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Smart factories of the future

As the “Internet of Things” evolves, tomorrow’s factories will look much different from today’s. Products will “move themselves” along the line. Augmented reality software will allow employees to learn new tasks quickly. Products will “predict” when they need a tune-up. Replacement parts will be made on-the-spot with 3D printers. Some factories are already there. But what perils do they face? How can risk management help?

  • Benefits include connected processes, product customization and speed-to-market
  • Businesses stake considerable capital investment on promises of economic growth and other value-adds like reduced downtime and increased efficiencies
  • Success stories of pioneer companies that have reaped quantifiable benefits like near- 100% quality control help convince cost-wary manufacturers
  • Risks like data security and misuse, supply chain vulnerabilities, and cyber-attack – all of these should be addressed and can be mitigated

The “Internet of Things” (“IoT”) is an ever-growing network of interconnected devices, people and machines forecast to have an economic impact of up to $11.1trn by 2025i. It is transforming industry and bringing many opportunities with it. The so-called Fourth Industrial Revolution, or “Industry 4.0”, is a collective term embracing a number of contemporary automation, data exchange and manufacturing technologies, especially in the industrial setting.

Companies expect the transition to significantly transform their businesses, albeit at a substantial investment (some estimates run as high as 50% of planned capital over the next five years)ii. But with the investment can come considerable rewards, despite the price tag.

Business risks such as cyber-attacks, capital pressures and infrastructure breakdown concern those considering conversion. Technological risks were prominent in the Allianz Risk Barometer: Top Business Risks 2016 survey. “Cyber incidents” appeared in the top three risks for the first time and also ranked as the top long-term risk.

“Cyber security risk will only increase, as each device can be an entry point for data breaches,” explains Michael Bruch, Head of Emerging Trends, AGCS. “Interconnectivity can increase the damage significantly, creating high accumulation potential, which, in turn, will fuel demand for specific cyber insurance solutions.”

So which is it? Are companies better or worse off transforming to a “smart” model in which machines make real-time adjustments by means of electronic sensors and computer technology? What do those who have converted have to say about it?

The experience of Bosch

The experience of German manufacturing giant, the Robert Bosch company, illustrates how the challenges and rewards of going “smart” are met.

“Our Industry 4.0 implementation started with project pilots focused on innovation and creativity,” explains Dr. Thorsten Widmer, Bosch’s Vice President of Manufacturing Strategies, Investment Planning and Industry 4.0. It has since been applied to several state-of-the-art facilities.

Business partners must be connected within the supply chain for the model to be effective. Open standards must be in place. Safe, secure networks must be available, as well as fast, flexible IT systems. “It hasn’t been easy for us,” admits Widmer. “But it’s not easy for most companies.”

With Industry 4.0, human beings play the pivotal role based on digital information that helps them speed up and improve their decision-making capabilities.


“The success criteria for Industry 4.0 is that we have people, not just robots, in the factories of the future,” says Widmer. “Industry 4.0 supports, not replaces, people by providing space for participation, by helping regulate and lessen stress, and by opening up new challenges and opportunities for workers.”

Job performance is improved by innovative forms of learning models. Workers are supported by newer, faster ways of learning (for example augmented reality) that integrates them into the work process, assists with skill-building, and helps maintain well-being through workplace ergonomics. Work is impacted by a connected environment in which interaction of humans-to-machines and machines-to-machines is the norm, not the exception.

From the perspective of Widmer, the IoT transformation at Bosch is ongoing. “Of course, there are challenges and opportunities in a connected world. There are bound to be bumps in the road,” he says.

Challenges of implementing Industry 4.0

As always, market volatility is a challenge. With every fluctuation in the market, more resiliency is required, along with reliable and expeditious data. “Businesses have to perform in a volatile, uncertain, complex and ambiguous environment,” says Bettina Stoob, Head of Innovation, AGCS. “Economies of scale as a business mantra will be replaced by speed-to-market in the fourth industrial era.”

Add to that the desire to extract real value and analysis from all the received and processed data and it’s easy to see the challenge. According to a study by CRO Forum3, data analytics can boost productivity and generate savings – if it is used right.

Bosch’s smart factories use data for a number of activities but the more difficult task is to find value-added uses for all the data. “Data alone is nothing,” says Widmer. “It must be transferred into useful information to be beneficial.”

Other challenges involve individual customer requirements, since in the IoT model delivery times and product life cycles are shortened. “The most revolutionary topic in all of the Industry 4.0 discussion is disruptive business models,” says Widmer. Technology has developed at a robust pace, but as a business model it has been disruptive.”

There are risk considerations, workforce implications, and process upgrades to make, just to get in the game. “Industry 4.0 is a tool for managers to learn more about production processes and process improvement,” says Widmer. “It isn’t just that we implement something new and consider it done. Change happens – and that’s a good thing. With change comes opportunities.”


Big opportunities with Industry 4.0

But is this new model an industrial revolution or just another evolution? “If you look for technological trends that have come to us through connected industry,” says Widmer, “the argument can be made that the “IoT” is truly revolutionary.” Bosch has a stake in the revolution by equipping several of their 250 or so global factories with the full range of smart technologies.

One such technology is Radio frequency identification (RFID). Although not a “new” technology, it helps guide products along the line by communicating directly to sensors along the way.

Augmented reality applications are used at some Bosch facilities allowing employees to access job aids for maintenance tasks in real-time and on-the-spot to decrease downtime.

Some Bosch factories use 3D printing (rapid prototyping) for quick part replacement, resulting in less downtime. Advanced systems handle multiple materials like plastic and metal together without needing separate processes or changing of materials.

Networked smart tools provide real-time process anomaly information to the industrial control system (ICS), reducing downtimes and failure costs.

A Bosch factory in the US applies advanced predictive quality control data-mining concepts to maximize complex data gathered by the system.

Similarly, predictive maintenance concepts are applied as sensors along the line proactively search for places in need of maintenance and alert the production system.

Driverless vehicles move manufacturing parts from storeroom to production line, nudge the pieces along, and collect, process and communicate data enroute – thanks to sensors guided by RFID guides.

Automated production assistants (APAS), or robots handle dangerous, strenuous or monotonous tasks on many Bosch lines, or work hand-in-hand with employees on the line.

Supply chain maximization is achieved by the digital recording of the flow of goods along the line. The supply chain is virtually mapped and logistics are enhanced by data capture, maximizing efficiencies and minimizing costs and inventories.

“All of these technologies and many more have been good for industry,” says Widmer. “However, the network must be secure for people, processes, and information. Data security is paramount.” Effective risk management is of primary importance.

i The Internet of Things: Mapping the Value Beyond the Hype, the McKinsey Global Institute, June 2015.
ii
Industry 4.0: Opportunities and challenges of the industrial internet, Pricewaterhouse Coopers (PwC), 2014.
iii
The Smart Factory: Risk Management Perspectives, CRO Forum, December 2015.