18 August 2020

Due to high structural costs, Europe is in danger of losing a large part of its industrial production through emigration. Why companies need to reposition themselves in order to produce more individually, flexibly and demand-oriented.

Mr. Vollrath, must the keyword Industry 4.0 be familiar to buyers today?

Carsten Vollrath: Industry 4.0 describes a completely new approach to organizing and controlling the entire value chain over the life cycle of products. Although people like to talk about the fourth industrial revolution, it is more of a continuous process of change, an evolution. But it will progress faster than we can imagine today. Customers' demands on products and services will increase and become more individual. Markets are opening up, globalization is intensifying competition, and at the same time resources are becoming increasingly scarce. The term has not yet arrived in the general consciousness. This is reason enough for us to take a close look at this topic and carry out a study together with and the Innovation Network Association Network Logistics Switzerland (VNL), the results of which we will present at the specialist conference in November.

Can you tell us more about the results of the study?

Carsten Vollrath: More than two thirds of the respondents expect Industry 4.0 to bring about a strong to very strong change in their industry. But only a minority of 22 percent describe their current level of knowledge as good or even excellent. 82 percent consider the topic to be relevant to very relevant for the future viability of their company. But so far only 20 percent of those surveyed have developed an Industry 4.0 or digitization strategy for their company, and only 5 percent have so far systematically addressed the question of what change this could mean for future requirements and roles of their purchasing department.

What misconceptions about the industry 4.0 topic are being spread? 

Carsten Vollrath: Sooner or later, it is a mistake to believe that smart factors and Co. will be there in ten years at the earliest. Industry 4.0 is already a reality. Companies are already using machines equipped with a web client to generate data via the Internet. Already in today's production processes, products communicate with machines and vice versa. For example with the help of RFID or barcodes. And digitalization has also penetrated the world of work with the digital natives. It's not only in our private lives that tablets and smartphones are of great use to us as appointment planners, photo and video cameras, walkmans, weather stations, fitness trackers and credit cards - and whatever the app world has to offer. Many people are already working with smartphones or iPads, even in industry.

How innovative are we Swiss?

Carsten Vollrath: Not as innovative as we would like to be. The majority of companies are focusing on evolutionary innovations that aim to improve the existing. There is no doubt that such innovative achievements are necessary. But in mature markets, this type of innovation is not capable of achieving the degree of differentiation that triggers a real growth dynamic. Other countries are no less vigilant than we are. In some cases they are already further ahead than we are in Switzerland. This is why rapid action by all players in business, research and politics is essential to secure our production location and remain competitive in the future. The fourth industrial revolution is in full swing - with or without us.

A very drastic analysis...

Carsten Vollrath: At least not in a whitewashing way. The complete digital, intelligent networking of people, machines and things along the entire value chain of a product will become a global competitive factor. And to the growth opportunity for our highly developed production facilities in Europe. Especially against the background of increasing complexity, dynamics and variant diversity. Today, 90 percent of global economic growth takes place outside Europe. Industry 4.0 can lead to a reversal in this trend. However, countries such as China are also intensively involved with Industry 4.0 and have recognized that they will no longer be able to defend their competitive position in the future solely on the basis of lower wage costs. This should be even more of a "wake-up call" for us and at the same time an incentive to maintain a leading position here.

How far behind are we?

Carsten Vollrath: What most companies have mastered today, namely the continuous improvement of tangible products, has long since ceased to be sufficient. The digital economy ticks differently - faster, more chaotic, more unpredictable and above all much closer to the customer. And those who notice it earlier are more likely to profit than the competition. In all eras there have been visionaries who have succeeded in radically redesigning value creation in order to realize a new or unique strategic positioning or even disruptively create a new industry. Just think of the fantastic possibilities that new materials and design principles such as additive manufacturing offer. It was no different in the past. Even a technically mature ocean-going sailing ship with seven masts was at a disadvantage compared to a steamship.

Which models of thought and action are passé?

Carsten Vollrath: We have to say goodbye to the old factory image. The new, "intelligent factory" ticks completely differently and is no longer a conventional, location-bound production facility, but a concept in which the actual production takes place in a self-organized, networked and distributed manner and represents only a part of the organized overall life cycle. This offers even more customer integration. And the new forms of communication between machines increasingly lead to decentralized and smart production facilities. These allow smaller-scale distribution and production on demand.

An immense effort. What is the return on investment?

Carsten Vollrath: According to a study by the Fraunhofer IAO, in future a production order - triggered by the customer - will steer itself independently through the value chain. Not only will processing steps, equipment and materials be automatically controlled by intelligent systems, but all checks and possible corrections will be carried out as if by magic. The respective production order will detect impending delays in delivery, report these directly to the customer and organize any additional capacity required. In addition, the production plants can exchange drawings, organize their order sequences and communicate the necessary maintenance and service requirements to each other.

And in numbers? Can you make our mouths water?

Carsten Vollrath: Industry 4.0, for example, is predicting productivity increases totalling around CHF 85 billion for Germany by 2025 in the six economically most important sectors alone. Transferred to Switzerland, we can achieve productivity effects of around 10 to 12 billion francs here.

Impressive. Is this not possible without rethinking?

Carsten Vollrath: That's not feasible without questioning and repositioning your own organization, the entire processes, the IT and, last but not least, the corporate philosophy. Products must be developed in such a way that they can be adapted. The new business models are usually no longer implemented by a single company, but increasingly by a highly dynamic business network, and in real time. We will have to get used to the fact that customers will increasingly intervene in what happens in the future - whether through ideas for product optimization, or through specifications of drastically reduced delivery times. This is no Sunday stroll - but it will also intensify customer loyalty. Because not only individuals, but also organizations are tending more and more towards individualization, as we all know it from the private sphere. Every self-respecting sports shoe manufacturer nowadays makes it possible for us to individualize the shoe of our choice with various colors, materials and personal messages via the web.

What happens to those who don't go along?

Carsten Vollrath: The existing business models will erode. Because we cannot keep them at our high-wage location forever - even if we continue to automate. Fear and uncertainty are understandable, but they alone are not good advisors. But new paths always offer great opportunities. Industry 4.0 is both a growth and survival opportunity. Europe can thus maintain high-tech production and perhaps even develop new products. But without small and medium-sized enterprises and the supply industry, value creation will not work. That is why it is important, not least for SMEs, to face up to the challenges. But here in Germany, too, politicians must create the right conditions to ensure that it is possible to jump on this bandwagon. Germany is showing how this can be done. Other key prerequisites for Industry 4.0 to function are standards on the technology and user side as well as rules for fast and interface-free communication, data protection and data security.

What is the key question that a company must ask itself in order to transform itself into Enterprise 4.0?

Carsten Vollrath: How do you succeed in designing the value creation logic of your own company as an essential basis for a new business model in a future-oriented way in order to realize sustainable competitive advantages and differentiation in the market? If this question is present not only at the beginning, but also during the journey to the new destination Industry 4.0, a lot has already been done.

Please explore our Procurement Excellence solution portfolio for more information.

This article was originally published by: – Beschaffungsmanagement


Carsten Vollrath
CEO @ Swiss IPG Partners Group



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