A Viewpoint by Anca Mocan, Lead Consultant at Amaris Consulting
What is industry 4.0?
Industry 4.0 creates what have been called ‘smart factories’. These are made up of smart machines, storage systems, and production facilities that can communicate with each other independently1. Machines communicating with one another about their status facilitates the improvement of business operations everywhere, but particularly in supply chains: products becoming continuously identifiable in time and space brings visibility and reactivity to supply chain operations2. This can be a strong competitive advantage for companies if correctly implemented.
New technology has always disrupted the business landscape: the first three Industrial Revolutions were defined by mechanization, electricity, and information technology. The fourth Industrial Revolution (Industry 4.0) is now well underway with the introduction of the Internet of Things (IoT) and Services into the manufacturing environment. Businesses have already begun to establish an interconnected global network of physical objects connected to each other with the support of IoT and cloud computing technologies.
Industry 4.0 and Digital Skills?
Many companies are experiencing a lack of digital skills and the corresponding culture of transformation. Industry 4.0 calls for strong data analytics capabilities as well as other technical skills, such as predictive-prescriptive analytics and forecasting. Just 18% of respondents to a recent survey rate the maturity of their data analytics capabilities as advanced; over half say that the lack of skills and competencies is a barrier to making full use of data analytics3.
The supply chain market is investing in technology information system (IS) solutions, which include software such as warehouse management systems (WMS) and enterprise resource planning (ERP). Clearly there is a willingness to implement these tools, but the knowledge required to use them is not always there. This can significantly reduce the investment impact in the long run.
Supply chain Industry 4.0 trends
For companies seeking to take advantage of the myriad benefits Industry 4.0 offers, including enhanced productivity, efficiency, and innovation, there are many options to consider.
- Blockchain: a way to improve transactional data management and improve the transactional experience overall. Blockchains facilitate better data transfer and data security.
- Delivery of choice: flexibility in the choice of logistics providers. Benefits include service flexibility and customer-oriented services.
- Elastic logistics: being able to adjust logistics capabilities at any time by aligning with demand fluctuation, resulting in service flexibility, connected business processes, and scalability.
- Perfect order deliveries: increasing the percentage of perfect orders by improving accuracy through big data use and customer-oriented services.
- Drones and smart glasses: optimizing picking and delivering by integrating augmented reality, face recognition and hands-free route searches.
- Data-Driven logistics drive anticipatory logistics: predicting product demand and changing operations accordingly by looking at historical data patterns.
- Sustainable and profitable supply chains: reducing carbon footprints by increasing routing optimization and prioritizing smarter operations.
Big data analytics, accuracy, scalability, and customer-oriented services are becoming key for companies’ technology strategy. To satisfy an ever-diversifying customer demand, companies within the logistic network need to prove their competitive advantage through the adoption of Industry 4.0 standards and practices.
Industry 4.0 in action: Amazon
American technology behemoth Amazon has been leading the supply change management (SCM) charge. The company’s warehouse improvements have led them to be the number one online retail store in America with over 386 billion US dollars in revenue in 2020. While Amazon is not alone in implementing Industry 4.0 technology, the company stands out for the number and huge scale of concurrent improvements it has made. Among Amazon’s Industry 4.0 technologies are:
- Predictive analytics: Amazon uses a comprehensive collaborative filtering engine. This technology looks at customers’ previous purchases, abandoned shopping carts, ratings, wish lists, and any other data they can glean, and use it to predict what items customers will like. Then they recommend those items4.
- Distributed order management: Amazon reduces shipping costs by up to 40%4 by linking with manufacturers and tracking their inventory. When a customer places an order, Amazon’s data systems look for the warehouse closest to both the vendor and the customer and calculates the best way to deliver the package through mathematical optimization.
- Haptic directions: to increase the speed at which warehouse employees are moving their hands and the general direction of that movement, Amazon is fitting people with haptic wristbands. These bands use vibrations to nudge arms in any direction and are programmed to go towards the item the operator is supposed to pick5.
- Automated shelving: people cannot shelve things as fast as robots, which is why Amazon replaced most of its shelvers with automated robots that can go as fast as 30 kilometers an hour. Additionally, instead of having the person move to the shelf, Amazon has devised a way to have the shelf come to the person with the help of small carrier robots6.
- Big data sharing: Amazon allows other companies to access their big data by means of its Amazon Web Services. This helps other retailers analyze customer demographics and spending habits to improve the way they get to their buyers 7.
While there is of course a difference between the size of Amazon’s business and that of other companies, their example proves that Industry 4.0 application is a viable business investment. However, while Industry 4.0 is an advancement from a technological point of view, Amazon is being questioned on the impact this is having on its employees.
Amazon is increasing at a staggering pace year by year, having exploded in popularity during the COVID crisis. This has led to the creation of hundreds of fulfillment and sorting centers, a growth that will create many jobs in the short term. Unfortunately, this follows numerous negative statements from the company’s workers in recent years. The company is using Industry 4.0 solutions to improve on their fulfilment time, but that sometimes comes at the expense of the workers, who say they are dealing with long working hours, low pay, poor working conditions, and physical and mental exhaustion8. Amazon’s example should serve as a lesson to others that while Industry 4.0 solutions can support business growth, managers must be trained not to implement it at the expense of their workers.
Why should we keep an eye out for Industry 4.0 solutions?
Industry 4.0 has huge potential for business improvement. With a projected annual growth rate of 11% at least until 2026, the market will expand from $80.1 billion in 2021 to $134.9 billion by 20269. People want to invest in technology that will improve the speed and quality of their production: the issues begin when the people making the investment don’t have the in-house knowledge or stability to implement the technology properly.
Read more about our capabilities in Smart Manufacturing & Factories here.
- Henning, K. (2013). Recommendations for implementing the strategic initiative Industrie 4.0.
- Hermann, M., Pentek, T., & Otto, B. (2015). Design principles for Industrie 4.0 scenarios: a literature review. Technische Universität Dortmund, Dortmund.
- Wills, J. (2018, October 20). 7 Ways Amazon Uses Big Data to Stalk You, Retrieved, January 2019, from https://www.investopedia.com/articles/insights/090716/7-ways-amazon-uses-big-data-stalk-you-amzn.asp
- Solon, O. (2018, February 1). Amazon patents wristband that tracks warehouse workers’ movements. Retrieved from: https://www.theguardian.com/technology/2018/jan/31/amazon-warehouse-wristband-tracking
- Knight, W. (2015, July 7). Inside Amazon’s Warehouse, Human-Robot Symbiosis, Retrieved from: https://www.technologyreview.com/2015/07/07/248370/inside-amazons-warehouse-human-robot-symbiosis/
- Schoenherr, T., and Speier‐Pero, C. (2015). Data science, predictive analytics, and big data in supply chain management: Current state and future potential. Journal of Business Logistics, 36(1), 120-132.
- Reisinger, D. (2017, January). Amazon Is Planning to Hire 100,000 Full-Time Employees. Retrieved from: https://fortune.com/2017/01/12/amazon-full-time-employees/
- Semuels, A. (2018, February 1). What Amazon Does to Poor Cities. Retrieved, June 2019, from https://www.theatlantic.com/business/archive/2018/02/amazon-warehouses-poor-cities/552020