée, CEO of Roland Berger Strategy Consultants, recommends a strategy that has proven its worth in military contexts: light footprint management. It emphasizes agility, speed, responsiveness and the efficient use of resources. Ignore change and you risk falling into the "Kodak trap" of missing out on transformation. Drawing on the experience of champions such as Netflix (innovation), Haier (reorganization) and P&G (collaboration), the "Mastering 2020" study spells out seven key principles of adaptability. www. rbsc.eu/mastering2020 BEYOND MAINSTREAM Mastering 2020: How light footprint management helps prepare you for a world of uncertainty REVOLUTION Developing new models EVOLUTION Upgrading existing businesses MASTERING 2020 How to get prepared for the VUCA world with Light Footprint management FEBRUARY 2014 47 | COST-CUT TING | Unexpected obstacles What steps does a cost-cutting project typically involve? What obstacles might you encounter? What are the success factors? Savings of up to 30% are possible – thanks to standardiza tion, design changes, renegotiation with suppliers and leaner production. Our concept can be mapped onto all product phases. PRODUCT FUNCTIONAL OPTIMIZATION •Product portfolio •Functional scope STANDARDIZATION •Simplification of design •Standardization of parts •Reasonable quality requirements PURCHASING MATERIALS •More professional material purchasing •Dual sourcing PRICE NEGOTIATIONS •Product cost benchmarking for contract negotiations PROCESSES ASSEMBLY • Simplification of processes based on product redesigns •Changes in process technology PRODUCTION •Changes to the production process •Material substitution •Process reengineering SUPPLY CHAIN LOGISTICAL OPTIMIZATION •Simplification of logistics and transportation •Optimization of both suppliers' and in-house inventories •Localization of production facilities •Synergies across different development/production sites 36% vs. 57% x2 59% vs. 11% Employees in the most digitally advanced companies are 50% more satisfied with their working life than their peers at poorly digitized firms. Paradoxically, consumers evidence greater digital maturity than companies. 59% of French people shop online, but only 11% of French companies sell online. The most digitally advanced companies are growing six times faster than firms with the lowest level of digital maturity. | DIGITAL TRANSFORMATION | NEW OPPORTUNITIES FOR FRANCE Commissioned by Google, a new study by Roland Berger France assesses the economic and social potential of the digital transformation. The publication was produced in collaboration with Cap Digital, a digital economy industry association, and is based on a survey of more than 500 French companies that each employ more than 50 people. www.rbsc.eu/digitransformation www.rbsc.eu/opsradar 48 Untapped growth potential: French companies have doubled their sales growth by accelerating their digital transformation. 50% x6 57% of firms rank the digital transformation as a strategic medium-term priority. Yet only 36% have formalized a digital strategy. THINK ACT // COO INSIGHTS INDUSTRY 4.0 COO P HO WORKS | STAYING COMPETITIVE | Escaping from the commodity trap When even complex products and services degenerate into effective commo dities, a company has fallen into the commodity trap. Scope for differentiation is limited and competition is primarily price-based. Innovation, quality VERY LOW LEVER EFFECTIVENESS/ LEVEL OF USE VERY HIGH Effectiveness Level of use Differentiate products through innovation Add value to products with services Improve product and delivery quality and the business model are the three main rungs of the ladder to climb out of the commodity trap. The biggest discrepancy between the effectiveness of a lever and its application in practice concerns the realignment of business models and target costing/design-to- Strategically realign the business model Step up target costing/design-to-cost Design a more flexible organization Use marketing and sales tools cost. This study shows how firms can gain a fresh competitive advantage. www.rbsc.eu/commoditytrap Focus on special market segments Realign the company portfolio | E-LEARNING | SPOCs Small private online courses SOOCs Selective open online courses (Participants can be chosen based on prior qualifications and/or their employer, for example) TORQUEs MOOCs Tiny open online courses with definite restrictions, focusing on quality and effectiveness Massive open online courses ALL CHANGE IN CORPORATE LEARNING Online tuition technologies can help companies become more agile, adaptable and able to learn. The most important areas of application are not free mass course offerings ("MOOCs"), however, but personalized and individualized educational offerings that encourage lifelong learning. The rules that govern the corporate learning value chain are changing as silo mentalities that thinks in terms of departments, business units or individual enterprises are gradually torn down. www.rbsc.eu/corporatelearning THINK ACT // COO INSIGHTS INDUSTRY 4.0 49 S LAST F A M O UR D S WO MAN OR MACHINE: WHO WILL BE IN CHARGE OF PRODUCTION IN THE FUTURE? An essay by Andreas Neef 50 In a mature Industry 4.0 scenario, new professions and training concepts will emerge. System architects are the "brains" of Industry 4.0. They will combine traditional engineering skills with software excellence and the vision of a game designer. They will create a framework and rules under which the self-organization of production will take place. CONFIGURATORS AND CONTINUITY ENGINEERS Configurators will use intelligent interfaces to adjust systems to local conditions, but without needing to tackle the complexity of the processes. They are the users of the digital factory, who recognize errors and can adjust the parameters to the specific situation, but without having to exercise centralized control over the entire process in the traditional sense. Continuity engineers will be responsible for avoiding downtime and ensuring that value-adding processes don't stop, even if there are failures. They will provide ad-hoc solutions to minimize any damage from interconnected risks and combat the threat of cascade effects should any production stage crash. Operating decisions in Industry 4.0 will increasingly be made by the systems themselves, not only because of the complexity of data networking, but also to conTHINK ACT // COO INSIGHTS INDUSTRY 4.0 trol risks. If there are problems at a supplier, essential primary products can be automatically ordered from other providers using an industry platform. Production processes can then be kicked off there in real time. This will change relationships in the industrial ecosystem. Just like social networks have changed the social concept of friendship, relationships between companies in Industry 4.0 will be more diverse, looser and volatile. Simultaneously, openness in terms of cross-company collaboration and the integration of data across processes will be necessary to actually realize value-creation potential. Significant spatial density and a diversity of industries, skills and company sizes provide the ideal setting for establishing such a highly flexible production system. Europe is relatively well positioned. From a global perspective, we can expect new production clusters to be formed not by industry homogeneity, but by virtue of adaptability and complementary competences in close physical proximity. The paradigm shift to Industry 4.0 means the cards will be reshuffled on all levels. Andreas Neef is the Managing Partner of Z_punkt The Foresight Company. A highly regarded management consultant, Neef is the author of a study entitled "Connected Reality 2025 – Die nächste Welle der digitalen Transformation" (The next wave of digital transformation). Download: www.z-punkt.de ILLUSTRATION: BEN KIRCHNER I ndustry 4.0 is an industrial ecosystem, the heart of which are intelligent software systems that enable highly-efficient and adaptive production through autonomous cyber-physical systems. The shift to this new paradigm is forcing a change in people's role in the industrial value chain. Where today technical expertise, experience, human judgment and discretion are mandatory even for highly automated production processes, these skills will hardly add any value at the point of production in the real-time logic of future hyper-flexible production structures. Let us not deceive ourselves: As with every wave of industrialization, Industry 4.0 will also destroy jobs over the long term. This time, however, it will be jobs that require experience – skilled labor and middle management positions – that the machines replace. This is because expertise, practical experience and the ability to make sound operating decisions will be embedded in system logic itself. Sensory technology and self-teaching software will permit cyber-physical systems to increasingly improve their assessment of situations, learn from them and then independently optimize processes. For all the risks it poses to the labor market, this also provides us with the opportunity to keep industrial value creation in Europe, despite a shortage of skilled professionals. SERVIC PUBLISHING INFORMATION PUBLISHERS Thomas Rinn / Max Blanchet Senior Partners Roland Berger Strategy Consultants GmbH Sederanger 1 80538 Munich P.O. Box 40 21 49 80721 Munich +49 89 9230-0 www.rolandberger.de E OUR DIGITAL PUBLICATIONS: STAY UP TO DATE! RE AD OUR E N ONLI ON E DI T I ! RESPONSIBLE FOR CONTENT IN ACCORDANCE WITH GERMAN PRESS LAW Dr. Michael Zollenkop Our THINK ACT app features even more upto-date info EDITORIAL ADVISORY BOARD Alexander Belderok Max Blanchet Emmanuel Bonnaud Roberto Crapelli Martin Erharter Jochen Gleisberg Philipp Grosse Kleimann Manfred Hader Dr. Bernhard Langefeld Per I. Nilsson Thomas Rinn Carsten Rossbach Didier Tshidimba Michel Vlasselaer Wu Qi EDITORIAL TEAM Thomas Reinhold (Project Manager) Dr. Katherine Nölling (Chief Editor) Dirk Horstkötter, Andreas Lang DESIGN Blasius Thätter (Art Director) Ludwig Engl, Damaris Zimmermann Susanne Nips (Graphic Editor) COPYRIGHT NOTICE The articles in this magazine are protected by copyright. All rights reserved. DISCLAIMER The articles in this magazine do not necessarily reflect the opinion of the publisher. Do you have any questions for the editorial team? Are you interested in studies conducted by Roland Berger Strategy Consultants? Then please e-mail us at: [email protected] THINK ACT ONLINE HOW TO ACCESS THE THINK ACT APP Like all our THINK ACT publications, this issue of COO INSIGHTS is available online at www.think-act.com. For users of mobile devices, our THINK ACT app lets you access all online editions conveniently on your tablet – in some cases including multimedia elements such as audio, video and animated graphics, to keep you even more fully up to date. Our content is available to you any place, any time, and at no charge. Once you’ve downloaded it, you can also enjoy it offline. IPAD Search for "Roland Berger" in the iTunes App Store and then click the "Free" button to download the THINK ACT app. ANDROID Use Google Play to download our publications to your tablet. Just search for "Roland Berger" in the Play Store, install the THINK ACT app – and enjoy your read! Published in November 2014 THINK ACT // COO INSIGHTS INDUSTRY 4.0 51 © 2014 Roland Berger Strategy Consultants GmbH All rights reserved.
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