The New Industrial Revolution

Scott Bolick (left) and Nils Herzberg. (Photo: SAP)
Scott Bolick (left) and Nils Herzberg. (Photo: SAP) Today, technology is merging physical and digital worlds throughout all layers of production. Experts say that a new fourth industrial revolution is under way. Which companies should care about Industry 4.0?

Scott Bolick: Initially, Industry 4.0 was only relevant for companies in the manufacturing space. In the meantime, the topic has grown. Many companies are moving out of their traditional industry silos and are beginning to cut across value chains. Industry 4.0 supports this by connecting and thereby rendering systems, networks, and machines smart. Ultimately, this enables smart factories, smart grids, or even smart cities.

3D printing brings innovation in processes and models

Nils Herzberg: One example is 3D printing. More of today’s products are being manufactured to the customer’s specification. This means the designs are different for each customer. You can send a 3D model of a digitized product to any location in no time. This allows you to make a spare part directly at the location where it is needed. And when the product later requires service, the 3D model also assists in that process. All of a sudden, we are capable of innovations in business processes and business models.

Next page: People no longer want to own products, but use them

What changes will we see in the next 5, 10, or 20 years? Can you share your expectations?

Scott Bolick: What I see happening these days is a shift toward individualization. Businesses as well as consumers are looking for individual products and services. This requires companies to produce a lot size of one.

Ownership is becoming less relevant

A second trend we observe is that the concept of ownership is becoming less relevant. People don’t want to own things anymore; they want to use them. People don’t want to own a car. They want to drive it when they need it. The same is true for music. My generation still has CDs at home, but more and more people just have accounts where they listen to music in the cloud.

I cannot tell what changes we will see in 5, 10, or 20 years, but I am sure that individualization and sharing are going to be everywhere. We will not just buy and sell, but rather pay on a consumption basis. It’s a different model.

Next page: How SAP contributes to Industry 4.0

Scott Bolick. (Photo: SAP)
“Businesses as well as consumers are looking for individual products and services,” says Scott Bolick. (Photo: SAP)

What is your favorite trend or scenario?

Nils Herzberg: My twin sons are eight years old. Their generation simply does not care about the concept of ownership. We see this trend not only in consumer markets but also in industries. A car manufacturer, for example, might own a thousand forklifts. Why should it? The company just wants to use them. If the car manufacturer only pays for usage, the forklift supplier needs to take on additional risks. Suddenly, the supplier has to guarantee reliability and availability. How does it price that service? How does it get data on the condition of the forklifts?

This example shows that Industry 4.0 is not an optional exercise but an absolute necessity as we move from an ownership-based economy to a consumption-based economy. Companies that start to think about new processes now will definitely have a competitive advantage.

Idea-to-performance initiative at SAP

How does SAP as a business software company contribute to Industry 4.0? What is your mission?

Scott Bolick: We will provide solutions that help our customers generate value as new technical possibilities open up. With the idea-to-performance initiative, companies can already capitalize on Industry 4.0 opportunities today. This holistic approach offers technologies and methodologies from SAP’s five market categories: Big Data, Mobile, Cloud, Analytics, and Applications. The resulting IT infrastructure and road map help businesses transform as they move from an ownership-based to a consumption-based economy.

Next page: Starting with Industry 4.0

What is your recommendation for companies that would like to start with Industry 4.0 scenarios and business models?

Nils Herzberg: I don’t think there will be a standard set of recommendations. The approach depends on the company and where it is located in the supply chain. A manufacturer, for example, will face different issues to a machine integrator. You actually need to stand back, forget about the day-to-day business, and figure out where the biggest opportunities are. Ultimately, it’s about creating the most value for your customer. Over time, specific use cases will stand out because they make the most sense. We will see islands of process innovation.

Building a road map

Scott Bolick: Usually we start with design thinking workshops to gain momentum. Initially, a group of people with different backgrounds comes together in a creative environment to spin out ideas for specific business scenarios. The next step is for them to evaluate the different ideas according to various criteria. Those could be value generation or consumption in terms of resources, such as people, energy, materials, or money. Then they build a grid of the most strategic topics. After that, we look into how to sequence activities and build a road map. Some components are foundational and others will be built on top.

This is a very powerful methodology that can help our customers grow smarter, faster, and simpler. This is the approach that underlies the Idea-to-Performance initiative at SAP.

Next page: Industry 4.0 has worldwide relevance

Nils Herzberg. (Photo: SAP)
“In Germany, companies are already very much aware of what Industry 4.0 means,” says Nils Herzberg. (Photo: SAP)

The expression “Industry 4.0” comes from Germany, but don’t these changes in production affect all regions in the world?

Nils Herzberg: In Germany, companies are already very much aware of what Industry 4.0 means. But the topic is relevant around the globe. In the United States, we are already seeing massive investments in advanced manufacturing. After many years of outsourcing, the country lost a significant amount of manufacturing capacity.

Industry 4.0 ideas can help reverse the trend

But now it has begun reversing the trend. The ideas, methods, and innovations of Industry 4.0 can help. This is as true for emerging markets such as China, Brazil, and India, as it is for traditional manufacturing economies like Korea and Japan.