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M4.0: Optimism Remains High, But Implementation Lags

Posted By Jeff Moad, April 12, 2016 at 11:20 AM, in Category: Factories of the Future

70ad1eef0d53f16a636fe606af064d6e.jpgWhile manufacturers remain optimistic about the potential for Manufacturing 4.0 to provide their companies with enhanced operational effectiveness, many report having made limited progress implementing M4.0 initiatives, and the vast majority don’t have a M4.0 strategy or roadmap in place, according to a new study from McKinsey & Company.

The company’s second annual “Industry 4.0 Global Expert Survey” asked 300 manufacturers and technology providers in the U.S., Germany, and Japan about their expectations, plans, and achievements related to the ongoing digitization of manufacturing businesses. (McKinsey calls this Industry 4.0. The Manufacturing Leadership Council calls it Manufacturing 4.0.)

Forty-four percent of U.S. respondents to the McKinsey survey said they are more optimistic today than they were last year about the potential of M4.0. Only 10% said they are less optimistic today. Fifty seven percent of U.S. respondents said they expect their companies’ competitiveness to increase as a result of M4.0.

Optimism about M4.0 among respondents in Germany and Japan remained relatively unchanged compared to a year ago, with 50% of German respondents expecting 4.0-related improvements in competitiveness, and 54% of Japanese respondents saying the same.

In all three countries, manufacturers say they expect M4.0 to have a big positive impact on their companies’ operational effectiveness, but they are somewhat less focused on its potential to enable positive business model change. Ninety three percent of U.S. respondents said they expect M4.0 will improve their operational competitiveness, while only 87% in the U.S. said they expect it will impact their business model. The gap was even greater in Germany, where 92% expect operational improvements, but only 76% foresee significant business model change as a result of M4.0.

Many manufacturers—especially those in the U.S. and Japan—do, however, expect other companies to leverage M4.0 to enable business model change and to increase competitive pressure. Eighty one percent of U.S. respondents and 75% of those in Japan said they expect companies from outside their industries to use M4.0 to attack them and their traditional competitors.

Manufacturers in the U.S. and Germany say their companies are relatively ready to implement M4.0. Seventy one percent of U.S. respondents said so, as did 68% of respondents from Germany. In Japan, however, only 36% of respondents said their companies are ready.

Perhaps not surprisingly, manufacturers in Japan reported the least progress in implementing M4.0 applications and strategies over the past year. Only 16% of manufacturers in Japan reported having made good or substantial progress over the past year. Meanwhile, 56% of German manufacturers and 50% of U.S. manufacturers said they had made good or substantial progress over the past year.

Despite the relatively positive progress reports from manufacturers in the U.S. and Germany, many companies appear to suffer from organizational immaturity when it comes to implementing and supporting M4.0. Among all manufacturers surveyed, only 16% said they have an overall M4.0 strategy in place, and only 21% said they have assigned clear responsibility for implementing M4.0. Only 17% of manufacturers surveyed said they have a clear roadmap for implementing M4.0.

In all three countries, where M4.0 organizational leadership had been established, it was most often put in the hands of business unit leaders, not C-level leaders or IT leaders.

Manufacturers said their top 4.0 target was to achieve real time supply chain optimization. That was followed by digital quality management and remote monitoring and control.

Manufacturers, however, have so far not made much progress on their top M4.0 target. Real time supply chain optimization was not on the list of the top five areas in which manufacturers said they have made the most progress implementing M4.0. Top areas of M4.0 achievement were digital quality management, smart energy consumption, and remote monitoring and control.

Among manufacturers that have made little or no M4.0 progress so far, survey respondents reported a number or barriers retarding their progress. They included difficulty coordinating action across business functions, lack of courage to push through transformation change, lack of talent, concerns about cybersecurity, and inability to establish a clear business case.

Members of the Manufacturing Leadership Council report similar challenges. Particularly challenging is the need to improve coordination and collaboration across functions and business units. M4.0 initiatives such as creating a digital thread to follows products through their life cycles require coordination between business functions such as new product development, supply chain, manufacturing, and post-sales support. Often, however, the basis and reward system for the necessary level of cooperation does not yet exist, manufacturers report.

Manufacturers that have made better progress with M4.0 report a different set of challenges, the McKinsey report reveals. They often have concerns about data ownership, what M4.0 platforms and resources to outsource and to whom, and how to integrate disparate forms of data.

For manufacturers still contemplating how and where to begin on the M4.0 journey, the report recommended several best practices:

  • Focus initial efforts on a limited number of applications;
  • If necessary, undertake “workarounds” where the existing technology infrastructure does not support M4.0, while constructing a more robust, long-term solution;
  • Build a portfolio of third-party technology providers;
  • Build a strong internal team;
  • Don’t be afraid to experiment with new business models.

Written by Jeff Moad

Jeff Moad is Research Director and Executive Editor with the Manufacturing Leadership Community. He also directs the Manufacturing Leadership Awards Program. Follow our LinkedIn Groups: Manufacturing Leadership Council and Manufacturing Leadership Summit

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