Industrial Software

Fear and Loathing on the Factory Floor

Industry 4
Factory floor automation.
  • Why it matters

    Why it matters

    Germany’s strong industrial base has allowed it to forge ahead when it comes to the digitalization of production, but the United States is hot on its heels.

  • Facts

    Facts

    • A PwC survey of 235 companies found that digitalization reduced costs by an average of 2.6 percent a year.
    • Siemens launched a new Digital Factory division on October 1.
    • Siemens’ digital division is expected to have a turnover of €9 billion.
  • Audio

    Audio

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It is an area where Germany has a head start on the United States.

“Industry 4.0,” the term for digitizing and networking industrial production, is a specialty where German industry has made great strides. Europe’s biggest economy still has a strong industrial base and massive manufacturers, many of which are modernizing their production processes.

The introduction of digital efficiencies into factories has the potential to become a fourth industrial revolution. At the very least, it will radically change the way industrial production is done.

Digital systems already can enable the sharing of data between machines, and can closely calibrate the timing of production to optimum energy use or incoming orders. Software controls can also send a just-in-time signal to a warehouse thousands of kilometers away to order a spare part.

According to a survey by PwC of 235 industrial companies in Germany, firms in Europe’s largest economy estimate that digitalization improves their efficiency by 3.3 percent a year on average. Digitalization can reduce costs by 2.6 percent a year, they said.

Germany is at the forefront of this wave of digital factory retrofitting. The big reason is the country’s healthy industrial base, which includes not only big companies but also small- to mid-sized businesses that are actively introducing computer networking into their production processes.

At Siemens, the new chief executive, Joe Kaeser, has made Industry 4.0 a top priority. At the beginning of this month he initiated a new “Digital Factory,” or DF, division. It will allow the company to offer “integrated hardware, software and technology-based services in order to support manufacturing companies,” according to Siemens’ company website.

“This strengthens our leading role,” Mr. Kaeser said.

The new division, which is expected to have a turnover of €9 billion ($11.5 billion), will combine factory automation and product-lifecycle management, or PLM, software.

Siemens has strengths in both industrial production software and hardware, making it well placed to link the two to ride the Industry 4.0 wave.  The Munich-based company’s industrial division alone employs 8,000 software engineers, five times as many as it did 10 years ago.

That is one reason why Mr. Kaeser is not particularly threatened by international competitors, whether industrial rivals such as General Electric, or software specialists.

“We have long been where the others want to be: in the power plants, the factories, the trains, the traffic management systems, the hospitals,” Mr. Kaeser said.

“We shouldn’t stir up fears, but instead we have to keep up with the competition and forge ahead.”

Frank Riemensperger, Director, Accenture Germany

And like the Googles of this world, Siemens has access to a huge amount of data. After all industrial companies like Siemens know how to integrate data intelligently into industrial processes.

“That is why we have no fear – but a lot of respect,” Mr. Kaeser said.

Respect for the competition is important. After all, other countries have also discovered the importance of this sector. The most important is of course the United States. Companies like IBM and Cisco are already looking at ways to create new business models based on integrated platforms and technical standards.

Germany and the United States are rivals when it comes to the digital industrial transformation.

“German producers are coming from intelligent products that are networked. For the American industrial-Internet companies, the product is not important,” Frank Riemensperger, Germany director of consultancy firm Accenture, told Handelsblatt. “They want to build software platforms, and collect company data, analyze it and turn that into new business models.”

Industrial giant GE is in the vanguard.

Three years ago, GE’s chief executive, Jeffrey Immelt, invested $1 billion in Industry 4.0, opened a research lab in Silicon Valley and bought software and data analysis companies.

He also created partnerships for GE with companies such as Cisco, Intel, Softbank and Vodafone. This year GE expects to generate sales of around $1 billion from the “Internet of machines” and says by 2017 that revenues should increase to $5 billion.

Industry 4-0 Hannover DPA
Hannover Messe 2014. German companies are at the forefront of Industry 4.0. Source: DPA

 

Germany may have an Achilles’ heel, though, going forward. The country is extremely concerned with data protection and security and deeply suspicious of how big Internet companies, particular Google, can use data.

If the companies here allow these fears to stand in the way of needed digitization, it could allow rivals to not only catch up but to overtake them.

“We shouldn’t stir up fears, but instead we have to keep up with the competition and forge ahead,” said Mr. Riemensperger,  the Accenture analyst.

Industry associations are concerned that growing doubts about data security are already dampening many German companies’ enthusiasm for Industry 4.0.

“If production companies are not sure where their data is being kept, then there will be no broad adoption of Industry 4.0,” Hannes Hesse, the director of the German Engineering Association, VDMA, told Handelsblatt.

In particular, the Mittelstand, Germany’s vital small and mid-sized companies, are worried about becoming too reliant on technological infrastructure. “The nightmare scenario is that with these IT platforms, producers won’t have exclusive access to their own data, but that Internet companies like Google will have,” said Hesse.

The electronics industry, for example, has already demanded a European solution, in order to better protect sensitive data. “Technical dependency has to be avoided in this area,” said Michael Ziesemer, president of the industry association, ZVEI.

Martin Wocher covers the IT industry from Düsseldorf, Axel Höpner is the paper’s bureau chief in Munich,  Thomas Jahn is the Handelsblatt’s New York correspondent.  To contact the authors: wocher@handelsblatt.com, hoepner@handelsblatt.com, jahn@handelsblatt.com.

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