Industry 4.0 and Servitization – New Concepts in Global Manufacturing

I spent the past week at the University of Birmingham in England with a group of 16 Operations and Economics Professors from across Europe. I was there to lecture and to represent the Reshoring Institute (http://www.ReshoringInstitute.org ).

This group of universities is working together to provide research and assistance to companies that are reshoring manufacturing and building production capability in Europe. Some of the biggest buzz of the week was around the idea of Industry 4.0 (the Internet of Things) and Servitization.

The term “Industrie 4.0” comes from a project in the high-tech strategy group of the German government, which promotes connection via the Internet. It is the fourth industrial revolution in manufacturing.

1. The first industrial revolution was the mechanization of production using water and steam power
2. The second industrial revolution introduced mass production with the help of electric power
3. The third industrial revolution was the digital revolution and the use of electronics and IT to further automate production
4. The fourth industrial revolution is the Internet of Things

Industry 4.0, the Fourth Industrial Revolution, is all about connecting machinery to the Internet. Industry 4.0 creates the “smart factory” where machinery and processes are monitored over the Internet and then communicate and cooperate with each other. Just imagine up to 50 billion machines connected in some way over the Internet.

This of course, has significant ramifications for Reshoring. The more automation is introduced into manufacturing, the more efficient labor becomes. This shifts the economics of manufacturing to allow for the total cost of ownership/production to be competitive in the US. This supports reshoring of production or producing in local markets for the local consumers. The overall cost to produce and deliver goods declines.

The other significant idea discussed is the concept of “Servitization.” This is the process of companies transforming from simply producing a product to including service in the total product offering. The complete product package includes field service, service level agreements and pricing for spares and replacement parts. European manufacturers are way ahead in Servitization.

Some American companies such as Cisco Systems have been including product services and consulting services in their product offerings for many years. But US companies like Cisco, that understand a fully integrated product offering and co-sell product and services, are few and far between. This is because most companies clearly separate the sales department from the services department and do not facilitate these departments to work together on customer deals.

But executives are slowly recognizing the competitive advantage of including services and the potential for a significant bump up in revenue when services are included in a fully integrated offering. There is a lot to be achieved in new ways of offering products and services.

It is great to be working with other Universities on revitalizing manufacturing through reshoring and by introducing new ideas and technologies. We are all interested in the new industrial revolution.

SC
MR