A New World Wired by the Internet of Things

The amount of data humans and devices generate every day is mind boggling. Storing that data has become so easy we’re almost numb to the sheer volume of information. For example, a drive that can store all of the world’s music will run you about $600, according to a McKinsey report on big data. But the sector of the economy that stores more data than any other source is often overlooked. It’s not healthcare, retail or government – it’s manufacturing. And the good news is that data is being used to transform the global manufacturing playing field by ushering in new business models and allowing companies to compete on smarts, not cost.

The Fourth Industrial Revolution is Underway

The rise of connected devices has the potential to bring about a fourth industrial revolution. The first Industrial Revolution was the mechanization of production using water and steam power. Following that, we saw the introduction of mass production with the help of electric power, and most recently the world saw what was possible through the use of IT to automate production.

Since first being introduced as an initiative by the German government in 2011, the term Industry 4.0 has become popular within the larger industrial sector to describe the next technology-enabled sea change in Industry. In this case, the technology advancement driving the shift is not electric power or IT, but rather the proliferation of internet-connected devices, also known as the Internet of Things (IoT), which will enable Big Data and Analytics.

With manufacturing as one of the largest economic drivers across the globe, we should be anticipating how the tectonic shift brought on by the IoT is going to disrupt this important, interconnected global market.

According to Gartner, by 2020, the IoT will consist of 26 billion devices and it will generate over $300 billion in incremental revenue, the majority generated by services. Already, industrial processes create a vast quantity of data, so what happens as the IoT becomes more robust, with more and more devices becoming connected and networked? We will see an explosion of data at the device level, and that data will enable new business models, give rise to automation and robotics, and transform the global manufacturing playing field.


IoT has the potential to create an entirely new business model in the industrial sector. With connected devices, manufacturers and producers can transition from selling products to selling the value a product provides. This emerging delivery model is known as Product-as-a-Service (PaaS) and ARC Advisory Group points to an example where an aircraft engine builder bills an airline based on the amount of thrust used, as opposed to charging for an engine and maintenance contract.

PaaS goes beyond a connected device and becomes a business model when the manufacturer, not the user, retains ownership of the product. The value and payment structure evolves to where the manufacturer provides a value-add service, as well as maintenance and repair. Through the connectivity inherent through the IoT capabilities embedded these products, the maintenance and service can take place very efficiently, often automatically and through remote access of the product. This emerging business model also changes the warranty and service structure of many companies.

Rise of the Machines

Industry 4.0 is giving rise to a world of automated devices and an automated process for manufacturing them. Consider, for example, a piece of equipment (or asset) which has been generating operational data for parameters such as temperature, energy use, output and more. Based on those parameters, a “smart” asset should predict how long it can function optimally before it fails or needs service. In the event optimal operational parameters are exceeded, the asset will alert the maintenance personnel that a maintenance order has been scheduled or changed. Alternately, the asset can automatically search for and download a patch and seamlessly resume optimal operations. This takes the burden from the user, and makes the maintenance and service process far more effective for the manufacturer.

Data collection enables dramatically improved decision making capabilities - both reactive, automated decision making and contextual, strategic decision making. Continuous monitoring and data collection provides contextual history for normal manufacturing operations. When operations deviate from these normal parameters, connected, automated devices can reactively course correct in a millisecond and keep operations on track. Maintenance and improvements can be applied predictively by reading data to detect the optimal - or least optimal - time to conduct repairs. More connected devices generate more data, enabling better and faster contextually appropriate decision making.

Competing on “smarts,” not cost

For many decades, manufacturing has been dominated by the lowest cost players, but now manufacturers need to prepare for a world where value is re-defined. As more and more devices have embedded intelligence, Industry is getting “smart” by expanding its network of connected devices. With every passing day, the IoT increasingly informs the manufacturing process, and winning companies will be those who automate their operations and use data to create the smartest processes.

Automation enabled by the IoT and Big Data often results in faster, more effective and more predictive manufacturing processes. While not necessarily the cheapest, this nimble approach can deliver the highest value. For example, effective application of Industry 4.0 manufacturing principles can result in faster time to market. Low cost manufacturing processes tend to be slower due to longer lead supply chain demand cycles and greater shipping times. Industry has seen a rebirth of manufacturing in “smarter” regions because clients can more readily modify their orders to react effectively to market demand. 

Challenges abound, and so do opportunities

While we’re already on a road to Industry 4.0, it comes with significant challenges, namely around questions of data security and skills. Manufacturers need to attract and retain highly coveted business modeling experts, system and enterprise architects and data scientists – which historically have not been skillsets utilized in manufacturing.

On the security front, universally connected devices, more data, and a boom of cloud-based technology means manufacturers and users have more reasons to be concerned about data security. Basic measures such as firewalls, anti-virus software and keeping systems patched and updated go a long way to prevent the majority of potential data breaches. That said, both manufacturers and users must continually assess and update their security programs to ensure data is stored, managed and transported according to the highest security standards. This will require collaboration amongst all Industry players.

Industry 4.0 can be as transformative as the three industrial revolutions that came before it. It is enabling new business models, revolutionizing manufacturing processes through automation, and upending the global manufacturing marketplace. The companies and countries that best leverage opportunities presented by connected devices and the IoT will emerge as leaders in the Industry 4.0 marketplace. 


By Andy Roxburgh, Vice-President of Systems and Service, Schneider Electric's Industry Business



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