The transformative power of the Fourth Industrial Revolution (Industry 4.0) is reshaping manufacturing globally. Characterised (in part) by intelligent systems, Artificial Intelligence (AI), big data, and advanced IT architecture, Industry 4.0 represents the next stage in the evolution of manufacturing as a whole - and many organisations are keen to make the transition.

Yet, despite the excitement and opportunities, there are still some barriers on the path to Industry 4.0. RSM’s experts in Europe discuss the driving forces behind the fourth industrial revolution and the challenges that lie ahead.

The driving factors for adopting Industry 4.0

According to Götz Brinkmann, Principal at RSM Ebner Stolz, “Approximately 50% of companies are actively working on Industry 4.0, while the rest are using technologies selectively or are still in the planning stage.” As with any business, the minimum requirement to stay afloat is keeping pace with competitors, and growth comes from exceeding those requirements. Many organisations are feeling the pressure to make the shift in order to improve their services. In the UK, “Manufacturers must feel compelled to embrace Industry 4.0 with UK productivity continuing to languish behind many other nations,” says Mike Thornton, Partner and Head of Manufacturing at RSM UK. Thornton adds, “The faster the industry is able to adopt new technologies to increase automation and data-driven decision-making, the quicker the UK will be in addressing its productivity gap.”

The benefits do not stop there; Thornton continues, “Industry 4.0 adoption will also help the sector meet evolving customer demands for customisation and also combat labour shortages. Moreover, Industry 4.0 adoption helps UK manufacturers stay competitive globally by fostering innovation and cost-efficiency, essential amid Brexit-related uncertainties and global trade shifts.” In addition to this, Industry 4.0 brings with it a slew of other benefits. As Brinkmann says, “It provides great opportunities in strengthening competitiveness, product and process innovations; the development of new business models; the need for further increases in efficiency; overcoming the shortage of skilled workers; and, of course, the scalability of production. In addition to market pulls, new technologies such as Big Data and AI, IIoT (Industrial Internet of Things), cloud computing and robotics innovations are creating the appropriate foundations for manufacturers to act more dynamically, efficiently, and individually on the markets of the future.”

However, it is more than just the needs and the benefits driving European manufacturers towards Industry 4.0.

According to Laura De Lisa, Partner, Funding & Development – Industry 4.0 at RSM in Italy, “The Italian market offers several financial incentives aimed at increasing the attractiveness of the country and the transition of companies towards the 4.0 paradigm. Introduced in 2015, the special Industry 4.0 legislation consists mainly of tax credits. These are primarily through encouraging R&D operations through tax credits deemed for the R&D, but also for 4.0 innovation, introduced in the company. Know-how also transfers through tax credits on the training sessions regarding the key enabling technologies which are compliant with the 4.0 technology. Lastly, IPR valorisation, which involves the process of leveraging and commercialising intellectual property for economic benefit. As an R&D incentive, it aims to maximise the value of intellectual assets through licensing, selling, or other strategic partnerships through extra deductions deemed at 110% of the IPR costs from the tax base.

Thanks to the Next Generation EU boost, the current main tax credit – allowing, for 2023, a tax credit of up to 20% (depending on total investment size) to companies of all sizes investing in new tangible and intangible capital goods 4.0, according to the Industry 4.0 national strategy – is supposed to be nearly doubled starting from 2024 onwards.”

The IT architecture proves challenging

With Industry 4.0 being instrumental in ushering in the next era for manufacturing, how are European manufacturers in the middle market addressing the need to enhance their IT architecture to support Industry 4.0 technologies? In short, not so easily.

“The transition to Industry 4.0”, according to Brinkmann, “takes place in several stages: The computerisation of processes, consolidation of distributed IT systems, the creation of connectivity, the establishment of transparency and predictability, and finally the creation of autonomous systems, self-control, and self-optimisation.” The nebulous process for a full-scale renovation of IT architecture is a massive undertaking with a sizable price tag that many organisations may not feel the need to pay.

“The cost of digital integration remains a challenge”, says Thornton, “With many manufacturers needing to integrate new technologies with legacy systems which often pose compatibility issues and require a substantial amount of time and resources for seamless implementation.” In addition to the costs, Thornton continues, “Concerns around data privacy and cyber security remain of utmost importance too as new technologies are adopted and integrated. Even once this has taken place, the work is not done, as manufacturers also need to effectively upskill their workforces to leverage these technological advancements, which has also proven a significant hurdle.”

In Italy, this is echoed by Simone Segnalini, RSM Partner, Digital, Risk and Transformation: “There is a significant emphasis on upskilling employees to adapt to new digital tools, which is crucial for a successful transition to a more data-driven, automated manufacturing environment. This shift requires not only technological upgrades but also an optimisation of the processes and, of course, a cultural change within organisations.”

It is not all doom and gloom, however. In spite of the hindrances at hand, many manufacturers remain resilient. In the UK, as Thornton says, “Many manufacturers are adopting phased approaches, leveraging government-supported initiatives like the Made Smarter programme where possible. Despite these challenges, significant investments in new technologies and the associated IT architecture required to support them continue to be made by UK manufacturers, with greater productivity and global competitiveness remaining the major drivers.” In Italy, Segnalini adds: “They are increasingly investing in scalable cloud solutions and edge computing to manage large data volumes efficiently. Interoperability is a key focus, ensuring seamless communication between diverse systems.”

The Takeaway

Industry 4.0 promises a more digital-focused, connected era for manufacturers, an era that could redefine the industry and provide significant growth opportunities. However, in order to foster an effective transition to Industry 4.0, the need for skilled and willing workforces, robust IT architectures, and supportive government policies are universal.

By embracing technological innovations and learning from each other's experiences, manufacturers can collectively navigate the Industry 4.0 landscape and usher in a new era of efficient, innovative, and competitive manufacturing.

For more information on manufacturing or how RSM can help your business, please visit our Manufacturing page.