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How Will the 4th Industrial Revolution Affect Your Business?

SAP Tackles the Rapid Evolution of Manufacturing

by Mike Lackey | SAPinsider, Volume 15, Issue 3

July 1, 2014

Two major elements in today’s rapidly evolving manufacturing environment — machine-to-machine (M2M) communication and the Internet of Things (IoT) — are converging to make up the fourth Industrial Revolution, in which traditional manufacturing is being transformed by Internet technologies and intelligent devices. This article examines SAP can help manufacturers manage the complexities of integrating smart devices and processes into manufacturing operations.


Manufacturing companies are being driven by a number of impactful market trends that are affecting their businesses. The expectations of global markets are causing companies to build into their processes far greater agility in production and adaptability to highly variable market demand. Massive amounts of data are being produced through social media channels, the extended supply chain, and the pure intelligence being built into machines through sophisticated sensors and alert devices. This article explores the impact of these factors as well as the evolution of technology that will fundamentally change the way manufacturing is done today and into the future.
Two major elements in the changing manufacturing environment — machine-to-machine (M2M) communication and the Internet of Things (IoT) — will affect the operational environment of manufacturers. These concepts make up what is known as Industry 4.0 — the fourth Industrial Revolution, which describes the convergence of the classical manufacturing space with internet technologies and the increasing intelligence of devices.

How Smart Machines Are Affecting Manufacturing

The concept of M2M integration in industrial applications shares enough similarities with IoT that the terms are often used interchangeably, as both relate to the impact that interconnected devices will have in both the industrial and consumer worlds. A smart thermostat is a good example of how interconnected devices are gaining traction. It encompasses a number of key components, including mobility, social media, big data, cloud, and M2M self-regulation. Consumers can regulate the temperature in their residences remotely with a smartphone, link statistics to an app that calculates a green score rating, and share the results via social media. The device itself can detect and regulate anomalies, make recommendations, or send service alerts to the manufacturer.
In the industrial space, M2M is often thought of in the realm of preventive or predictive maintenance. For example, a device on a smart factory floor can regulate itself for service to ensure constantly optimized production, allowing end users and process engineers to react to problems that have yet to occur. Many companies in capital-intensive manufacturing industries see the value in monitoring assets post-sale, providing feedback for internal management of the life cycle of the product and to guarantee optimal availability and performance.
Manufacturers are embedding more intelligence and connectivity into both industrial and consumer products, allowing them to leverage their knowledge of the product to provide additional value-added services. It also enables them to transform their experience with the customer from a one-time transaction to an ongoing relationship. This can provide a critical new source of revenue in aftermarket services or can completely change the manufacturer’s business model to one that provides performance guarantees or even sells its product as a service.
Many SAP customers have teamed with us through co-innovation to engage in responsive manufacturing scenarios, so they are already familiar with M2M concepts and their promise. Customer interest in Industry 4.0 is purely from a practical standpoint: How can it benefit them? What opportunities does it provide? And how can SAP help?

The Tenets of Industry 4.0

Before answering those questions, let’s consider some of the key enablers and tenets of the fourth Industrial Revolution. Figure 1 depicts how many of the major enablers in enterprise technology today are indeed factors in creating this revolution. It is the combination of these elements that results in the massive changes we are seeing in manufacturing.

Enablers for the fourth industrial revolution

Figure 1 — Enablers of the fourth Industrial Revolution

Digging deeper, there are five main tenets of the fourth Industrial Revolution that more explicitly explain the connection between the technological enablers and their direct impact on manufacturing processes:

  1. Smart devices at every stage of manufacturing provide raw data, analysis, and closed-loop feedback that is utilized to automate and manage process control systems.
  2. These devices are connected, embedded, and widely used.
  3. As an offshoot of the proliferation of smart devices, control systems will become far more complex and widely distributed.
  4. Wireless technologies will tie these distributed control modules together to allow for dynamic reconfiguring of control system components.
  5. Actionable intelligence will become increasingly important because it will be impossible to anticipate and account for all of the environmental changes to which control systems will need to respond. 

With these ideas in mind, Industry 4.0 can be viewed as cyber-physical systems creating a new dynamic manufacturing landscape that will transform even the most traditional blue-collar manufacturers. It is, in a nutshell, smart devices turning into smart products turning into smart factories.

Preparing for a Smart Factory

To see how Industry 4.0 represents a progression from M2M or IoT, let’s take a look at another common use case for smart devices today. Pirelli, a €6 billion tire company with fleet management services, mounts sensors on the tires of its fleet vehicles to record tire pressure, temperature, and mileage. Using SAP HANA, this information is recorded and analyzed to help ensure optimum performance for each tire. 

Industry 4.0 is smart devices turning into smart products turning into smart factories.

In a true end-to-end Industry 4.0 scenario, this information would really be just a small piece of the puzzle. On top of aiding safety at the vehicle level, think of the possibilities if a tire sensor were connected to other smart devices on the vehicle, other vehicles in the fleet, or production devices on the manufacturing floor. In addition to optimization of the individual asset, connecting to manufacturing shop floor machines and systems could ensure optimization of future assets as well.
So, while it’s not hard to envision the benefits from such a scenario, there is an aspect of Industry 4.0 that doesn’t receive as much attention. While smart devices can in many ways optimize manufacturing, they conversely make manufacturing far more complex. In the example of tire manufacturing, processes that have been standardized for years will have to account for integrating new parts and processes in the manufacturing life cycle.

Manufacturers will be faced with key decisions on how they plan to compete in this new marketplace that favors competing on value over competing on price.

The level of complexity this creates is immense, again because this is no longer just about isolated smart devices, but about manufacturing itself being transformed with machines and devices monitoring and communicating with other machines and devices remotely all over the world.

With manufacturing having to adjust for this complexity, traceability on a global basis becomes extremely important. How can organizations prepare for this? Manufacturing processes themselves must be analyzed to determine the most efficient way to incorporate this complexity into production. There are supply chain logistics to consider, compatibility details to work out, and system control questions to answer. Will organizations be able to access increasing data volumes in real time and make intelligent decisions based on this reporting?
Manufacturing at the most basic level will always retain as its primary goal producing goods at the lowest cost and highest quality possible. Using smart production creates significant challenges in both areas, and manufacturers will be faced with key decisions on how they plan to compete in this new marketplace that favors competing on value over competing on price.

Industry 4.0 and SAP

At the Hannover Fair 2014, SAP and contributing partners demonstrated a realized view of a smart factory (see Figure 2). It incorporated an integrated technology approach to deliver greatly improved manufacturing processes. This helps reduce the complexity of incorporating these new smart devices and processes. From energy management to production management and asset optimization, the smart factory was founded on the concepts of Industry 4.0.

The components of a smart factory

Figure 2 — The components of a smart factory

SAP is uniquely positioned to help companies with Industry 4.0 challenges in three distinct areas. First, Industry Value Maps provide a roadmap for horizontal integration of business processes, which then positions an organization for deep vertical integration with cyber-physical systems down to the level of machines, equipment, or products. Second, SAP HANA Enterprise Cloud, as the enterprise platform for the smart factory, provides a real-time view of an organization’s connected control systems and machines. Third, SAP’s domain expertise in responsive manufacturing means that a robust platform of solutions and expertise predates the relatively recent interest in IoT as a means to improve manufacturing. Companies from both process and discrete industries have run SAP solutions for years to capitalize on features such as shop- floor control, asset utilization, overall equipment effectiveness (OEE), and production visibility and reporting.
With the onset of Industry 4.0, a drastic increase in manufacturing complexity is going to occur. SAP has the solutions in place to ensure manufacturing companies handle this oncoming complexity and continue to drive innovation from idea to performance. Organizations that start to think about how to incorporate new innovations into manufacturing now will have a distinct competitive advantage in the new Industrial Revolution. To learn more, visit or to see recent customer events, visit

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Mike Lackey
Mike Lackey

Mike Lackey ( is Global Vice President, Line of Business Digital Manufacturing at SAP.

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