The Role Played by Industry 4-0 upon Various Internationally Trading Companies - Case Study Example

NUMBER: ..................................................................

Post Module Assignment Question

The supply of global services is becoming increasingly important to all organisations wishing to trade internationally, particularly the move towards a data-driven environment. The latest trend in this regard has been the inclination of internationally trading companies towards industry 4.0 model.

What challenges do areas such as Industry 4.0 set organisations trading on an international basis? What businesses have risen to the challenge and what threats and opportunities are they encountering with regard to their international trade?

Executive Summary

This paper involves the study on internationally trading companies and their adoption of industry 4.0 model. The incorporation of digital transformation of the organization can yield positive returns, only when the companies are able to overcome the challenges associated with it.

The concept of industry presents certain threats like, exclusion of small firms, unemployment of semi-skilled labour, failure of the firms because due to leakage of confidential information owing to system failures, etc. However, the threats can be outweighed by the opportunities that companies are anticipated to exploit, once they are digitally transformed. The high returns on revenue can supplement the initial heavy investment.

Overall, the industry 4.0 model provides hope for a more efficient and productive production system which will benefit both producers and consumers, once the globally operating firms are able to overcome the challenges.

Table of Contents

Author’s Declaration6

The Challenges Faced by Organisations Engaged in International Trade under Industry 4.09

Data Security9

Compromising Privacy10

Trained Workforce11

Protection of Intellectual Property Rights11

Leader’s Verdict11

Regulatory Framework12

The Businesses Rose against the Challenge12

Schunk12

Siemens14

Bosch15

The threats related to industry 4.015

Resistance to Change16

Long Gestation Period17

Small Fault Leading to Big Consequence17

Reduction in Competitive Advantage17

The Opportunities Associated with Industry 4.018

Higher Manufacturing and Resource Efficiency18

Customised Solution to Create and Exploit Market Demand19

Sustainable Future Success19

Anticipated Increased Revenue20

Creation of New Business Models21

Conclusion21

Recommendation22

Reference List23

• Author’s Declaration

I have read and understood the rules on cheating, plagiarism and appropriate referencing as outlined in my handbook and I declare that the work contained in this assignment is my own, unless otherwise acknowledged.

No substantial part of the work submitted here has also been submitted by me in other assessments for any other assessed course, and I acknowledge that if this has been done, an appropriate reduction in the mark I might otherwise have received will be made.

Signed: ......................................................................

(For on-line submission it is only necessary to type your name in this space)

Introduction

German government was the first to coin the term “Industrie 4.0” because they wanted to introduce and change the structure of the manufacturing sector with the adoption of technological improvement (Hennies and Raudjärv, 2015). This initiative was facilitated with a set of new policies that were aimed of maintaining (and if possible increase) global competitiveness of the German manufacturing sector. It also involves an array of joint initiatives by the government and big business houses, which is directed at strengthening the research and development wing of the country (European Parliament, 2016).

Currently, this concept has become viral and most countries in the European Union (EU) are opting in the favour of “Industry 4.0” (Rolandberger, 2014). This entails the establishment of ‘smart factories’ where the production process will be run using latest technologies and machines would be automatically communicating each step of the value chain such as, the application of robotics and computer-driven monitoring in the production process to gain speed and less erroneous outcomes. The entire logistics will be dealt virtually, blending it seamlessly with the information network. In such future oriented companies, the manufacturing systems will be required to be vertically integrated with the business processes while forming horizontal integration with the widely dispersed value networks with their management on a real time basis (European Parliament, 2016).

There are four elements associated with the concept of Industry 4.0, namely, internet of things, mass customization, big data and focus on tiny marginal gains. Internet of things refers to the interconnectivity of all the business processes via information technology (IT) (Subirana, 2014). One of the researches in this regard; revealed that by 2020, everything ranging from jet liner to the needle of a sewing machine will be connected to the internet and the number will be approximately 30billion devices all together (European Parliament, 2016). The industries working with this model of smart factories will be able to produce more customised and personalised products for mass consumption. The use of IT as a medium of connecting all the business processes will result in the generation of a huge amount of data or “big data”. The entire value chain will gain in terms of efficiency such that, tiny marginal gains will also be realised. However, the system is not flawless and there are a number of factors that affect the implementation of such an ambitious project (DKE, 2015).

Figure 1: Industry 4.0 Environment

(Source: Deloitte, 2015)

Purpose of the paper: This paper focuses on the role played by industry 4.0 upon various internationally trading companies. The digitalization of business provides opportunities as well as threats. This paper undertakes a detailed study of those opportunities and threats.

• The Challenges Faced by Organisations Engaged in International Trade under Industry 4.0

Figure 2: Ranking of challenging factors

(Source: European Parliament, 2016)

• • Data Security

Data protection being one of the greatest challenges in regards to the implementation of industry 4.0 model that an internationally trading company has to face. The use of internet connecting all other devices will raise the question of securing data of each of the companies. Cloud storing can result in leakage of important and confidential information by unauthorised and unwanted people (hackers). For example, online purchase of goods and services generates a record of customers’ personal informations like, credit card details, date of birth, etc., which can be utilised by criminals to make unlawful transactions from customers’ bank accounts, unless significant protective measures are taken.

A survey conducted by the European government data revealed that almost 70% factories operating in EU possess no knowledge of data protection and the rest of the companies that have data security are not up to the mark. The report published by German data security organisation, BSI, consisted of a case of internet attack in one of the steel plants. The hackers were able to gain control of the production network and prevented the plant from shutting down. Investigations concerning the cause of such an invasion brought it to the knowledge that the hackers wanted to get the details of the security of the plant and production process. During this incident the blast furnace suffered irreplaceable damage costing a fortune for the plant (European Parliament, 2016).

Cyber-attack is a serious issue while operating under industry 4.0 model, where the entire system relies heavily upon the internet for the purpose of communicating. The main difference between a human and a robot is that humans have logic guiding them while analysing a situation better than artificial intelligence. A robot was found to have harmed a Volkswagen engineer by pushing him towards metal plates (Deutsche Bank Research, 2014). Under such situations, it is a question of life and death resulting in doubting the ability of autonomous communicating process. If hackers gain control of the robots and machines in a company, they can cause endless damage not only to the company’s assets but also to the workers engaged in production (Friedrich-Ebert-Stiftung, 2015).

• • Compromising Privacy

Connecting everything through internet creates recording of daily life activities in the energy grids which put personal life of people always under watch, thus, ending privacy. In case of company, one in order to gain more competitive advantage over the other can use personal data of the CEOs and employees. This makes the international trade a way of realising greed. In sectors like health, finance and pharmaceuticals, trust plays a very important role for the customers as well as for the entrepreneurs. Hence, proper installation of data security software is the most basic need of technology dependent systems.

• • Trained Workforce

Apart from data security, another hindering challenge that industry 4.0 is that the organizations engaged in international trade need qualified and trained employees to handle such an advanced technology. The cost of implementing internet of things also includes huge training cost that is required to make the employees learn how to use such upgraded technology in the production process. This will also require more number of engineers would be required to undertake such a big transformation in the organisational procedure. This necessitates changes in the education system of the country as well.

• • Protection of Intellectual Property Rights

The growth of international trade has increased both the dependence of companies as well as risk of getting trade secrets known. The use of internet serving the purpose of storing and connecting all the informations regarding machines and production process, protecting intellectual property rights regarding products and processes have never been more crucial. Companies would require more layers of security to protect their operational knowhow.

• • Leader’s Verdict

Adoption to industry 4.0 cultures entails complete transformation of the company and hence, needs to be backed by the strategic leadership of the concerned organisations. The implementation involves a huge sum of money and thus, associates with great risk. Hence, the choice of technological projects needs the CEOs to be absolutely sure of what they actually want and decide upon the medium of achieving it. Industry 4.0 not only concerns about the producers benefit by invoking efficiency into the operational procedures but it also deals with customers’ satisfaction. Hence, it requires a clear vision from the administrative heads of the respective organizations (Koch et al., 2015).

• • Regulatory Framework

The government of the countries should facilitate investment in research and development as well as amend its foreign investment policies, so that MNCs (Multinational corporations) can invest at the right sectors to upgrade the technological base of the organizations. For example, in many countries governments restrict 100% FDI (Foreign Direct Investment) in certain sectors causing investment in those sectors to be stalled.

• The Businesses Rose against the Challenge

Germany is the fore runner in adopting industry 4.0 characteristics in the production process and currently, many of the country are inclining towards the implementation of such transformative changes. In this section, experience of Schunk, Siemens and Bosch, have been shared to illustrate the positive impact of digitalization of production process, in spite of the challenges posed by industry 4.0 concept.

• • Schunk

Schunk is a leading company in the global arena and focuses on manufacturing clamping technology and gripping system. Robots and humans work side-by-side in the production plant of Schunk. The company has employed a substantial amount of “Intelligent Megatronics” i.e., robots to achieve the optimum flexibility required to incorporate all the characteristics of a smart factory (Azom, 2016). The upgraded network system of the company renders the right kind of working environment which is highly conducive to learning and innovation in the production process.

Figure 3: Robots and Workers working in the Schunk's Plant

(Source: Azom, 2016)

Schunk presently employs around 300 standardised megatronics, which are programmed with industry 4.0 compatible module that ensures an effective communication with the controllers of the higher level system (Azom, 2016). The company is continuously trying to achieve complete integration by developing an open controller, which would be able to communicate with the all the machines within the plant. It will also be responsible for receiving and relaying signals from the system. The company has already working with a user interface program which handles the maintenance of modules.

The company is working with a perfect amalgamation of man and technology. In case of any breach or violation of safety measures or unauthorized presence, the system automatically warns and sometimes restarts to prevent any intentional or unintentional damage (Azom, 2016).

• • Siemens

The company has the aim of making its business customers more competitive and in order to succeed Siemens has chosen to digitalise its value chain network. Siemens owns two electronic plants in Amberg and Chengdu respectively and both these plants employ digitalised production processes, comprising digital integration in various departments including shop floors and sales departments. The plant is Amberg has the capacity of producing 1000 different products approximately and uses modern software to evoke flexibility and efficiency in the production. Some of the softwares used by Siemens are NX, Product Cycle Management (PCM) programmes, Manufacturing Execution System (MES), etc. Enterprise resource planning connects all these software are working together in the factories of Siemens to the interface using the (Koch et al., 2015).

The seamless integration of technology in the production process has resulted in the improvement of the quality of production such as, reduction of defective steps from 550 to 12 out of a million steps. The company has also been able to increase its production volume over the twenty years that it has been operating while keeping its total number of employees same. This is an example of the success that digitalisation of production process can yield (Koch et al., 2015).

• • Bosch

This German company is leading supplier of technology and services (GTAI, 2014). The company has developed software not only to strengthen its manufacturing base but also to provide business solutions to its customers. Bosch is engaged in building intelligent equipment specifically for factories operating under pharmaceutical and food industries. These equipments also help in optimising the maintenance process of those factories. Bosch tests all its solutions under real circumstances with the use of its modern technology, ensuring greater profit for its customers. The company initiates and monitors all its simple and complex processes such ordering of spare parts, maintaining orders, reduction of scraps, etc. with its software interface. The company has future plans of investing in developing data intelligence, so that the huge data which is being generated due to the automation of production process can be further utilised for providing more customised solutions to the customers such as, a remote access with regards to security architecture (GTAI, 2014).

• The threats related to industry 4.0

The rise of industry 4.0 model associates with many advantages for the companies engaged in international trade but with greater efficiency and productivity there are certain threats related to the growth of upgraded technological production process.

Apart from the threat of cyber attack, there are certain other factors that threaten the growing trend of digitalization of companies.

Exclusion of Small Firms

The cost of adopting technological advancement at such a grand scale is not feasible for small firms and only big firms own that kind of investible capital (Sommer, 2015). However, to remain in the business, small and medium sized firms would have to sort out a way to adapt such changes otherwise they are bound lag behind in such a highly competitive business world and perish in the long run. For example, in Germany, only big firms such as, Agco, Trebing + Himstedt, Festo, Harting, etc., have been able to exploit the opportunities of the efficiencies associated with utilisation of advance technology (Deutsche Bank Research, 2014). The size of firms affects their scale of production and thus these small firms need capital back up either from the government or support of the big companies to update their production procedure (Sommer, 2015).

• • Resistance to Change

Whenever a company goes for introducing a change within the structure, management authorities face resistance. Technological change of this stature would require existing employees to learn the new knowledge of managing sophisticated software. Although digitalisation will create the need for more skilled engineers creating more job opportunities yet the existing staff who would not be able to adapt will lag behind. Ultimately the company will choose to reduce its liabilities by cutting on the unproductive labour resulting in mass unemployment. Thus there will be a demand for specific skill and the danger of unemployment will persist for the rest. This fear of losing their job on the advent of improved technology will compel workers to resist the digitalised production process (Kopp, Howaldt and Schultz, 2016).

If the skill of the local workforce is not aligned to the requirement of the company then the firm would need to import labour from other countries which not only involves huge expenditure but also difficulties relating to immigration laws.

• • Long Gestation Period

The entire transformation of production process is very vast and will require a long period of time. Companies will need to choose what kind of products would be suitable for enhancing their profit. However, during the period of transition, the organisation will require to keep up with its expenditure until the new advanced process becomes ready.

• • Small Fault Leading to Big Consequence

The entire system will become totally dependent on technology and under such conditions a small error can lead to failure of the entire system. For example, if due to system error, the supply of a particular consignment did not get recorded then it will impact on the entire data of output and inventory and will also affect the revenue calculations of the company. In German companies, security of all the plants are linked to the central interface software and failure of the software will make the firm vulnerable to extremist attack. For example, the failure of the system in the nuclear power plants involves in the imminent threat of a nuclear war. There are many companies who deal with many hazardous chemicals like pharmaceutical companies and the misuse can lead to life threatening situations.

• • Reduction in Competitive Advantage

The concept of industry 4.0 was started in Germany and now many European nations are adopting the technologically upgraded production process. This creates reduction in individual competitiveness until each organisation develops specific characteristics that are exclusive to them. This possesses the threat of stagnation of business for the internationally trading companies (European Parliament, 2016).

• The Opportunities Associated with Industry 4.0

Every coin has two sides, if there are threats associated with the implementation of industry 4.0, then there are opportunities as well.

• • Higher Manufacturing and Resource Efficiency

The industry 4.0 concept is a long-term objective ensuring achievement of long run efficiency. The estimates of analysts present that industry 4.0 can help the organisations to obtain a higher production with reduced raw materials and energy. The companies would be required to channelize their expenditure in a planned manner, which in turn will provide firms with as much as 18% efficiency in their business operations. This rate is equivalent to the attainment of 3.3% growth annually. Some of the improvements in the value chain that the organisations anticipate are as follows (Roblek, Mesko and Krapez, 2016):

• Greater concentration in the core areas.
• Lesser redundancies in the production process.
• Reduction in wastage.
• The entire process becoming more flexible to change (Buhr, 2015).
• Communication among the departments becoming easier.

The availability of data will make the operation more transparent, improving the utilisation of existing capital and with greater connectivity, the process will have the potential to reduce rejection rate in production, consequently increasing productivity. There is also the expectation that digitalisation process will reduce the cost of production by 1.9% per annum (Roblek, Mesko and Krapez, 2016); thus increasing the saving to cost ratio of the companies. The amount of cost reduction will depend upon the horizontal integration of all the components of the supply chain.

• • Customised Solution to Create and Exploit Market Demand

The greater opportunity to earn profit is provided by the ever changing demand of the consumers present all around the world. They would like to get their desired products through a transparent system and using internet as the transacting medium provides them with all the information related to the suppliers and any specific segment of the product life cycle. This creates trust among the consumers in regard to their sellers, ensuring their return to the latter when the need arises.

• • Sustainable Future Success

The technologically empowered production system generates a mechanically perfect product that can ensure more digitally connective solutions. This process of manufacturing takes into account minute details resulting in beneficial outcomes for the users. The reduction in production cost helps to increase the variety as well as volume of production, which will directly help a company to dive for greater market shares. For example, the customary brake systems used in the automobile industry have been changed into anti-block systems by using modern electronic control entities. This has resulted in the reduction of maintenance cost, thus increasing total efficiency. The digitalization of product portfolio does not rely on the company’s size; thus, making the small and medium sized firms join the road to technologically transformed production process and hence, compete in the global market. The internationally operating company taking less time to adapt the changes will gain the maximum.

• • Anticipated Increased Revenue

The digitalised products are scheduled to increase the market share of each company by creating new customers and meeting the unsatisfied demands of the existing customer base. This in turn, assures the global business operators with an increased percentage of revenues. A survey done in this regard revealed that, almost 50% of the companies are expected to attain double-digit revenues growth in the next five years, due to technological advancement adaptation and digitalisation of the product portfolios. Researchers are sure that on an average. The companies will be able to attain 2.5% of yearly revenue growth. For example, studies done across the European companies reveal they alone are anticipated to generate additional revenue of more than £110 billion every year amounting to £550 billion within the next five years (Koch et al., 2015).

Figure 4: Projected Revenue Increase in the European Companies

(Source: Koch et al., 2015)

• • Creation of New Business Models

Greater digitalisation of the value chain will result in creation of new business models which will be more data oriented thus, having the capability to satisfy customers’ need in far better ways. This will lead to break down of traditional business model to pave the way for totally new routes of revenue earning. For example, Google has recently patented the concept of providing diverless vehicles in cities. Through this system, customers will be able to commute from one place to another in cars which will not have any drivers (Koch et al., 2015). This new business model will affect other mobility providers.

• Conclusion

The organisations are currently competing with each other not only locally, but with their international counterparts because of the growth of barrier-free international trade. Over the years, technology has changed and has also changed its surroundings. Currently the industrial sector is talking about the complete implementation of industry 4.0 model. It will result in digitalisation of the entire value chain including production processes.

The challenges have been presented in the initial section of this paper which are to be met by the organizations so that technology can get integrated with all the aspects of the production process seamlessly. Ensuring digital security is one of the most critical challenges because misuse of data can lead to failure of the whole system. Then in the next section, the experience of three companies have been illustrated to show that organisations that have accepted the challenges are growing and by following their growth paths more European companies are incorporating the smart factory culture.

The concept of industry 4.0 presents certain threats like, exclusion of small firms, unemployment of semi-skilled labour, failure of the firms owing to leakage of confidential information owing to system failures, etc. However, the threats can be outweighed by the opportunities that companies are anticipated to exploit once they are digitally transformed. The high returns on revenue can supplement the initial heavy investment.

Overall, the industry 4.0 model provides hope for a more efficient and productive manufacturing system, which will benefit both producers and consumers once the globally operating firms are able to overcome the challenges.

• Recommendation

The companies are required to maintain a balance all throughout the transformation, because the entire process is time consuming and would require steady flow of investible capital. The vision of the corporate leader will be the guiding light for the workers because the latter would need the assurance from their superiors regarding their employment. This will eventually lead to winning workers’ support in implementing digitalised production process. The efficiency gain in the value chain will benefit the customers in lowering their products’ prices, specifically in case of heavy engineering products. Environmental sustainability is also a growing concern which needs the production process to generate minimum waste and emission. Hence, application of industry 4.0 model needs to be supported at all levels.

• Reference List

Azom, 2016. Industry 4.0: The Further Development of Lean Factory and Kaizen Manufacturing. [online] Available at: < http://www.azom.com/article.aspx?ArticleID=12224 > [Accessed 29 June 2016].

Buhr, D., 2015. Industry 4.0 – New Tasks for Innovation Policy. [PDF] Available at: < http://library.fes.de/pdf-files/wiso/11480.pdf > [Accessed 29 June 2016].

Deloitte, 2015. Industry 4.0: Challenges and solutions for the digital transformation and use of exponential technologies. [PDF] Available at: < http://www2.deloitte.com/content/dam/Deloitte/ch/Documents/manufacturing/ch-en-manufacturing-industry-4-0-24102014.pdf> [Accessed 29 June 2016].

Deutsche Bank Research, 2014. Industry 4.0 Upgrading of Germany’s industrial capabilities on the horizon. [PDF] available at: < http://www.dbresearch.in/PROD/DBR_INTERNET_EN-PROD/PROD0000000000333571/Industry+4_0%3A+Upgrading+of+Germany%E2%80%99s+industrial+capabilities+on+the+horizon.pdf> [Accessed 29 June 2016].

DKE, 2015. Future Project Industry 4.0. [online] Available at: < https://www.vde.com/en/dke/std/Pages/industry40.aspx > [Accessed 29 June 2016].

European Parliament, 2016. Industry 4.0: Study for the ITRE Committee. [PDF] Available at: < http://www.europarl.europa.eu/RegData/etudes/STUD/2016/570007/IPOL_STU(2016)570007_EN.pdf > [Accessed 29 June 2016].

Friedrich-Ebert-Stiftung, 2015. The Digital Society Impulses for the Digitalisation Congress. [PDF] Available at: < http://library.fes.de/pdf-files/fes/12350.pdf > [Accessed 29 June 2016].

GTAI, 2014. Industrie 4.0. [PDF] Available at: < http://www.gtai.de/GTAI/Content/EN/Invest/_SharedDocs/Downloads/GTAI/Brochures/Industries/industrie4.0-smart-manufacturing-for-the-future-en.pdf > [Accessed 29 June 2016].

Hennies, M.O.E. and Raudjärv, M., 2015. INDUSTRY 4.0 Introductory thoughts on the current situation. [PDF] Available at: <https://ojs.utlib.ee/index.php/TPEP/article/viewFile/12491/7565 > [Accessed 29 June 2016].

Koch, V., Kuge, S., Geissbauer, R. and Schrauf, S., 2015. Industry 4.0: Opportunities and challenges of the industrial internet. [PDF] Available at: < http://www.strategyand.pwc.com/reports/industry-4-0> [Accessed 29 June 2016]

Kopp, R., Howaldt, J. and Schultz, J., 2016. Why Industry 4.0 needs Workplace Innovation: a critical look at the German debate on advanced manufacturing. European Journal of workplace Innovation, 2(1), pp. 7- 17.

Roblek, V., Mesko, M. and Krapez, A., 2016. A Complex View of Industry 4.0. [online] Available at: < http://sgo.sagepub.com/content/6/2/2158244016653987> [Accessed 29 June 2016].

Rolandberger, 2014. INDUSTRY 4.0: The new industrial revolution How Europe will succeed. [PDF] Available at: < https://www.rolandberger.com/media/pdf/Roland_Berger_TAB_Industry_4_0_20140403.pdf> [Accessed 29 June 2016].

Sommer, L., 2015. Industrial Revolution - Industry 4.0: Are German Manufacturing SMEs the First Victims of this Revolution? Journal of Industrial Engineering and Management, 8(5), pp. 1512-1528.

Subirana, B. B., 2014. Technologies for the next generation of production systems. [PDF] Available at: < https://upcommons.upc.edu/bitstream/handle/2099.1/24565/BlancaBertran_BachelorThesis.pdf?sequence=1&isAllowed=y > [Accessed 29 June 2016].