«Industry 4.0 STUDY Abstract This study, prepared by Policy Department A at the request of the ITRE committee, analyses the Industry 4.0 Initiative ...»
DIRECTORATE GENERAL FOR INTERNAL POLICIES
POLICY DEPARTMENT A: ECONOMIC AND SCIENTIFIC
This study, prepared by Policy Department A at the request of the ITRE
committee, analyses the Industry 4.0 Initiative which encompasses the
digitalisation of production processes based on devices autonomously
communicating with each other along the value chain. It considers the potential of the initiative and business paradigm changes and impacts of this transformation.
The study assesses the rationale for public intervention and outlines measures that could be adopted to increase the gains and limit the threats from Industry 4.0.
IP/A/ITRE/2015-02 February 2016 PE 570.007 EN This document was requested by the European Parliament's Committee on Industry, Research and Energy (ITRE) AUTHOR(S) Jan SMIT, Centre for Strategy & Evaluation Services LLP Stephan KREUTZER, Centre for Strategy & Evaluation Services LLP Carolin MOELLER, Centre for Strategy & Evaluation Services LLP Malin CARLBERG, Centre for Strategy & Evaluation Services LLP
RESPONSIBLE ADMINISTRATORFrédéric GOUARDÈRES
EDITORIAL ASSISTANTMirari URIARTE
LINGUISTIC VERSIONSOriginal: EN
ABOUT THE EDITORPolicy departments provide in-house and external expertise to support EP committees and other parliamentary bodies in shaping legislation and exercising democratic scrutiny over EU internal policies.
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Policy Department A: Economic and Scientific Policy European Parliament B-1047 Brussels E-mail: Poldep-Economy-Science@ep.europa.eu Manuscript completed in February 2016 © European Union, 2016
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DISCLAIMERThe opinions expressed in this document are the sole responsibility of the author and do not necessarily represent the official position of the European Parliament.
Reproduction and translation for non-commercial purposes are authorised, provided the source is acknowledged and the publisher is given prior notice and sent a copy.
Industry 4.0 Analytical Study
CONTENTSLIST OF ABBREVIATIONS
LIST OF TABLES
LIST OF CHARTS
LIST OF FIGURES
1. INTRODUCTION – AIMS OF THE STUDY
1.2 Scope of the Study
1.3 Methodological approach
1.4 Structure of the report
2. CURRENT INDUSTRIAL POLICY DEBATE IN THE EU.............. 11
2.1 Overview of the development of industrial policy and the policy debate...........11
2.2 Developments at European level
2.3 After the crisis
2.4 Issues underlying the policy debate
2.5 Key data
2.6 Key questions
3. INDUSTRY 4.0
3.1 What is Industry 4.0?
3.1.1 The meaning of the term and main features
3.1.2 Development of the concept
3.1.3 Related terms
3.2 The underlying logic of Industry 4.0
3.2.1 Disruptive innovation
3.2.2 Preconditions for Industry 4.0
4. LEAD MARKETS
4.1 Lead markets and Industry 4.0
4.2 The “Dual Strategy” for Industry 4.0 success
PE 570.007 3 Policy Department A: Economic and Scientific Policy 5. INSIDE INDUSTRY 4.0
5.1 Technological change
5.1.1 Technological changes associated with "Industry 4.0" and potential wider implications
5.1.2 Impacts of technological change
5.1.3 Industry 4.0 cross-fertilisation with other sectors
5.1.4 Digital security
5.1.5 Intellectual property
5.2 Impacts of social change
5.2.1 Public awareness and response – attitudes and dispositions
5.2.2 The supply of labour and skills
5.2.3 Mobility intra EU
5.3 Impacts of business paradigm change
5.3.1 Business response to Industry 4.0
5.3.2 Sustainability (costs, environmental, long term)
5.3.3 The supply chain and SME participation
5.3.5 Limitations to the export of Industry 4.0 equipment and services............... 64 5.3.6 Industry 4.0, the EU’s global competitiveness and domestic manufacturing industry
6.1 Rationale for intervention
6.2 EU level
6.3 Member State level
6.4 Gaps in policy
7.1 Key benefits and drawbacks
7.2 Business results and expected impacts – will it work?
7.3 Where public sector support could add value
7.4 The type of support
8.1 Refined policies
8.2 New policies
Appendix A: Case Studies Appendix B: Overview of Digital Manufacturing Initiatives
LIST OF ABBREVIATIONSCP(P)S Cyber physical (production) sysems EFFRA European Factories of the Future Research Association (EFFRA)
EXECUTIVE SUMMARYThis report presents the findings of an analytical study on ‘Industry 4.0’ carried out by CSES for the European Parliament. The study aims to inform the debate about the role of industrial policy at an EU level in supporting Member States (MS) and enterprises as regards the transformation required to connect digital technologies with industrial products and services.
The study first sets out the current industrial policy debate and its evolution. Then it looks into the details of Industry 4.0. Next three key dimensions of change relevant to Industry
4.0 are explored: technological, social and the business paradigm. Finally the policy implications are outlined and recommendations are made.
Industry 4.0 describes the organisation of production processes based on technology and devices autonomously communicating with each other along the value chain: a model of the ‘smart’ factory of the future where computer-driven systems monitor physical processes, create a virtual copy of the physical world and make decentralised decisions based on self-organisation mechanisms. The concept takes account of the increased digitalisation of manufacturing industries where physical objects are seamlessly integrated into the information network, allowing for decentralised production and real-time adaptation in the future.
Industry 4.0 was initially developed by the German government to create a coherent policy framework to maintain Germany’s industrial competitiveness. Related terms used internationally include Internet of Things, Internet of Services, Industrial Internet, Advanced Manufacturing and Smart Factory.
Industry 4.0 will only succeed if certain key requirements are met: standardisation of systems, platforms, protocols; changes in work organisation reflecting new business models; digital security and protection of know-how; availability of appropriately skilled workers; research and investment; and, a common EU legal framework to support the dissemination of Industry 4.0 in the Internal Market. If successfully implemented, the potential benefits of Industry 4.0 relate to productivity gains, revenue growth, and competitiveness. The implementation horizon is to have pilots running in 2016 and full implementation as of about 2025.
The policy approach in support of Industry 4.0 is to develop new lead markets in a dual strategy where a) Industry 4.0 technology and services could be sold and b) where manufacturing and other products more generally can be sold more easily thanks to productivity and competitiveness gains. A key in succeeding with this strategy will be to integrate SMEs, who often operate on a regional basis, into global value chains.
The study considers three dimensions of change that are of relevance in relation to Industry 4.0: technological change, social change and change in the business paradigm. As regards technological change, digitalisation has been a major driver of changes throughout the value chain, and while many businesses recognise the need to adjust, far fewer, especially among SMEs, are prepared for it. There are significant challenges (costs and risks) for firms as regards digital security in: intellectual property protection, personal data and privacy; design and operability of systems; environmental protection and health and safety. Public institutions have been created in many countries to improve cybersecurity. There is wide-ranging support for research at both EU and Member State level, but a good deal remains to be done.
PE 570.007 7 Policy Department A: Economic and Scientific Policy In the field of social change there is little awareness of Industry 4.0 outside the group of key stakeholders. Larger firms tend to be more positively disposed whereas unions remain cautious and have reservations. While a skills gap (as well as a gap in willingness) to adjust to the Digital Single Market exists, the skill requirements to adjust to Industry 4.0 are much greater. New ways of work are needed, which have positive and negative impacts on employees; and the gap in domestic (and EU) supplies of skills is currently being addressed through sophisticated immigration strategies. The supply of Industry 4.0 skills and capabilities throughout the EU is uneven, which is likely to lead to increased concentration in and competition between existing centres.
Change in the business paradigm: there are challenges for SMEs in participating in Industry 4.0 supply chains (costs, risks, reduced flexibility and reduced strategic independence). The public rector can play a role in creating an ecosystem that will help SMEs transition to Industry 4.0, but little research has been carried out in this area.
Standardisation remains a major challenge as regards large scale implementation of Industry 4.0. The question as to whether Industry 4.0 will strengthen the EU industry’s leadership, or if it is more of a necessary requirement to maintain its position, or if leadership will inevitably pass to the new emerging economies such as China through the international diffusion of technology by multinational enterprises, remains to be answered.
An intervention from the public sector could take various forms, but the one most promising appears to be to support research at EU and Member State levels and to coordinate initiatives across the EU, e.g. through a platform and to illustrate good practices of initiatives in some MS that others could follow. In order to maximise added value, initiatives should go beyond merely technical aspects and the manufacturing sector, and should reflect the differences in Member States’ economic structures. Direct intervention in markets appears to be less promising.
In summary, the study recommends:
A review of existing measures targeting Industry 4.0 (and related initiatives) to • ensure that they consider the most important aspects – e.g. skills, migration, business model change, clusters, cross-border collaboration programmes for enterprises, cybersecurity and standards, and implications for SMEs and European competitiveness.
Adopting new measures where gaps are identified at EU and Member State level to • monitor latest developments, fund research and support SMEs, raise awareness of challenges and opportunities, support development of a framework including standards and play a coordinating role.
1. INTRODUCTION – AIMS OF THE STUDYThis document presents an analytical study on ‘Industry 4.0’ for the European Parliament's Committee on Industry, Research and Energy (ITRE) prepared by the Centre for Strategy and Evaluation Services LLP (CSES). In this introductory section is set out the aims and scope of the study, the methodology adopted and the structure of the report.
1.1 Aims The purpose of the study is to inform the debate about the role of a coordinated and integrated industrial policy at an EU level in supporting the economies of the Member States and contributing to the competitiveness of European enterprises, including SMEs, and in particular as regards connecting digital technologies with industrial products and services. The study aims to enable Members of the ITRE Committee to establish their own view of Industry 4.0, and on whether policies have been effectively implemented and to what extent.
The study also aims to pay close attention to analysis of how national and EU policies are capable of speeding up the rate of industrial transformation to high-added-value added products, processes and services, securing highly skilled employment and winning a major share of world manufacturing output.
In particular, the study aims to show how and to what extent proposed measures to support Industry 4.0 are implemented at community level, and identify bottlenecks that will affect their development.
The overall aim is to provide a balanced presentation of the variety of views seriously considered among professionals in this field as well our own independent assessment.
1.2 Scope of the Study The scope of the study is to analyse how the concept of Industry 4.0 is implemented and to describe the necessary measures to create and serve new lead markets for technologies
and products. The study addresses, among others, the following issues:
Table 1.1: Industry 4.
0 – issues addressed
The main focus of the research is on how Industry 4.0 has emerged in Germany as this is where it originated and where most of the relevant development and implementation of the initiative has been carried out. However, developments in other Member States are also mentioned.
Policy Recommendations In order to improve legal coherence and facilitate implementation, the study aims to elaborate some policy recommendations relative to the findings. Based on the analysis of