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The Challenges of Industry 4.0 for Small and Medium-sized Enterprises

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Despite the enormous economic potential of Industry 4.0 SMEs in industry remain relatively cautious about it. With regard to individual Industry 4.0 processes and technologies, however, it appears that across the board, regardless of company size and branch, little use is made of the evaluation of large data streams to optimise processes or for downstream services. Accordingly, little use is made also of higher level cloud services that are useful for that purpose. It is not easy for small and medium-sized enterprises, due to lack of resources, to assess the technological maturity of the relevant solutions and their business uses. Management lacks a methodical approach to implementation. A lack of standards and norms with regard to interface technologies is another reason why investments in the integration of IT systems are either not carried out or delayed. Summary: Industry 4.0 is a term for the so-called »fourth industrial revolution« and in essence means the technological integration of cyber-physical systems (CPS) in the production process. CPS enables (internet-based) networking with all participants in the value creation process. The Mittelstand has not yet discovered Big Data and the Cloud for itself Despite the enormous economic potential of Industry 4.0 SMEs in industry remain relatively cautious about it. For example, around 5 per cent of SMEs are thoroughly networked and a third of them are taking the first steps in that direction or at least have concrete plans to do so. The spread of Industry 4.0 depends on company size. The level of dissemination among large companies is higher and they are more likely to deploy the relevant Industry 4.0 technologies than small and medium-sized enterprises. The leading sectors with regard to Industry 4.0 include manufacturers of rubber and plastics and of machinery and plant engineering. With regard to individual Industry 4.0 processes and technologies, however, it appears that across the board, regardless of company size and branch, little use is made of the evaluation of large data streams to optimise processes or for downstream services. Accordingly, little use is made also of higher level cloud services that are useful for that purpose, in contrast to SMEs elsewhere in Europe. Small and medium-sized companies often lack a comprehensive strategy The integration of the data generated in the value creation process requires the networking of various IT systems both within and beyond the company. In this way functional areas such as procurement, production and sales can exchange their data in real time. It is not easy for small and medium-sized enterprises, due to lack of resources, to assess the technological maturity of the relevant solutions and their business uses. Management lacks a methodical approach to implementation. Thus four out of ten SMEs do not have a comprehensive Industry 4.0 strategy compared with two out of ten among large companies. Serious security concerns hinder implementation A lack of standards and norms with regard to interface technologies is another reason why investments in the integration of IT systems are either not carried out or delayed. Small and medium-sized enterprises worry not only about opting for the wrong standard, but also about data security. At present, SMEs are adapting to the standard of the large company they supply. The lack of general standards thus makes it difficult for SMEs to join value creation networks with different standards and norms, thereby constraining their room to manoeuvre. Changes in the world of work, yes; job losses, no Worries that automation is leading to major job losses in Germany are largely unfounded. Industry 4.0 can unfold its potential only by means of the practical knowledge, acumen and adaptability of employees. While it’s true that simple repetitive work is increasingly being replaced new jobs are emerging elsewhere due to new business models. The challenge for small and medium-sized enterprises is to create flexible organisational structures and to boost their employees’ interdisciplinary thinking. Employees’ existing qualifications and experience thus have to be deployed in the introduction of Industry 4.0 and enabled to reflect on production processes and to bring about continuous improvements. Industry 4.0 requires a reallocation of tasks and new responsibilities that need to be underpinned by appropriate further training measures, as well as consensus-oriented concepts of data protection and mobile work, which have to be developed with the participation of workplace codetermination bodies. Framework conditions offer a good starting position Germany’s Mittelstand is innovative and internationally competitive. The country also has substantial technical knowhow with regard to numerous Industry 4.0 technologies and a well educated and trained workforce. The framework conditions have improved in the past year as a result of state promotion of Industry 4.0 technologies and cross-cutting issues, as well as support measures for implementation and awareness-raising. However, there is a need for action in expanding the broadband infrastructure on the basis of fibre optic cables and technologies that provide consistently high transfer rates. If it also proves possible to establish uniform, secure and open standards for data transfer the Mittelstand will have every chance of overcoming the challenges accompanying Industry 4.0.
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Christian Schröder
The Challenges of
Industry 4.0 for Small and
Medium-sized Enterprises
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working group on small and medium-sized enterprises and head of discussion
group on consumer policy.
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a good society –
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# 2017 plus
Christian Schröder
The Challenges of Industry 4.0 for
Small and Medium-sized Enterprises
FRIEDRICH-EBERT-STIFTUNG
PRELIMINARY NOTE
SUMMARY
1 INTRODUCTION
2 THE STATUS OF INDUSTRY 4.0 IN SMALL AND MEDIUM-SIZED ENTERPRISES
3 ECONOMIC POTENTIAL OF INDUSTRY 4.0
3.1 Positive macroeconomic effects expected
3.2 More flexible production with falling production costs
3.3 Value-creation networks and new business models
4 OBSTACLES FOR THE TECHNOLOGICAL IMPLEMENTATION OF INDUSTRY 4.0
4.1 Lack of a digital strategy alongside resource scarcity
4.2 Lack of standards and poor data security
5 TRANSFORMATION OF THE WORLD OF WORK BY INDUSTRY 4.0
5.1 Macroeconomic effects
5.2 Labour organisation and structuring at the enterprise level
5.3 Company interest representation bodies as important partners
6 FRAMEWORK CONDITIONS FOR INDUSTRY 4.0
6.1 Financing conditions
6.2 Availability of skilled workers
6.3 Comprehensive broadband infrastructure
6.4 State support
6.5 Legal framework
7 CONCLUSION
Bibliography
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FRIEDRICH-EBERT-STIFTUNG
3
THE CHALLENGES OF INDUSTRY 4.0 FOR SMALL AND MEDIUM-SIZED ENTERPRISES
PRELIMINARY NOTE
Industry 4.0 is a term for the digital revolution in industrial
production emerging from the comprehensive networking
and computerisation of all areas of production. Equipment,
machinery, materials and end products apprehend environ-
mental conditions and processing status via sensors, com-
municate with one another via embedded software and thus
optimise the production process in an unprecedented man-
ner. This enables companies not only to organise their pro-
duction process more efficiently, but also, for example, to
manufacture customised products within the framework of
and at the same cost as automated manufacturing. Entirely
new business models can also emerge in this way, for exam-
ple, based on the evaluation and utilisation of masses of in-
coming data, for instance, from the provision of optimised
maintenance services.
The changes arising from the digital revolution in the pro-
duction and value creation process are radical and pose a
real challenge to enterprises. In order not to be left behind
companies need to develop strategies in good time to ex-
ploit the new possibilities of digitalisation, to improve estab-
lished processes and develop new business models. Those
who persistently lag behind run the risk of premature demise.
For Germany as a business location and the safeguarding
of prosperity there it is thus crucial that companies get a grip
on these transformational dynamics early on and adapt
their enterprise strategy accordingly. However, a good political,
legal and infrastructural framework is also required to enable
companies to rise to the challenge of Industry 4.0.
While many large companies are already attempting to
anticipate the potential and risks of digitalisation for their re-
spective business models and have introduced innovation
processes, small and medium-sized enterprises appear to be
making heavy weather of it. The reasons for this are mani-
fold; they are partly internal, but they also arise – and this should
give policymakers pause for thought – from the environment.
Given the major importance of small and medium-sized enter-
prises (the so-called Mittelstand) for the German economy –
around 95 per cent of all companies in Germany are consid-
ered part of the Mittelstand and there are around 690,000
small and medium-sized enterprises (SMEs) in production
alone – this finding is worrying, to say the least. The aim
for policymakers should thus be to optimise the framework
conditions and support structures so that as many manufac-
turing SMEs as possible meet the challenge of Industry 4.0
and take advantage of the opportunities of the fourth indus-
trial revolution.
The present report is a review of the literature that shows
the state of implementation of Industry 4.0; presents typical
obstacles and challenges for the Mittelstand; demonstrates
the importance of involving employees to improve the suc-
cess of innovation processes in the company; and derives
political recommendations to improve the overall framework.
We hope it makes stimulating reading.
DR. ROBERT PHILIPPS
Head of FES’s SME working group and
consumer policy discussion group
Department of Economic and Social Policy
4
FRIEDRICH-EBERT-STIFTUNG
SUMMARY
Industry 4.0 is a term for the so-called »fourth industrial revo-
lution« and in essence means the technological integration
of cyber-physical systems (CPS) in the production process.
CPS enables (internet-based) networking with all participants
in the value creation process.
The Mittelstand has not yet discovered Big Data and
the Cloud for itself
Despite the enormous economic potential of Industry 4.0 SMEs
in industry remain relatively cautious about it. For example,
around 5 per cent of SMEs are thoroughly networked and a
third of them are taking the first steps in that direction or at
least have concrete plans to do so. The spread of Industry
4.0 depends on company size. The level of dissemination
among large companies is higher and they are more likely to
deploy the relevant Industry 4.0 technologies than small and
medium-sized enterprises. The leading sectors with regard
to Industry 4.0 include manufacturers of rubber and plastics
and of machinery and plant engineering. With regard to indi-
vidual Industry 4.0 processes and technologies, however, it
appears that across the board, regardless of company size and
branch, little use is made of the evaluation of large data
streams to optimise processes or for downstream services.
Accordingly, little use is made also of higher level cloud
services that are useful for that purpose, in contrast to SMEs
elsewhere in Europe.
Small and medium-sized companies often lack a com-
prehensive strategy
The integration of the data generated in the value creation pro-
cess requires the networking of various IT systems both within
and beyond the company. In this way functional areas such as
procurement, production and sales can exchange their data in
real time. It is not easy for small and medium-sized enterprises,
due to lack of resources, to assess the technological maturity
of the relevant solutions and their business uses. Management
lacks a methodical approach to implementation. Thus four out
of ten SMEs do not have a comprehensive Industry 4.0 strategy
compared with two out of ten among large companies.
5
THE CHALLENGES OF INDUSTRY 4.0 FOR SMALL AND MEDIUM-SIZED ENTERPRISES
Serious security concerns hinder implementation
A lack of standards and norms with regard to interface tech-
nologies is another reason why investments in the integra-
tion of IT systems are either not carried out or delayed. Small
and medium-sized enterprises worry not only about opting
for the wrong standard, but also about data security. At
present, SMEs are adapting to the standard of the large
company they supply. The lack of general standards thus
makes it difficult for SMEs to join value creation networks
with different standards and norms, thereby constraining
their room to manoeuvre.
Changes in the world of work, yes; job losses, no
Worries that automation is leading to major job losses in
Germany are largely unfounded. Industry 4.0 can unfold its
potential only by means of the practical knowledge, acumen
and adaptability of employees. While it’s true that simple
repetitive work is increasingly being replaced new jobs are
emerging elsewhere due to new business models. The
challenge for small and medium-sized enterprises is to create
flexible organisational structures and to boost their employ-
ees’ interdisciplinary thinking. Employees’ existing qualifica-
tions and experience thus have to be deployed in the intro-
duction of Industry 4.0 and enabled to reflect on production
processes and to bring about continuous improvements.
Industry 4.0 requires a reallocation of tasks and new respon-
sibilities that need to be underpinned by appropriate further
training measures, as well as consensus-oriented concepts of
data protection and mobile work, which have to be devel-
oped with the participation of workplace codetermination
bodies.
Framework conditions offer a good starting position
Germany’s Mittelstand is innovative and internationally com-
petitive. The country also has substantial technical knowhow
with regard to numerous Industry 4.0 technologies and a
well educated and trained workforce. The framework condi-
tions have improved in the past year as a result of state pro-
motion of Industry 4.0 technologies and cross-cutting issues,
as well as support measures for implementation and aware-
ness-raising. However, there is a need for action in expanding
the broadband infrastructure on the basis of fibre optic
cables and technologies that provide consistently high trans-
fer rates. If it also proves possible to establish uniform, se-
cure and open standards for data transfer the Mittelstand
will have every chance of overcoming the challenges accom-
panying Industry 4.0.
6
FRIEDRICH-EBERT-STIFTUNG
1
INTRODUCTION
Industry 4.0 (Industrie 4.0) is a synonym for the fourth indus-
trial revolution. The term originated with a future-oriented
project that was part of the German government’s high-tech
strategy. It has now become widely established in the public
debate in Germany and boils down to the technical integra-
tion of cyber-physical systems (CPS) in production and logis-
tics, as well as the application of the so-called »internet of
things« and the »internet of services« in industrial processes,
including the consequences of all that for value creation,
business models, downstream services and work organisa-
tion (Forschungsunion/Acatech 2013: 18). Considerable eco-
nomic potential is attributed to CPS technology in industry.
This potential is realised by means of the (internet-based) net-
working of all elements of the value creation process in real
time, enabled by CPS technology.
Basically, the use of networking increases with the number
of network partners. Because around 95 per cent of all com-
panies in Germany are part of the Mittelstand and around
690,000 small and medium-sized enterprises (SMEs) are in-
volved in production alone, Industry 4.0 can really only pay
dividends with production SMEs. At present, however, only
5 per cent of Mittelstand manufacturing companies have
networked their machinery, plants and systems across the
board. Clearly there are reasons deterring small and medium-
sized enterprises from implementing Industry 4.0.
The present report shall thus focus on the main challenges
for Mittelstand companies with regard to Industry 4.0 and
how the relevant framework needs to be tailored to support
them in meeting these challenges. First, however, we need
to clarify how widespread Industry 4.0 is and what its eco-
nomic potential is.
The report directs its attention to industry because it gen-
erates more than 25 per cent of value creation in Germany.
It is thus not only of major significance for the national econ-
omy, but the potential of Industry 4.0 technologies is most
evident in it. Production in Germany faces the challenge of,
on one hand, retaining a leading position as supplier of ma-
chinery and equipment (lead supplier) by means of the inte-
gration of Industry 4.0 technologies and, on the other hand,
improving the competitiveness of German industry through
the integration of users (lead market) (BMWi 2015: 3). The
application of CPS technologies in intermediate and end
products gives rise subsequently to cross-sectoral potentials
for additional business support services (business-to-busi-
ness) and for household services (business-to-consumer).
7
2
STATUS OF INDUSTRY 4.0 IN SMALL
AND MEDIUM-SIZED ENTERPRISES
THE CHALLENGES OF INDUSTRY 4.0 FOR SMALL AND MEDIUM-SIZED ENTERPRISES
Figure 1
Level of implementation of extensive networking (estimate 2015)
Source: Techc onsult (2015: 19)
Manufacturing of rubber and plastic goods
Machinery and plant engineering
Foodstuffs
Woodworking and furniture
Electrical engineering and high tech industry
Vehicle manufacturing (including suppliers)
Metal working and metal processing
Pharmaceuticals
Chemicals
Cosmetics
Tot al
0 % 20 % 40 % 80 %60 % 100 %
We have already extensively networked
machinery, equipment and systems and
are already applying it.
We have already networked some
ma-
chinery, equipment and systems and are
already applying it partly in production
or on a trial basis within the framework
of product/process development.
We are actively engaged with the issue,
although we have not yet implemented
anything; we do have concrete plans,
however.
Although we are actively looking at it
implementation is not yet planned.
We have not yet looked into it at all.
In manufacturing industry, which represents the largest part
of production, around 10 per cent of companies are currently
operating intensively with Industry 4.0. In machinery and
plant engineering, as suppliers of Industry 4.0, the proportion
is double that. At present 5.6 per cent of machinery and
plant engineering companies are in a state of advanced im-
plementation, just under 18 per cent are engaged with In-
dustry 4.0 concepts and implementing the first measures to
put them into practice (IW Consult/FIR 2015: 8). A fifth of
machinery and plant engineering companies, as well as a
quarter of companies in manufacturing industry as a whole
indicate that Industry 4.0 is unknown or unimportant to them
(IW Consult/FIR 2015: 26). There is a significant relationship
between company size and implementation of Industry 4.0.
Large companies are substantially more advanced in the in-
tegration of their production plants in higher-level IT systems
than medium-sized companies and the latter are much more
advanced than small companies (IW Consult/FIR 2015: 26).
A comparable survey solely among small and medium-sized
enterprises in manufacturing industry – both providers and
users of Industry 4.0 – comes to similar conclusions. Overall, the
proportion of extensively networked small and medium-sized
enterprises, at just under 5.5 per cent, is similarly high (see Fig-
ure 1). Differentiation by branch shows that the production of
rubber and plastic products, with a proportion of 10 per cent,
comes ahead of machinery and plant engineering (around
8 per cent), followed by foodstuffs (around 6.5 per cent), wood-
working/furniture (around 6 per cent), electrical engineering
and high tech industry (around 5.5 per cent) and vehicle man-
ufacturing (including suppliers) at 4 per cent. A further 13 per
cent of small and medium-sized enterprises in manufacturing
industry have already networked some machinery, plants
and systems; 17.5 per cent are engaged with it and have de-
veloped their first concrete implementation plans; just under
40 per cent are looking at it; and around 25 per cent of SMEs
have still not looked into it at all (Techconsult 2015: 19).
8
FRIEDRICH-EBERT-STIFTUNG
Small enterprises
Medium-sized
enterprises
Tota l SMEs
Figure 2
Utilisation of fee-based higher cloud computing services (2014)
Source: Sc hröder 2015: 10, (based on Eurost at data).
35 %
30 %
25 %
20 %
15 %
10 %
5 %
0 %
LU GR DFR NLITIEBEUK
EU -15
PTESAT SE DK FI
Studies also have comparable findings when it comes to their
evaluation of the extent to which individual Industry 4.0 pro-
cesses and technologies are already in use. Both large com-
panies and SMEs leave a lot to be desired when it comes to
the use of smart services, such as the evaluation of big data
that accrue in the production process or through networked
production processes. Because SMEs are relatively well posi-
tioned with regard to the linking of machines and IT systems
the deficiencies concerning data evaluation are not necessar-
ily the result of a basic lack of data (Techconsult: 2015: 80;
IW Consult/FIR 2015: 28). However, the complete integration
of IT, which also enables external information exchange, is
rare. For that purpose cloud services would be useful. In fu-
ture communication between different systems will be or-
ganised via higher cloud services, such as virtual platforms
(cloud platform as a service) and software (cloud software
as a service). Currently, a mere 5 per cent of all SMEs in
Germany use higher cloud computing services of this kind
(Schröder 2015: 9). The average level of diffusion in the
EU15 is twice as high as in Germany (see Figure 2). In Finland
and Denmark, as many as a quarter of SMEs make use of
higher grade IT services from the cloud (Schröder 2015: 10).
9
3.1 POSITIVE MACROECONOMIC EFFECTS
EXPECTED
The economic potential of Industry 4.0 is regarded positively
across the board (see Berger 2014; BITKOM/IAO 2014; PwC
2014). Because there is necessarily some degree of uncertain-
ty in any prognoses, which in any case rest on different as-
sumptions, the predicted positive macroeconomic effects
likely to accompany networked production along the value
chain vary considerably. Thus by 2020 additional annual sales
of between 20 and 30 billion euros are expected (Wisch-
mann et al. 2015: 19). It should be noted, however, that the
evaluation of such effects is difficult, for a number of rea-
sons. Not only is Industry 4.0 not defined uniformly and thus
is not clear-cut, but we are also not talking about a single
technological innovation, but rather a combination of various
technologies that can only unleash their full potential to-
geth
er. Some of these technologies are in an advanced state
of development, but it will be some time before they are
ready for the market. The various levels of technological ma-
turity make it difficult to predict the speed with which the
new technological applications will come into commercial use
and thus also when and to what extent positive network
effects will be reaped. Network effects arise from network-
ing beyond the enterprise and increase with each additional
network partner (Wischmann et al. 2015: 39).
Even though the macroeconomic potential is fairly difficult
to quantify we can certainly assume that internet-based
applications will transform production in the medium to long
term. The widespread deployment of networked production
facilities in Mittelstand production industry will be of the ut-
most importance for the future competitiveness of the Ger-
man economy.
3.2 MORE FLEXIBLE PRODUCTION WITH
FALLING PRODUCTION COSTS
From a technological standpoint CPS forms the core of In-
dustry 4.0. The basic technology of CPS comprises so-called
embedded systems. Embedded systems as the key compo-
nent of CPS are basically mini-computers, which are capable
of measuring physical states, such as temperature or pres-
sure, through sensors. A processor processes this information
and computes appropriate measures in accordance with a
predefined program (Fraunhofer IPA 2014: 11). Such a meas-
ure could, for example, trigger physical actions by so-called
»actors« if a predefined environmental temperature is reached.
This linking of hardware and software components is aimed
at governing, regulating or monitoring a previously defined
system (Fraunhofer IPA 2014: 12).
In recent years it has proved possible to miniaturise em-
bedded systems and put them on a chip. Their performance
has improved dramatically as production costs have fallen.
The most significant innovation, however, is that embedded
systems equipped with an IP address and modern communi-
cation interfaces, integrated in the internet, have become part
of CPS. CPS functions wirelessly and can be built in to almost
any object. Often CPS obtains its operating power from the
environment, for example, from light or gentle vibrations
that are converted into energy. CPS technology can be em-
bedded in blanks and intermediate or end products, which
are now »smart« in the sense that, for example, they know
where and in what state of completion they are. The inter-
mediate product or built-in CPS has information on what ma-
chine it will be processed by next, as long as the machine
is able to communicate wirelessly. Real production processes
can now be mapped virtually. As a result, production can
be decentralised in real time and not – as has hitherto been
the case – organised centrally (Fraunhofer IPA 2014: 12).
Parts of production can thus communicate not only with
one another and with manufacturing plants, but also – via
human–machine interfaces – humans can intervene directly
in this communication process (Fraunhofer IPA 2014: 14).
Processes can be visualised, for example, in the form of a
graphic presentation of production data. The emerging ma-
THE CHALLENGES OF INDUSTRY 4.0 FOR SMALL AND MEDIUM-SIZED ENTERPRISES
3
ECONOMIC POTENTIAL
OF INDUSTRY 4.0
10
FRIEDRICH-EBERT-STIFTUNG
chine-machine and human-machine networks are able to
optimise themselves automatically and, in interaction with
people, solve problems themselves (Bauernhansl et al. 2014:
16). This is what is meant by the »smart factory«.
Hand in hand with the deployment of CPS goes the ex-
pectation of higher productivity increases because in this way
stocks can be reduced, personnel planning improved,
logistics
optimised and complexity and maintenance costs lowered.
Furthermore, an increase in product quality can be ex
pected,
alongside more flexible manufacturing options. Experts even
predict that maximum flexibilisation will be achieved with batch
size one; that means that a customised product can be made
for customers at the same price as a serial product today,
providing a considerable boost to customer satisfaction.
The potential savings for different areas of production, ac-
cording to a calculation by Bauernhansl (2014: 31) lie between
10 and 70 per cent (see Table 1). Complexity costs could
be cut
the most.
3.3 VALUE CREATION NETWORKS AND
NEW BUSINESS MODELS
Making full use of the potential of CPS requires the additional
deployment of complementary IT technologies. Thus soft-
ware applications are needed to structure and evaluate the
large quantities of data generated by CPS in order to govern,
regulate or monitor target-oriented processes. Only an enor-
mous increase in hardware processor and memory perfor-
mance, as well as fast internet connections can make this
possible in real time. This also makes downstream business
models possible: for example, embedded CPS enables a tur-
bine manufacturer to provide customers with remote main-
tenance and, at the end of the product’s life cycle, recycling
as additional services.
The sophisticated hardware and software needed to cope
with large real-time data streams would not have to be main-
tained by companies themselves. Thanks to fast internet con-
nections they could also utilise the services of cloud providers.
Providers of cloud computing services make IT infrastructure
available to their customers online. Companies’ capital costs
are reduced as they do not need their own server or software.
And because billing is in accordance with actual use efficiency
losses due to underutilisation of a company’s own IT infra-
structure are avoided. Last but not least, location is no obstacle
to use of such services.
The use of CPS could in future also underpin the value cre-
ation process beyond the company. Companies in such a
case would hook up with value creation networks. Via virtu-
al platforms in the cloud companies could access production
according to need in order to coordinate production stages
in real time. Also in this context one could imagine additional
services; for example, free machine capacity could be offered
for rental by companies with capacity bottlenecks.
Germany is in a position to benefit enormously from the
potential of Industry 4.0. For example, not only is the share
of industry in the German economy relatively high, but the
country is also a world leader in machine-building and plant
engineering, as well as automation technology. Accordingly,
user and provider potential is high (Deutsche Bank Research
2014: 10). Current developments indicate that the biggest
impulse for the dissemination of Industry 4.0 will come from
large companies. They have the resources to switch to net-
worked production and the economic benefits for them are
already high at the current stage of development. Because –
as already mentioned – the utility of Industry 4.0 increases
with every new network partner large companies will encour-
age their mainly SME suppliers to adapt their production
technology step by step in order to make their own production
increasingly networked. In order that such development
makes it as far as the smaller SME suppliers in cascade fashion,
however, the latter will have to meet a series of challenges.
Table 1
Evaluation of potential benefits
Source: Con densed presenta tion after Baue rnhansl (2014: 31)
Type of cost Total value
Inventory costs –30 % to –40 %
Manufacturing costs –10 % to –20 %
Logistical costs –10 % to –20 %
Complexity costs –60 % to –70 %
Quality costs –10 % to –20 %
Maintenance costs –20 % to –30 %
11
THE CHALLENGES OF INDUSTRY 4.0 FOR SMALL AND MEDIUM-SIZED ENTERPRISES
4
OBSTACLES FOR THE TECHNOLOGICAL
IMPLEMENTATION OF INDUSTRY 4.0
The degree to which Industry 4.0 applications are disseminated
depends on size of enterprise (IW Consult/FIR 2015: 26; Ex-
perton Group 2014: 31; GfK Enigma/DZ Bank 2014: 11). Large
companies produce in high volumes, relatively capital inten-
sively. Constant optimisation of highly automated production
is a permanent element of process management. In SMEs
the proportion of manual and hybrid activities is much higher.
They produce rather for niche markets and often have a high
degree of specialisation. In comparison with SMEs, large com-
panies will realise much higher efficiency gains from the use
of Industry 4.0 technologies.
As the range of technological options increases small and
medium-sized industrial enterprises will have to take advan-
tage of developments towards networked production. Other-
wise their international competitiveness could be threatened.
The biggest challenges that small and medium-sized enter-
prises have to meet in this context are the development of
an appropriate strategy, a cost–benefit analysis of the relevant
technologies and lack of data security and uniform standards.
4.1 LACK OF A DIGITAL STRATEGY
ALONGSIDE RESOURCE SCARCITY
The availability of consistent data is an important condition on
the way to Industry 4.0. Information must be consistently
available both vertically and horizontally along the value cre-
ation chain. One talks in this context of, on one hand, vertical
integration, in the sense of the integration of various IT systems
into a seamless solution. Compatibility will thus be achieved
between the various IT applications, processes and data of
the company’s functional areas, such as procurement, pro-
duction and sales. Horizontal integration, on the other hand,
is the integration of various process stages between which
there are flows of materials, energy and information (Forstner/
Dümmler 2014: 199). One example of this is an Enterprise
Resource Planning (ERP) system, which takes care of material-
related, scheduling and capacity planning of order process-
ing and is linked to a Manufacturing Enterprise System (MES)
in the company’s software architecture. This takes care of
short-term, detailed planning and control of individual produc-
tion orders. Based on such coordination between the various
levels of the hierarchy by means of complementary IT solutions
efficiency is boosted and throughput times are shortened
(Mussbach-Winter/Schatz 2012).
The particular set of IT systems, machinery and processes
at a given small or medium-sized enterprise tends to have
been acquired over time; machines and equipment come from
various manufacturers and are of different vintages. As a
result, it is expensive to retrofit automation software to achieve
compatibility (Forstner/Dümmler 2014: 199ff). An even big-
ger challenge for many small and medium-sized enterprises
is likely to be to bring about data flow to adjacent internal
and external areas in order to enable the exchange of produc-
tion data horizontally with suppliers and customers and
vertically for sales, planning, services or controlling. For SMEs
this challenge is particularly great because they have less
resources and know-how than large companies (Wischmann
et al. 2015: 37). SMEs often do not have their own IT depart-
ment, which means that the managers themselves have to
assess the various Industry 4.0 technologies with regard to
their technological maturity and business potential. These
differences may also be the reason why small and medium-
sized enterprises frequently encounter difficulties in selecting
the right solution and complain of a lack of user transparency.
The fact that the networking of production is viewed with
some caution by the management of small and medium-
sized enterprises is illustrated by the IT Innovation Readiness
Index produced annually since 2013. This shows that the
senior managements of manufacturing SMEs are more cautious
about the issue of Industry 4.0 than production managers
who were surveyed (Pierre Audoin Consultans 2015). This re-
serve on the part of business management is worrying to
the extent that the implementation of Industry 4.0 is an ex-
tensive task that usually has to be substantially planned and
initiated at this level. The task includes the restructuring of
processes and company organisation at almost all levels, the
adaptation of workers’ qualifications and strategic considera-
tions with regard to the development of new business models
and the opening up of new markets. Without the impetus and
involvement of management the dissemination of Industry
4.0 will be confined within narrow limits. The fact that four
12
FRIEDRICH-EBERT-STIFTUNG
out of ten SMEs have no comprehensive strategy for imple-
menting Industry 4.0, while among larger companies the
proportion is only two out of ten shows that this shortcoming
is characteristic of SMEs (IW Consult/FIR 2015: 32).
4.2 LACK OF STANDARDS AND POOR DATA
SECURITY
The reservations of small and medium-sized enterprises with
regard to switching to new Industry 4.0 technologies and
moving forward with the integration of the various IT systems
can also be attributed to the lack of standards and norms, but
also to worries about unauthorised access to data. Although
progress has been made in the development of standards –
for example, by means of Open Platform Communications
Unified Architecture – an international standard has not yet
been implemented. This would be important for security of
investment, however. Secure standards and norms are also
a condition of achieving a high number of network partners
and thus of unfolding the economic potential of Industry 4.0.
At the moment, small and medium-sized enterprises often adapt
to the standard of the large company of which they are a
supplier. The lack of general standards makes it hard for small
and medium-sized enterprises to join value creation net-
works with different standards and norms and thus narrows
their room to manoeuvre. On top of this comes a worry that
high investments will have to be written off if they fix on an
interface technology that ultimately is not implemented.
Thus large parts of the production Mittelstand only adopt In-
dustry 4.0 technologies if there is high CPS interoperability
and security by means of standardised interfaces and protocols.
An alternative way of overcoming interface problems would
be to use higher level cloud services. Downstream services
can also be developed and provided via platforms. It is thus
alarming that SMEs in Germany make so little use of higher
level cloud services and thus deprive themselves of the op-
portunity of establishing interoperability between different
systems. The biggest obstacle to the utilisation of cloud
services are security concerns. Clearly, there is a major worry
that sensitive company data are not really secure in the cloud
and might be accessed by third parties. Further reasons for
the neglect of cloud services include uncertainty about the
geographical location where the company’s data are stored
and the applicable jurisdiction (Schröder 2015: 10).
13
The topic of Industry 4.0 was initially addressed almost exclu-
sively from a technological perspective. In the meantime,
however, the far-reaching consequences of Industry 4.0 for
the world of work are increasingly coming to the fore. In
what follows we shall look first at the question of how increas-
ing automation will affect job availability. We shall then look
at the possible changes at the company level.
5.1 MACROECONOMIC EFFECTS
Frey and Osborne (2013) depict an, at first, terrifying scenario:
a large proportion of human labour could be substituted by
machines. According to their calculations at present 47 per
cent of workers in the United States are in occupations that,
with a high probability, can be automated over the next 10 to
20 years. Bonin et al. (2015) have transposed these studies to
the German context and come up with a figure of 42 per cent.
They make it clear, however, that this should not be equated
with a loss of 42 per cent of jobs. This is because it is not so
much occupations as individual activities that will be auto-
mated. Taking this into account Bonin et al. (2015) in an alter-
native calculation come to the conclusion that 12 per cent
of all jobs are subject to a high probability of automation.1
All these calculations are to be taken with a pinch of salt
because they are based on the opinions of experts on auto-
mation, who may have overestimated the technological poten-
tial (Bonin et al. 2015: 18). Experts on new technologies often
fail to take the cost-benefit aspect – in other words, the eco-
nomic perspective – sufficiently into account. At the same
time, workers’ uncodeable practical knowledge that cannot
be replaced by smart technologies is also underestimated.
Indeed, for occupations around Industry 4.0 »practical knowl-
edge« is of the utmost importance to ensure stable produc-
tion (cf. Pfeiffer/Suphan 2015). Also to be considered is the fact
that the rate of diffusion of new technologies partly depends
1 In many occupational areas with a high probability of automation
there are also activities that would be difficult to automate, which means
that a loss of jobs across the board is unlikely.
on social, legal and ethical obstacles, so that expectations of
a high level of automation within one or two decades could
easily be premature (Bonin et al. 2015: 23).
A balanced view of the employment effects of Industry 4.0
should not leave out the fact that its introduction will give
rise to new business models that, for their part, will enable
employment and productivity gains. The extent to which the
number of jobs lost due to Industry 4.0 will be outweighed by
new jobs cannot be reliably estimated at present. Some
count on overall positive employment effects (cf. BITKOM/
Prognos 2013), while other scenario calculations predict
a
minimal net loss of jobs (cf. IAB 2015).
5.2 WORK ORGANISATION AND
STRUCTURING AT THE ENTERPRISE LEVEL
CPS-based production systems will influence the human/
machine interface, task organisation and activity structures,
as well as, ultimately, enterprise organisation overall (cf.
Hirsch-Kreinsen 2014). At present, three scenarios in particu-
lar are under discussion with regard to the possible relation-
ship between humans and machines in the Industry 4.0 age
(cf. Buhr 2015):
The automisation scenario assumes that the value of human
labour will decline and that technology will take over moni-
toring and control tasks. Human beings as labour power will
tend to »come under external control« due to CPS and un-
dertake menial tasks.
In the hybrid scenario humans and machines will work
cooperatively. The strengths of human beings and technolog-
ical applications will be used complementarily in the pro-
duction process.
In the specialisation scenario CPS will be a tool and play
a supportive role, while skilled labour will retain the determi-
nant role.
The automisation scenario is certainly the least desirable.
But does that mean it’s also the least likely? Even though it’s
too early to come up with a definitive answer the evidence sug-
gests that purely technology-oriented production, in which hu-
man beings play a subordinate role in the production process,
THE CHALLENGES OF INDUSTRY 4.0 FOR SMALL AND MEDIUM-SIZED ENTERPRISES
5
TRANSFORMATION OF THE WORLD
OF WORK BY INDUSTRY 4.0
14
FRIEDRICH-EBERT-STIFTUNG
is not very probable. Despite enormous progress in the per-
formance of digital technology – the oft cited examples of
self-driving vehicles and knowledge processing by the com-
puter program IBM Watson – the level of development of
»artificial intelligence« remains relatively modest. The examples
mentioned by Brynjolfesson/Mc Afee (2014), for example,
were achieved at the expense of enormous development costs
(around 1,000 person-years) and for very specialised applica-
tions (cf. Brödner 2015: 240). As the flexibility of applications in-
creases, however, the levels of complexity will rise exponen-
tially, which means that fully automated production would no
longer make sense (Fraunhofer IAO 2013: 53). The intelligence
of technological systems is still mapped out by human beings
and will not replace the ability of human beings to react flexib-
ly and
creatively to unforeseen events (Fraunhofer IAO 2013:
125). Rather it is the practical knowledge or know-how of
production workers and their reflective and adaptive capaci-
ties that, paired with machine precision and speed, will make
Industry
4.0 effective (cf. Brödner 2015). Technology will contin-
ue rather to take over repetitive work, activities that are con-
trolled, clearly defined and stable as a process (Fraunhofer IAO
2013: 54). The range of tasks of the future factory worker, by
contrast, is changing and will largely consist of the specification,
monitoring and safeguarding of production strategies in the
cyber-physical production system (Gorecky et al. 2014: 541).
This transformation will work better if the human/machine
relationship is designed in a positive way. This means that
already during the development of Industry 4.0 technologies
we have to think in a human-centred rather than a technol-
ogy-centred way and strive for user-friendly solutions for pro-
duction workers. Conducive to this process will be the active
involvement of the affected skilled workers in SMEs in the
development of networked technological plants and then
again in their implementation. The aim is to create intuitive
and robust interfaces that make tailor-made information
available to cope with issues as they arise and provide human
labour with effective support. If such assistance systems are
not developed and introduced there is a danger that through
the deployment of CPS technologies networking will lead to
more complex processes and work will give rise to anxiety,
stress or a feeling of overload (Acatech 2012: 109).
The extent to which hierarchies in production will change
is unclear (Hirsch-Kreinsen 2014: 3). Because networked pro-
duction is accompanied by more decentralised planning and
governance functions at the operational level part of the
former control function could pass to the lower level (Hirsch-
Kreinsen 2014: 3). In this way the former activities of pro-
duction workers could be upgraded.
Due to the increase in real-time data many indirect jobs
will be established around production (Fraunhofer IAO 2013: 47)
.
At the same time, as discussed in Section 5.1, simple manual
activities will be automated and cease to be performed by
human beings (Ingenics/Fraunhofer IAO 2014: 19; Hirsch-
Kreinsen
2014: 3). Overall, the effects in question should lead
to an upgrading of activities around the production process.
In order to put workers in a position to cope with the new
demands there has to be investment in skills development.
SMEs in Germany appear to have recognised this. They get
their employees to undergo IT further training at a rate higher
than the European average (Schröder 2015: 11).
However, not only IT knowledge is relevant. As decentral-
ised
planning and control functions increasingly take place
at the operative level capabilities for self-guided action and
self-organisation will become more and more important
(Forschungsunion/Acatech 2013: 57). Small and medium-sized
enterprises should thus grasp Industry 4.0 as an organisa-
tional innovation. One promising option is the establishment
of an environment in the company that puts employees in
a position to reflect on the production process and constantly
to introduce improvements in it (Fraunhofer IAO 2013: 54).
It can be expected that workers will increasingly have to
think in an interdisciplinary way. Not only because Industry
4.0 involves the merging of IT and machinery and machine
operators will have to have the necessary IT knowledge, but
also because the boundaries of companies will increasingly
become blurred. Industry 4.0 also involves the integration
of various IT systems along the value chain. Sales staff will be
put in a position to set production processes in motion di-
rectly from a tablet and to give customers sat next to them
real-time production information on the stage of completion
of their order. An understanding of processes and their con-
sequences is also an advantage. Networking beyond com-
pany boundaries will also require soft skills such as commu-
nication capacities to ensure that the process is organised
successfully.
5.3 COMPANY INTEREST REPRESENTATION
BODIES AS IMPORTANT PARTNERS
It goes without saying that the deployment of Industry 4.0
will also pose some risks for workers. For example, the gather-
ing of more and more data will mean that workers will be
increasingly transparent. Although, on one hand, gathering
such data will make sense and can be used, for example,
for the purpose of ergonomic relief for workers, on the other
hand employers might be tempted to use monitoring to
subject employees to more performance pressure. Another risk
arises from the possibility that it will increasingly be feasible
to perform a number of activities independent of location.
Although, on one hand, this enhances reconciliation of work
and family life, on the other hand there is a danger that the
boundaries between private life and work will become blurred,
thus adversely affecting the work–life balance.
In order to unleash the full potential of Industry 4.0 in small
and medium-sized enterprises the employees will have to
have a say in the requisite organisational adaptations. One
condition of this is that their concerns arising from the changes
will have to be taken seriously by the management. Ortmann
and Guhlke (2014) point out that acceptance of technology
increases to the extent that it is introduced in a socially and
humanly acceptable manner; in other words, if the interests,
qualifications and experiences of those involved are taken into
consideration in the course of introducing Industry 4.0.
A consensus is more likely to be reached on the further
development of qualifications, task allocation and responsibil-
ities already referred to, as well as the concepts of data pro-
tection and mobile work, if the representative bodies in the
workplace are involved. The latter not only have the trust
of the workforce, but also the capacity to deal with this exten-
15
sive and sometimes conflictual range of issues in a socially
acceptable way. The required changes can be subjected to
binding regulation by means of company agreements and
concerns can be addressed. The challenge, but also opportu-
nity for company codetermination is to anticipate the dynamic
and also manifold developments of Industry 4.0 in order to
be able to exert a positive influence on them for the sake of
the employees.
THE CHALLENGES OF INDUSTRY 4.0 FOR SMALL AND MEDIUM-SIZED ENTERPRISES
16
FRIEDRICH-EBERT-STIFTUNG
The readiness and ability of the Mittelstand to introduce In-
dustry 4.0 also depends on the framework conditions. The
financial environment, the availability of skilled workers, ex-
tensive and high-performance broadband access, state sup-
port and legal framework conditions are all key factors here.
6.1 FINANCING CONDITIONS
The development and introduction of Industry 4.0 technologies
may require substantial investment. Thus the question arises
of what financing is available for small and medium-sized en-
terprises in Germany. Specifically, are there distinct financial
barriers that may hinder the extension of Industry 4.0 in the
German Mittelstand? To answer this question, we have to
differentiate between users and developers of Industry 4.0
technology in the Mittelstand.
Users are typically companies operating in capital intensive
and technology-oriented sectors of production. Basically, the
financing conditions for such companies are good. Normally,
they enjoy a long-term business relationship with a so-called
»house bank«. The business fundamentals of their SME cus
tom-
ers are well known to such house banks and the credit
allo-
cation process is largely problem-free. Little is likely to change
in this respect with regard to investments in Industry 4.0
tech-
nologies. On one hand, the transition to networked produc-
tion facilities will occur successively via replacement invest-
ments; in other words, old plant will simply be replaced by
new networkable plant. Although additional investments in
IT infrastructure will often also be necessary, they need not
lead to substantial financing problems. It will probably prove
helpful that lenders have already broadened their scope to
include the evaluation of technological innovations. Specifi-
cally, they have built up both their in-house expertise and
contacts with consultants and research establishments
(Bankenverband/BDI 2015: 4). Furthermore, the creditworthi-
ness of small and medium-sized enterprises in industry has
increased again substantially over the past decade due to
greatly increased equity ratios and higher profitability (Finanz-
gruppe DSGV 2015). The current low interest rates and easy
credit terms also provide favourable financing conditions.
More difficult are the conditions for young, innovative ICT
companies that develop applications for Industry 4.0 that are
disruptive rather than incremental and turn them into mar-
ketable products. Such companies initially tend to lack a pos-
itive cashflow and to be dependent on external capital. For
banks, credit allocation is risky, however, because they often
do not understand the often entirely new products or busi-
ness models of young ICT companies and do not receive suf-
ficient collateral. The financing gap can be closed by venture
capitalists, however, which often specialise in a particular branch
and supply equity capital to selected companies. Their spe-
cialisation gives them sector-specific know-how or networks
and thus they are able to improve the probability that young,
innovative companies will survive. In contrast to banks, venture
capitalists take an equity position in the relevant company,
rather than receiving interest. Their aim is to sell their stake
in the company at a profit after holding on to it for between
five and seven years, on average.
The financing environment for ICT companies has improved
recently. The ICT sector has been able to attract venture capi-
tal to a disproportionate extent. In 2014, 25 per cent of all
German venture capital went to ICT companies. Berlin, for
example, has developed into a hotspot, attracting more than
37 per cent of all venture capital investment (BVK 2015: 15f).
Despite this gratifying trend, however, the provision of venture
capital in Germany remains at a low level by international
comparison of innovation-based economies. Although the
framework conditions with regard to early-stage financing
have improved substantially due to public support measures
– such as the High-tech Gründerfonds (start-up fund) and
the INVEST subsidy – capital is still lacking for the subsequent
growth phase. The German government is seeking to ad-
dress this by means of a new legislative initiative. Various pro-
posals and measures are currently under discussion. They
include less restrictive tax regulations with regard to the treat-
ment of losses carried forward (§8 Körperschaftssteuerge-
setz KSTG – German Corporation Tax Act). At present, losses
carried forward cannot be taken over by an investor who
acquires a company. This restrictive treatment of losses carried
forward has a negative effect on the willingness of venture
capitalists to invest in young, innovative companies (EFI 2015:
6
FRAMEWORK CONDITIONS
FOR INDUSTRY 4.0
17
34). It remains to be seen to what extent it will prove possible
to create competitive tax conditions for venture capitalists in
Germany and, by means of opening clauses, additional invest-
ment possibilities for insurance companies and pension funds.
6.2 AVAILABILITY OF SKILLED WORKERS
A qualified workforce is indispensable for the development,
introduction and utilisation of Industry 4.0. The technical
knowledge required for each of these phases is currently very
high in Germany, recruited primarily from the so-called MINT
subjects (mathematics, informatics, natural sciences and tech-
nology). World Economic Forum experts attest that German
education in mathematics and natural sciences is of high qual-
ity by international comparison (BMWi 2014: 49). However,
for some years the number of graduates in MINT subjects has
fallen short of demand. This development has led to a short-
age of skilled workers in occupations crucial for the imple
men-
tation of Industry 4.0, such as electrical engineering, infor-
matics and software development. These days it takes over
110 days to fill a vacancy in these shortage occupations
(Bundesagentur für Arbeit 2015: 7). There is a labour short-
age even in non-academic technical occupations, such as
mechatronics and automation technology, which could hinder
swift migration to networked production. The extent to
which this bottleneck will continue into the future remains
unclear. On one hand, demographic change and increasing
demand for such occupations suggest that this trend will
continue or even get worse. On the other hand, the number
of MINT students has been rising for some years. For exam-
ple, student numbers grew by around 50 per cent between
2007 and 2015, which could alleviate the skilled labour short-
age. However, it remains a challenge for small and medium-
sized enterprises to assert themselves both against large com-
panies and rival small and medium-sized enterprises when
it comes to filling vacancies in these areas. For universities the
task is to adapt their courses, especially in engineering, but
also in informatics and to open up courses to more interdis-
ciplinarity in order to strengthen the competences required
to deal with hybrid Industry 4.0 technologies. The same ap-
plies to in-house staff training and occupational training
(apprenticeships). New job profiles that bring information and
production technologies closer together – for example,
training as an industrial IT specialist – are worth considering
in this context (Fraunhofer/IAO 2013: 126).
6.3 COMPREHENSIVE BROADBAND INFRA-
STRUCTURE
Fast and more secure data connections are a basic condition
for the realisation of Industry 4.0. Broadband provision in
Germany is in the upper mid-range by international compari-
son, but it is a cause for concern that the International Tele-
communication Unit (ITU) already defines a transfer rate of at
least 2 Mbit per second as a broadband connection (BMWi
2014: 52). This transmission rate is far from adequate for or-
ganising inter-company internet-based production or down-
stream services, such as the evaluation of real-time data. Sta-
ble high-speed transmission paths over fibre optic cable are
needed for that. Germany, with a fibre optic coverage of only
1 per cent, brings up the rear among European countries
(BMWi 2014: 50). Small and medium-sized enterprises, espe-
cially in production, are often located in rural areas, where
there is virtually no fast fibre optic cable. The need for action
to raise fibre optic coverage in a short time in order to un-
leash the potential of Industry 4.0 for the Mittelstand, is cor-
respondingly great. Although according to the government’s
plans extensive broadband coverage of over 50 MB per sec-
ond is to be available by 2018, this is possible only by means
of vectoring technology. At least on the basis of copper cables,
this technology can be only an interim solution because the
achievable transmission speeds will not be sufficient in the
future and the vectoring effect in copper cable decreases
with length. This is compounded at present by the fact that
only one telecom provider can offer such a service. This
threatens competition and thus more cost effective broadband
provision. There is no medium-term alternative to expansion
of fibre optic coverage, given the state of current technology.
Otherwise smart factories are not feasible. The fibre optic
network must therefore be expanded as a matter of urgency.
6.4 STATE SUPPORT
State support in Germany for specific Industry 4.0 projects, at
least 450 million euros for a period of five to seven years, is
already relatively extensive, according to the findings of a re-
cent analysis by Agiplan, Frauenhofer and Zenit (2015: 34ff).
The spectrum of supported technology is generally fairly broad.
Nevertheless, thematic foci can be identified, based on the
amount of funding and the number of projects receiving sup-
port, in the research areas of autonomous systems, hard-
ware development and assistance and visualisation systems.
Software development also receives considerable support.
However, according to the authors the focus of support in
relation to software development should be shifted towards
interoperable, open, sustainable and secure software plat
forms;
for example, a platform for »Industry 4.0 apps«.
Overall, the field of application of supported Industry 4.0
technologies lies in production and only to a lesser extent in
auxiliary activities, such as logistics, maintenance and product
development. Prospectively, these adjacent value creation
processes should receive more support in order to boost mi-
croeconomic and macroeconomic use of Industry 4.0 across
the board.
Support programmes are directed largely towards small
and medium-sized enterprises, although large companies are
not excluded. Making an application requires detailed ad-
ministrative knowledge, however. This and the cost of organ-
ising joint research projects is often too much for SMEs. Op-
tions for simplifying the application process should therefore
be taken advantage of (Agiplan/Fraunhofer/Zenit 2015: 197).
Similarly, existing measures should be packaged and made
more transparent. Finally, putting research results into prac-
tice, among other things by demonstrators and prototypes, is
also recommended.
Government has already responded to the latter demand
and put the competence centres for Industry 4.0 proposed
THE CHALLENGES OF INDUSTRY 4.0 FOR SMALL AND MEDIUM-SIZED ENTERPRISES
18
FRIEDRICH-EBERT-STIFTUNG
by Agiplan, Fraunhofer and Zenit (2015: 187 ff) out to tender.
The five competence centres are supposed in particular to
mobilise the Mittelstand for Industry 4.0. Their main task will
be, from 2016, to submit information and consultation offer-
ings and to support small and medium-sized enterprises in the
implementation of new Industry 4.0 technologies. Close
cooperation with the relevant chambers and associations is
supposed to ensure regional access to information and to
lower the threshold for companies to deal with the issue.
Overall, government policy is on the right track to raise the
awareness of small and medium-sized enterprises with regard
to Industry 4.0 and, by means of the abovementioned meas-
ures, to provide the impetus towards implementation.
6.5 LEGAL FRAMEWORK
The data generated, stored, utilised and transferred in the
course of automation, like the deployment of new application
technologies or product liability, give rise to numerous legal
issues. Although these emerging issues are not really new, they
can be very complex. On top of that, adjustments required
by law cannot be brought about as rapidly as new techno-
logical developments and procedures can be implemented
(Tschohl 2014: 220). Legal uncertainties, furthermore, are com-
pounded by the networking of small and medium-sized
enterprises with foreign companies. Although legal uncer-
tainty can often be substantially reduced by drafting contracts
appropriately, the complexity of the issues to be regulated
represents a barrier to investment for small and medium-sized
enterprises, especially those without their own legal depart-
ment. The legal challenges include the following aspects,
among others (cf. Forschungsunion/Acatec 2013: 62 ff):
Protection of corporate data
Data exchange between companies makes it possible for third
parties to obtain an insight into their business strategies. It
must therefore be clarified to whom the generated data be-
long and who is entitled to use them. In cases in which the
legal protection is insufficient from the company’s standpoint
individual contracts can be concluded. However, having to
conclude a large number of contracts can be an unreasonable
expense for individual companies.
Liability
Who is liable for faulty products? Networked production means
that the attribution of sources of error is not a simple matter
without implementation of corresponding regulations on
traceability procedures. Furthermore, it will have to be clari-
fied contractually who is responsible for damages, and to what
extent, when autonomous systems generate inaccurate data
or data are accessed by unauthorised third parties.
Handling personal data
The control of technical assistance systems can require the
collection of personal data, whose protection and confidential
use must be ensured.
Trade restrictions
Particular systems deployed in Industry 4.0 may be subject
to international trade restrictions. One example is the use
of encryption techniques to ensure the security of CPS data
transfer. The import of cryptography products from other
countries sometimes requires authorisation and its export
restricted by the EU.
Small and medium-sized enterprises should be made
aware of the legal issues that accompany Industry 4.0 and
provided with legal support. The implementation recom-
mendations made by Forschungsunion and Acatech (2013,
2015) propose support, especially for SMEs, in the form of
practical guidelines, checklists and specimen contract clauses.
In addition, harmonisation of data protection law, as well
as globally uniform regulations on trade restrictions should
be the medium- to long-term aim.
It is therefore clear that promoting new Industry 4.0 tech-
nologies should also take account of law as a cross-cutting
issue in order to bring about the fastest possible dissemina-
tion among small and medium-sized enterprises. As was
already the case in the BMWi-backed project »Autonomik und
Industrie 4.0« other support measures should be provided
with accompanying legal research. Hilgendorf (essay in Agi-
plan/Fraunhofer/Zenit 2015: 139 ff.) proposes that practically-
oriented Industry 4.0 research projects should generally also
look into the relevant legal issues. Following on from that,
practicable solution strategies should be developed that can
be offered to SMEs as a reference model.
19
THE CHALLENGES OF INDUSTRY 4.0 FOR SMALL AND MEDIUM-SIZED ENTERPRISES
7
SUMMARY
The economic potential of networked production in terms of
Industry 4.0 is already discernible in the basic technologies
currently available. It can be foreseen that the dynamic tech-
nological developments will give rise to substantial advances
in productivity for many smaller Mittelstand enterprises, too.
In order to realise them, small and medium-sized enterprises
require flexible organisational structures because business
areas that at present are clearly separated from one another
are increasingly becoming interconnected. The managements
of small and medium-sized enterprises must therefore try
to find out how much smarter their product range can be made
by CPS and which new business models might emerge from
that. Smart products can increase the proportion of value-
added from product sales to downstream services. The
consequences of this should be reflected in the strategic think-
ing of small and medium-sized enterprises. It can be expected
that in future small and medium-sized enterprises will (have
to) call in external expertise more frequently, whether with
regard to decisions on IT investments or the identification of
relevant technological trends.
Other challenges associated with Industry 4.0 can be han-
dled by small and medium-sized enterprises only to a limited
extent. A key factor for the dissemination of Industry 4.0 will
be the development of secure, standardised interfaces. The
standardisation process has picked up speed due to the work
of the DKE/DIN standardisation roadmap and the Reference
Architecture Model Industry 4.0 (RAMI 4.0). In order that the
interests of small and medium-sized enterprises will be taken
into consideration it would be helpful if they were more close-
ly involved in the ongoing standardisation process. It is to
be hoped that the standardisation work of the DKE/DIN, to-
gether with international bodies, will smooth the way for
open international standards. If this does not occur, or only one
or two major companies with closed standards become estab-
lished, the danger is that SMEs will lose their share of value-
added to such companies because the availability of data
will make up a considerable part of future value creation.
Overall, the framework conditions for Industry 4.0 in Ger-
many can be considered largely positive. The authorities, by
promoting Industry 4.0 technologies and cross-cutting issues
and providing support for implementation and awareness-
raising, have begun to tackle major challenges or are on the
verge of implementing appropriate measures. One example
are the planned Industry 4.0 competence centres, which will
engage in application-oriented research and, at the same
time, with network partners, offer consultation services to
small and medium-sized enterprises.
The biggest shortcoming at present is the lack of compre-
hensive broadband connections to ensure very fast transfer
rates without loss of quality. This problem affects small Mittel-
stand companies in particular. While large companies have
the resources to connect, if necessary, to a reliable internet
infrastructure, large parts of the Mittelstand are reliant on
the network expansion of telecom providers or on state sup-
port measures. A second important area is training. In order
to adapt them to the requirements of Industry 4.0 an inter-
disciplinary linking of curricula is needed in the relevant
subjects. The tried and tested dual training system, with its
linking of theoretical learning content and timely practical
application in companies can support the transformation to
networked production in an appropriate manner. However,
the new requirements mean that modifications are needed
in training regulations to link content from IT and industry.
It may even be that new training occupations will emerge.
Against the background of Industry 4.0 the extent to which
state support for further training can be expanded has to be
assessed. Financial incentives could contribute to encouraging
workers to upgrade their qualifications to meet new require-
ments on their own initiative.
20
FRIEDRICH-EBERT-STIFTUNG
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Industry 4.0 is expected to provide high quality and customized products at lower costs by increasing efficiency, and hence create a competitive advantage in the manufacturing industry. As the emergence of Industry 4.0 is deeply rooted in the past industrial revolutions, Advanced Manufacturing Technologies of Industry 3.0 are the precursors of the latest Industry 4.0 technologies. This study aims to contribute to the understanding of technological evolution of manufacturing industry based on the relationship between the usage levels of Advanced Manufacturing Technologies and Industry 4.0 technologies. To this end, a survey was conducted with Turkish manufacturers to assess and compare their manufacturing technology usage levels. The survey data collected from 424 companies was analyzed by machine learning approach. The results of the study reveal that the implementation level of each Industry 4.0 technology is positively associated with the implementation level of a set of Advanced Manufacturing Technologies.
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Purpose The purpose of this paper is to determine the factors that affect Industry 4.0 applications, the expected impacts of Industry 4.0 applications in companies and to analyze the importance of these factors and the importance of expected impacts correlatively. Design/methodology/approach This paper provides an empirical analysis of the factors affecting the adoption of Industry 4.0 transformation and its impacts on the companies. The paper is based on 103 valid answers to a questionnaire-survey distributed among companies in Turkey. The Pearson correlation analysis was conducted to determine the correlation between independent variables and dependent variables. Regression analyses were used to test the proposed hypotheses. A multiple regression analysis was used to investigate the causal relationship between independent and dependent variables. Linear regression method and stepwise regression method was employed for regression analyses. The factors that influence Industry 4.0 applications were determined as company size, technological level of products, budget allocation for R&D department, level of lean applications, level of agility/flexibility and level of automation; and the expected impacts of Industry 4.0 applications were determined as traceability of production processes, traceability of supply chain, flexibility of supply chains, communication between the partners of supply chain, productivity, real-time data analysis, integration between companies and integration in the company according to the literature review Findings The results of this research study revealed that, there is a stronger relationship between level of Industry 4.0 transformation and level of automation than there is between Industry 4.0 transformation and the other independent variables. From the analyses conducted, it can be stated that budget allocation for R&D and level of lean applications and level of automation had greater impacts on Industry 4.0 transformation than company size has. The independent variables included in the regression analysis had a positive effect on Industry 4.0 transformation of companies. However the effects of company size, technological level of products and level of agility/flexibility on Industry 4.0 transformation was weak. When the impacts of Industry 4.0 on companies were analyzed, it can be stated that there is a stronger relationship between Industry 4.0 transformation and real-time data analysis, traceability of production processes, integration in companies and productivity than there is between Industry 4.0 transformation and integration between companies, traceability of supply chains, flexibility of supply chains and communication between the partners of supply chain. It was determined that Industry 4.0 transformation generally impacts internal factors of company, while Industry 4.0 had limited impacts on the supply chains. Originality/value Although there are studies that separately investigated the factors affecting Industry 4.0 transformation and the impacts of Industry 4.0 transformation on companies, the present study provides important contributions to the literature in terms of considering the importance levels of the factors affecting Industry 4.0 transformation and the importance level of impacts of Industry 4.0 transformation on companies as a whole and in relation to each other.
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This is an organizational study on a group of companies which are vendors to Original Equipment Manufacturer (OEMs) in the automotive industry in Malaysia. The writer seeks to study on these companies’ awareness and plans in adopting the Industry 4.0. Key personnel from selected subsidiaries of this group of companies were given questionnaires to provide answers on the awareness, familiarity, plans and important elements in adopting Industry 4.0. Most of the respondents were aware and familiar of Industry 4.0 and do have some plans in its implementation as well as able to identify the challenges and important elements in its implementation. However, most of them are still of the opinion that they are able to move forward into the future without having to implement Industry 4.0.KeywordsIndustry 4.0 awarenessIndustry 4.0 challengesAutomotive industry
Article
Digital transformation leveraging Industry 4.0 is referred to as a strategic solution to handle the challenges given by growing competition and unpredictable customer demands in today’s highly competitive business environment. However, transitioning to Industry 4.0 for sustainable manufacturing would require a thorough understanding of key implementation factors. The objective of this paper is to examine and validate the interrelationships among the factors influencing the implementation of Industry 4.0 for achieving sustainability in manufacturing. To accomplish this objective, the paper used an integrated methodological approach (i.e., TISM and PLS-SEM) to model the factors influencing Industry 4.0 implementation. The total interpretive structural equation modeling (TISM) technique was used to develop the hierarchical structural model in order to investigate the interrelationships among the Industry 4.0 implementation factors. The partial least squares structural equation modeling (PLS-SEM) approach was used to validate the interrelationships identified through TISM. Initially, implementation factors of Industry 4.0 for sustainable manufacturing have been identified. Following the identification of the factors, the opinion of experts was sought through a questionnaire-based survey to finalize them. The hypotheses were analyzed to test the significance of interrelationships among different constructs of Industry 4.0 factors. The findings indicate that factors like environmental regulations for sustainability, adequate labor laws for workforce working in the digital environment, continuous support and commitment from top management, effective restructuring of the organization, adequate support from different stakeholders, and strategic roadmap for digital transformation and branding of green image have the maximum influence on Industry 4.0 implementation for sustainability. Furthermore, the obtained results were in accordance when validated using PLS-SEM. This research will assist practitioners in gaining a thorough understanding of the significance of various implementation factors and their interrelationships.
Article
Industry 4.0 (I4.0) adoption is becoming predominant in manufacturing industries due to its limitless opportunities. Even though companies are interested in adopting digitalization, several perceived barriers stymied them. However, in the interest of its smooth adoption, these perceived barriers must be addressed urgently. This research aims to analyze the broader spectrum of possible barriers that impede the implementation of I4.0 and converge them into the most prominent inhibitors, further assessing these inhibitors to develop contextual relationships among them. A comprehensive literature review and an empirical research-based survey considering a large sample size are used to address the study’s research objectives. Industry and academia experts’ inputs are considered to derive the I4.0 implementation barrier’s current prominence. The interrelationship among extracted twelve significant inhibitors through principle component analysis (PCA) is modeled using interpretive structural modeling (ISM) to manifest each inhibitor’s direct and indirect effect. Fuzzy matriced’ impacts croise’s multiplication applique’e a’ un classement (MICMAC) analysis is further considered to classify these inhibitors into drivers and dependents. The study depicts inadequate organizational strategies, uncertainty about financial decision making, limited employee readiness, inconsistent legal and government policies, Insufficient IT and automation infrastructure as the most prominent driver inhibitors of the I4.0 adoption. An integrated novel PCA-ISM Fuzzy MICMAC model developed in this research paper is unique and used for the first time to establish the hierarchical relationship among I4.0 implementation inhibitors considering the post-COVID-19 scenario. This study offers practical insights and outcomes that will help researchers, decision-makers, and practitioners in unlocking the potential of I4.0 by dealing with its inhibitors efficaciously.
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As an increasing number of manufacturing small and medium enterprises (SMEs) tackle their digital transformation toward Industry 4.0, the need for a methodology to manage this transformation, tailored to their particular context, becomes apparent. Since recent studies have identified critical success factors (CSFs) for the Industry 4.0 transformation of manufacturing SMEs, this paper aims to operationalize these CSFs and propose an Industry 4.0 transformation management methodology. This research is based on an extensive literature review on CSFs for Industry 4.0 transformation, followed by a Delphi–Régnier survey with a panel of Industry 4.0 experts. For each CSF, specific actions to perform at different stages of the Industry 4.0 transformation were defined and validated by experts. Based on a proposed Industry 4.0 transformation process, not all CSFs have to be managed at every phase and step of the transformation process. Each CSF must be supported by different actions positioned within each Industry 4.0 transformation process step. The results of this research are particularly relevant for manufacturing SME managers and consultants managing Industry 4.0 transformation. By performing these actions, they can ensure the achievement of multiple CSFs during their digital transformation projects and, thus, ensure their success. This research combines the academic and professional domains by proposing a way for theoretical findings to be translated into clear actions. The proposed model allows all the actors involved in manufacturing SMEs’ digital transformation projects to understand the actions needed to achieve a successful transformation.
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Article
Industry 4.0 is currently more a vision than a reality, but it is already poised to change not only the way we do business, but our social cohesion in general. Digitisation continues its progress and with it machines are taking over ever more activities — in the production halls of Detroit and Bochum as well as in China, Vietnam and Bangladesh. But it is still people who develop machines and who are the ones putting them to work. Hence, while traditional productionmethods and factors of production recede, innovators are moving forward. New organisational methods, new products, new services, new distribution channels and business models are in demand. It is within the context of these developments that the following central policy questions arise: How can we promote the evolution of new products, services and business models? And how can we ensure that as many people as possible benefit from these developments and not just a small group? The race for the best ideas in business, politics and society has already begun. But its track has been a technological one so far. This is a mistake. If we want to take hold of the opportunities that digitisation presents, we have to recognise its potential for society on the whole. It is in this “second machine age” that humans will take the charge as developers,designers and co-producers (Brynjolfsson et al. 2014). There fore, we have to look more closely at the social innovations alongside the technical ones. Social innovations, on the onehand, are new practices to tackle social challenges, which affected persons, groups and organisations come to accept and employ. On the other, they also facilitate diffusion and dissemination of many technical developments.This is especially true for Industry 4.0. The vision: people, things, processes, services and data – everything will be networked. Driven by the Internet, the real and virtual worlds are beginning to merge. Smart objects, equipped with actuators and sensors, with QR codes and RFID chips, will soon steer themselves through the smart factory and even along the entire value chain from product development to service. Production is thereby distributed, becoming more flexible and faster. In the future, all of the relevant information could be available to all the humans and machines involved in real time, i.e., both the customer as well as any business partners. This allows for dialogue between producer and consumer so that individual customer wishes can be better fulfilled. The vision that industrial (mass) manufacturing facilities could also have limited one-off or tailored production series will be a reality. Along with it come efficiency gains and prod-uctivity improvements, because the resources can be used very effectively.Thus, production not only becomes smarter, but more sustainable too. There is already a lot of talk about a “fourth industrial revolution”, because growing digitisation is already putting pressure on traditionally successful business models and allowing the fruition of completely new models. Hence, many opportunities come with these new developments, but so do many risks and challenges for business as well as civil society. Some of these are the growing delimitation of work and unresolved issues of data privacy, protection and security.Furthermore, certain jobs may be made redundant through automation. Qualification requirements will multiply and whole new tasks will arise. This study aims to present the opportunities and challenges to lay the groundwork for making recommendations regarding the central question: What can policy-makers do to support the shift toward Industry 4.0?
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Technical Report
Für die internationale Wettbewerbsfähigkeit mittelständischer Unternehmen in Deutschland ist es von hoher Bedeutung den Trend einer zunehmenden Vernetzung von Wertschöpfungsprozessen nicht zu verpassen. Die Verwirklichung der Vernetzung ist ein schrittweiser Prozess, der auf vorhandene Technologien bzw. Kompetenzen in den jeweiligen Unternehmen aufsetzt. Daher wird in der vorliegenden Studie, anhand eines Vergleichs mit anderen europäischen Ländern untersucht, wie es um die Voraussetzungen für eine zukünftig vernetzte Produktion im Mittelstand bestellt ist. Es zeigt sich, dass die Digitalisierung der Wertschöpfungskette im deutschen Mittelstand vergleichsweise weit vorangeschritten ist. Gleichwohl deutet sich mit Blick auf die europäischen Spitzenländer an, dass es noch Verbesserungspotenzial für die Digitalisierung unternehmensinterner Prozesse und der Nutzung von RFID Technologie in der Produktions- und Dienstleistungsabwicklung gibt. Die eigentliche Digitalisierungslücke im deutschen Mittelstand besteht jedoch eindeutig in der geringen Nutzung von Cloud-Computing-Diensten.
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Wenn im Zusammenhang mit Industrie 4.0 immer wieder von der 4. Industriellen Revolution gesprochen wird, macht es Sinn, zunächst einmal einen Blick auf die vergangenen drei Revolutionen zu werfen, zu analysieren, was in diesen unterschiedlichen Phasen passiert ist und wie diese Revolutionen aufeinander aufbauen.
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Wenn im Zusammenhang mit Industrie 4.0 immer wieder von der 4. Industriellen Revolution gesprochen wird, macht es Sinn, zunächst einmal einen Blick auf die vergangenen drei Revolutionen zu werfen, zu analysieren, was in diesen unterschiedlichen Phasen passiert ist und wie diese Revolutionen aufeinander aufbauen.
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Die fortschreitende umfassende Durchdringung industrieller Produktionsprozesse mit Informations- und Kommunikationstechnologie bringt neben einer deutlichen Komplexitätssteigerung neuartige Konstellationen, die auch eine rechtliche Dimension haben. Der Beitrag fokussiert Industrie 4.0 aus der Perspektive des Rechts und bietet einen Überblick, welche rechtlichen Fragen besonders zu beachten sind. Die Darstellung der wichtigsten Fallgruppen und Themen berücksichtigt dabei, dass die Rechtsordnung mit der technologischen Entwicklung vielfach nicht Schritt hält und daher der privaten Rechtsgestaltung besondere Bedeutung zukommt.
Article
We examine how susceptible jobs are to computerisation. To assess this, we begin by implementing a novel methodology to estimate the probability of computerisation for 702 detailed occupations, using a Gaussian process classifier. Based on these estimates, we examine expected impacts of future computerisation on US labour market outcomes, with the primary objective of analysing the number of jobs at risk and the relationship between an occupations probability of computerisation, wages and educational attainment.
Industry 4.0, The New Industrial Revolution: How Europe Will Succeed
  • Roland Berger
Berger, Roland 2014: Industry 4.0, The New Industrial Revolution: How Europe Will Succeed, Munich, http://www.rolandberger.com/media/pdf/ Roland_Berger_TAB_Industry _4_0_20140403.pdf (13.10.2015).
Der Arbeitsmarkt in Deutschland -Fachkräfteengpassanalyse [The labour market in Germany -analysis of skilled labour bottlenecks
  • Arbeit Bundesagentur Für
Bundesagentur für Arbeit 2015: Der Arbeitsmarkt in Deutschland -Fachkräfteengpassanalyse [The labour market in Germany -analysis of skilled labour bottlenecks], June 2015, Nürnberg, http://www.statistik.arbeitsagentur.de/ Statischer-Content/Arbeitsmarktberichte/Fachkraeftebedarf-Stellen/
Produktionsarbeit der Zukunft -Industrie 4.0 [Production work of the future – Industry 4
  • Iao Fraunhofer
Fraunhofer IAO 2013: Produktionsarbeit der Zukunft -Industrie 4.0 [Production work of the future – Industry 4.0], Stuttgart, http://www.produktionsarbeit.de/ content/dam/produktionsarbeit/de/documents/Fraunhofer-IAO-Studie_ Produktionsarbeit_der_Zukunft-Industrie_4_0.pdf (13.10.2015).
Erschließen der Potenziale der Anwendung von ‚Industrie 4.0' im Mittelstand " [Study on unleashing the potential of application of Industry 4.0 among small and medium-sized enterprises] , Mülheim an der Ruhr
  • Agiplan
  • Iml Fraunhofer
Agiplan; Fraunhofer IML; ZENIT 2015: Studie " Erschließen der Potenziale der Anwendung von ‚Industrie 4.0' im Mittelstand " [Study on unleashing the potential of application of Industry 4.0 among small and medium-sized enterprises], Mülheim an der Ruhr, http://www.bmwi.de/BMWi/Redaktion/PDF/ Publikationen/Studien/erschliessen-der-potenziale-der-anwendung-von-in- dustrie-4-0-immittelstand,property=pdf,bereich=bmwi2012,sprache=de,rwb =true.pdf (13.10.2015).