Industry 4.0: Challenges, trends and opportunities in 2024 [Europe]

Industry 4.0 will continue to gain momentum in 2024, where the convergence of economic factors (deglobalization, supply chain issues, geopolitical instabilities, and underlying inflation that has not yet fully subsided) will make improving competitiveness in the industrial sector a priority to maintain economic stability in the UE.

In an environment marked by instability at all levels (economic, political, and social), a firm commitment to Industry 4.0 represents a secure investment towards the future where manufacturing products internally without dependencies on key supplies from other regions of the world will guarantee stability and prosperity. This strategic line of action is directed by the plan Digitising European Industry.

Understanding Industry 4.0

Industry 4.0 is the next stage of development in industrial activity, coming hand in hand with the technological leap that has occurred since the beginning of this century, through technologies such as robotics, artificial intelligence, nanotechnology, biotechnology, additive manufacturing, and a long etcetera.

The natural trend within Industry 4.0 is towards the total convergence of different types of agents (biological, physical, and digital entities that will fully integrate) generating new production systems based on data and information exchange, with the promise of obtaining a more adaptable, sustainable, and intelligent production system in the manufacturing of capital and consumer goods.

There are six design principles that guide the development process of this new techno-economic paradigm within the different actors that make up Industry 4.0:

1. Interoperability: Allows having an intelligent production system in which machines, products, and systems can connect to exchange information.
2. Virtualization: Works with a virtual copy of the production environment (digital twin) to plan changes in products and processes before materializing them.
3. Decentralization: Different cyber-physical systems (CPS) can make autonomous decisions and also delegate them to a higher instance in case human intervention is required.
4. Real-time Management: The ability to collect and analyze data in real-time allows immediate control of production processes to improve quality.
5. Service Orientation: The integration of IT services that facilitate interoperability allows horizontal B2B and B2C integration enabling a transition towards a service economy.
6. Modularity: Enables the flexibility of systems to adapt to changes in processes or product demand by adding or modifying modules at an individual level.

Context and Current Situation in Europe

The industry in the context of the European Union represents a significant fraction of the total Gross Domestic Product (GDP) (17.8% before COVID in 2019), with strong variations between member states (Czech Rep. 27.9%, Ireland 25.1%, France 16.9%). At the European level, the European Commission established in 2020 the objective of increasing the industry's contribution to GDP to 20% to strengthen the industrial sector and improve competitiveness at a global level. Despite this goal, several member countries, such as France, Spain, or Portugal, which have seen a decreasing trend since 1997 by falling below 20%, face the challenge of revitalizing their industrial sector.

The European industrial sector, while employing millions of people directly and indirectly, and generating significant turnover, shows varied investment in Research and Development (R&D) among countries. For example, in 2022, R&D investment in Spain reached 1.44% of GDP, still below other similar economies within the European Union, such as Germany with 3.13%, France with 2.22%, and the Netherlands with 2.27%.

This situation highlights the need for a collective push at the European level to increase investment in R&D and promote innovation within the industrial sector, in order to achieve the set objectives and ensure sustainable growth and competitiveness of the European industry on the global stage. With concentrated efforts, the EU seeks not only to reverse the decreasing trends in certain member states but also to boost the role of the industry as a key engine of the European economy, benefiting society as a whole.

Current Challenges

1. Cultural Change: Adopting Industry 4.0 firstly requires a change in organizational culture towards a model of innovation, flexibility, and excellence. Family businesses, in this sense, may face a greater challenge when integrating technology into their processes due to their very traditional management model. Resistance to change by management and employees and an inflexible and non-collaborative management model can be a significant obstacle.
2. Lack of Skills: It is a reality that there is a significant gap between the workforce's skills and the new set of skills necessary for a digital transformation process such as data analytics, cybersecurity, operating advanced technologies, etc. Companies will need to invest in training and attempt to attract new talent to the organization in order to make this transition with full assurances.
3. Capital Investments: Transitioning to Industry 4.0 requires significant and ongoing capital investments dedicated to infrastructure, technology, and training. The biggest challenge in this regard lies in the difficulty of identifying business cases where a significant ROI can be calculated to justify the initial investment.
4. Technological Obsolescence: Integrating new technologies into existing systems can be complex and costly, especially for industrial companies where the average age of some systems like ERP or MES can be around 10 to 15 years. Furthermore, many organizations are wary of having their data in the Cloud. This can be a significant barrier to integrating new technologies, as interoperability in Industry 4.0 requires data integration standards for exchanging information in real-time.
5. IT Security: Increased interconnectivity and reliance on digital systems raise the risk of cyberattacks, which can have devastating consequences in terms of data loss, production interruptions, and damage to corporate reputation. In this context, it is essential to commit to training and workforce development to reduce exposure to risk and mitigate vulnerabilities associated with this new interconnected model of production.

Market Trends

1. Service-based Business Models: Known as servitization, this involves offering complementary services to traditional products, or even transforming a product into a complete service. An example of this can be seen in the vehicle model proposed by Tesla, which can include maintenance in the final price (avoiding loss of market share) and the possibility of adding or disabling car extras at any time through a subscription model. Adopting this model allows companies not just to sell a physical object but also to provide comprehensive solutions that include maintenance, updates, training, and associated services that enhance the value perceived by the customer.
2. AI Acceleration: The use of algorithms based on machine learning (ML) and deep learning (DL) and generative artificial intelligence (AGI) is accelerating to optimize operations in various areas such as manufacturing, design, or logistics, etc. The proper application of these algorithms allows for the automation of certain complex decisions within the industrial sphere that previously required human intervention but can now be allocated to tasks of greater added value.
3. Hyper-personalization: Leveraging the power of large-scale data analytics thanks to Big Data, companies can precisely analyze consumer preferences and behaviors to create offers that meet the individual needs of each customer. In the context of Industry 4.0, hyper-personalization goes beyond simple market segmentation or basic customization; it's about creating unique products or services for each customer, where they can be part of the design and production process themselves.
4. Augmented Vision: A transformative trend is emerging, revolutionizing the way companies approach manufacturing, maintenance, and training. This technology overlays useful digital information (such as graphics and instructions) over the real world, which will completely transform jobs by providing employees with new tools that expand their scope of action with previously unimaginable possibilities.

Opportunities to Explore

1. Leadership Development: Although various technologies such as AI and IoT are enablers of Industry 4.0, ultimately, they are just tools that must be at the disposal of someone who knows how to use them and channel them for the good of the organization. Leaders with a holistic approach within the industrial realm are needed, who, while ensuring things work on a day-to-day basis, also look to the future: proposing and leading various initiatives that bring the organization to a model of excellence where sustainable competitive advantages are developed and are aligned with the strategic vision and cultural values of the company.
2. Green Production: Sustainability has become a priority for companies, driven both by regulation and consumer demand for products that have been produced sustainably respecting the environment. Industry 4.0 technologies are facilitating more efficient and less polluting production processes, optimization of resource use, and development of more sustainable and recyclable products. The ability to have complete and demonstrable traceability can also be associated with certain tax exemptions that may be interesting to improve ROI within Industry 4.0.
3. Improvement of Work Performance: Although Industry 4.0 represents an opportunity for improving efficiency and competitiveness, as new technologies transform production processes, it also opens up the possibility of achieving other intangible goods that can hold immense value for organizations: enhancing the skills of the workforce, increasing job security, and improving working conditions. This trend of valuing the job as something that goes beyond obtaining material sustenance through salary will continue its unstoppable course, and we will see how companies that know how to design and develop attractive jobs will have a sustainable competitive advantage, especially in the industrial environment, where the job has traditionally been linked to significant physical effort.

Ready to Make the Leap to Industry 4.0?

Do not miss the opportunity to innovate, optimize, and stand out in today's competitive market. We are fully aware that developing a transition process to Industry 4.0 can be a challenge due to its inherent complexity.

At Ettnia, we provide you with the tools, knowledge, and support necessary to make this transition a creative and transformative process. It's time to enhance your industry through a consulting and development service fully adapted to your business reality. Start boosting your Industry 4.0 strategy with Ettnia!