Many businesses not ready for industry 4.0, report finds

Industry 4.0 is a term that originates in Germany. It is also known as the fourth industrial revolution, and broadly refers to the growing influence of digital technologies on the way products are manufactured and on business processes.

A study conducted by Warwick Manufacturing Group (WMG), an academic department of Warwick University, found that many businesses are failing to harness the full potential of technologies such as automation, cloud computing and digital modelling, and further lagging in terms of product customisation and offering "data driven services".

The businesses are also not embedding digital culture and skills into their strategies as much as they should, while other shortcomings include a lack of integration of supply chains, and untapped potential to alter business models for example to take advantage of opportunities to deliver services that compliment products being manufactured.

The WMG report was based on a survey of 53 predominantly senior managers or executives in businesses based in 22 different countries and operating across 15 different sectors. The report contains a new industry 4.0 readiness assessment tool to help businesses benchmark themselves against the businesses surveyed.

Cerys Wyn Davies of Pinsent Masons, one of the authors of the report, said the study highlighted key legal issues relating to industry 4.0 that businesses are grappling with, notably in relation to contracting.

"Industry 4.0 requires businesses to collaborate with others to get the most value from the projects they are involved in," Wyn Davies said. "In this respect, there is a need for businesses to explore new contracting models where the risks in projects are shared among the multiple parties and where the parties are incentivised to work towards the common goal. Traditional linear contracts are unsuitable for the industry 4.0 age."

According to the WMG study, half of the survey respondents said that their contracting behaviours "remained unchanged" despite industry 4.0. The report said that this is likely to result in businesses missing out on "commercial opportunities".

"The greatest opportunities from the adoption of industry 4.0 will require contracting models providing for greater collaboration and partnership models," it said. "There will be much broader scope to embrace the benefits of industry 4.0 and develop more fruitful relationships within supply chains if contracting models become less linear and more flexible or collaborative."

Wyn Davies said there are further legal issues for businesses to consider.

"Industry 4.0 requires businesses to extend their perception of intellectual property (IP) from merely protecting those assets. In the new collaborative world, businesses will need to reach agreements with others that allow them to access new technologies which can help make their processes more efficient, or enable them to expand on the solutions they can offer customers. Businesses should therefore embrace a connected IP approach and open themselves up to collaboration, licensing and cross-licensing of IP. In some cases technologies may be standards-essential, and so they will be obliged to enter into licence agreements to make use of that technology," she said.

"Further legal issues that the report has highlighted include the fact that many businesses are not yet getting to grips with the liabilities that arise from the use of new technologies. A prime example is in relation to how liability should be attributed where there is an accident involving the use of digital technologies and where fault cannot be attributed." she said.

"The survey showed a good level of awareness among businesses over data issues. These results were likely prompted by the fact that businesses recognise that data is the gold of industry 4.0 and the internet of things, and because of the widespread coverage about the forthcoming General Data Protection Regulation. However, there remains a limited understanding among businesses of how they should treat personal data compared to other commercially sensitive information. In many cases, opportunities to share data are being missed due to the fear of getting it wrong," Wyn Davies said.

The WMG report also highlighted the benefits of businesses operating fully integrated supply chains that harness the potential of data.

"Sharing and using information intelligently allows suppliers to help manufacturers in production and inventory planning, driving efficiencies in both the manufacturer’s and customer’s operations," the report said. "Many companies claim to have such collaborative opportunities in sight, but over 30% of companies in our survey claimed no integration with suppliers or customers."

"There are other benefits of supply chain integration that far fewer companies have on their radar. These include better service and maintenance of companies’ assets and products held by suppliers, and better cooperation and decision-making with customers. These open possibilities for new service offerings and ways of working, and business leaders need to get there ahead of competitors. To succeed, companies will need to share and use information in a forward-looking way that integrates the supply chain," it said.

Businesses were also advised to realign their strategies for the industry 4.0 era.

"There are two potential strategies that could be adopted to ensure that the products and services offered by a business are harnessing the full potential of the cyber-physical age," the report said. "One strategy, is to develop physical products that are customised through the data driven services that they can support… The initial sale of the product creates a degree of lock in. This can be through a one-off purchase or longer term contract basis (e.g. smartphones are bought under contract over 12 months). This provides a base from which to grow the revenues from the data driven services."

"The alternative route is to develop more physically customisable products. This strategy may require not only a redesign of the product, but also the technology to produce it to enable full customisation at mass-customised prices. It requires a more fundamental rethink in the way that we design and manufacture products. These two strategies are not mutually exclusive, and the ultimate way to harness maximum potential may be to achieve a combination of the two," it said.