Industry 4.0 and the Rise of the Server Factory

The fourth industrial revolution exposes two kinds of misapprehensions that concern not only industry players: one is about proper understanding of what industry 4.0 really is, and the other is related to enterprises that have to re-train to manage the strategic implications of change, following the technology investment rush favored by tax incentives. These are the two main findings emerging from a study conducted by SDA Bocconi School of Management for the Scientific Committee for Industrial Policy 4.0 and the Italian Federation of Paper and Graphics Firms. In a nutshell, it can be can argued that Industry 4.0 represents a major transition for the manufacturing industry based on three main elements.

➜ Connection and integration
The first is the tighter connection between machines and between man and machine. In particular, this connectivity allows the operator to work in full synergy with the machine, and enables machines, increasingly smarter to the point of reaching artificial intelligence, to take decisions independently. From the point of view of decision-making, machines become much more flexible and interact with each other, pre-empting the decision-making that had hitherto been left to the industrial operator. Of course, the implications of connectivity are really manifold, starting with the potential of using all of the idle capacity across various different production chains in order to improve saturation of plants, so to reduce investment and yet increase the level of service offered to the customer.

The second principle underlying the cyber-physical models of Industry 4.0 is the total integration of supply chains. The innovative element of connectivity implies that manufacturing systems can be permanently connected to the last passage of the value chain, which is the final customer. On the one hand, so-called real-time manufacturing will always be very complex to achieve, unless one resorts to very specific, technologically revolutionary construction solutions - which have limits in any case. However, we can imagine amazing printing farms that make the product on the customer's order, manufacturing parts according to unique specifications, which are tailored and delivered to the client when and where he/she needs it, by integrating the logistics of warehouses storing parts. However, for this to be the case, not only do individual supply chains need to be integrated, but all should be connected to each other and ultimately be driven by demand. Today the cross-sectoral integration of production chains and the availability of customer data and information in real time, already enable partial anticipation of customer demand.

➜ The era of mass customization
And finally, the third principle, perhaps the least clear to the vast majority of self-appointed Industry 4.0 experts. The future of manufacturing does not mean a return to factories packed with blue collars. In fact, it does not create additional employment in manufacturing, because it seeks to use technology to reduce investment in physical assets and technical infrastructure. Industry 4.0 is actually about transforming the factory into a server of skills and production capabilities, so that it is no longer in a black box removed from the customer, but is increasingly proximate to the customer, by being the essential component of an economy based on the intrinsic convergence between products and services. Industry 4.0 doesn't mean going back to manufacturing as some believe: global supply chains, while volatile, are still the most efficient way to produce highly standardized goods at the lowest cost. Industry 4.0 is the gateway to Services 4.0 and mass customization, an industrial oxymoron by definition: to allow anyone to customize a good at mass production costs. Industry 4.0 leads to high-quality employment. The Industrial Worker 4.0 is a data analyst and process manager, rather than the blue collar of yore. The Industrial Plant 4.0 is more of a lab where computers occupy more space than people.

➜ Government incentives
The Italian government believes in the opportunities offered by technological innovation to the national manufacturing sector and, as a result of the pressures received by business associations, has promised to extend the tax incentives associated with the industrial policy in question. We hope that a significant portion of the second part of the package will be devoted to re-training firms for managing technological change. Italy faces once more the risk of creating industrial capacity around a new technology, while overlooking the implications in terms of markets and strategies of said technology.