The need for Australian manufacturing to get smart

Advanced manufacturing is an unavoidable term nowadays, and this is for the best. Brent Balinski talked to Jeff Connolly, CEO of Siemens Pacific, about advancing Australian manufacturers, and about the challenges and opportunities of Industry 4.0.

An increasingly globalised economy is something local manufacturers sometimes complain about.

The flipside is that their opportunities to sell to the world have never been greater, with the right mindset, capabilities and relationships.

In the past, transport costs, primitive IT and an insular economy had been barriers, but – says Siemens CEO Jeff Connolly – globalisation and digitalisation mean those who are properly prepared can reach the world.

“One group realises opportunity, and what worries me is that there’s another group that doesn’t realise the threat associated with that change in the globalisation and digitalisation,” he told Manufacturers’ Monthly.

“So there is a race on, from my point of view, for Australian manufacturers to transform themselves to being globally competitive and hooked into markets around the world to a) increase [business], but b) to defend, in terms of others coming in.” 

Connolly often speaks of the need for Australia to be involved in Industry 4.0. The concept is sometimes treated as synonymous with “advanced manufacturing” or the “Industrial Internet” or other terms.

The “Fourth Industrial Revolution” (following mechanisation, electrification and automation) involves a convergence of the cyber and physical worlds, enabled by collecting and making sense of data from people, machines and things. 

It is also guiding Germany’s industrial development. Factories where absolutely every process and every input and output are completely digitised, observable and self-optimising in real-time might be a way off, but that’s where things are headed.

The German vision recognises what the future will look like, and recognises that not moving towards this means heading towards irrelevance.  

 

What’s in it for us?

So, what’s the point, for Australian manufacturers?

Firstly, hyper-connected workers, machines, customers and supply chains will create new opportunities (and new business models) everywhere.

“In 2010, when some two billion people connected online, the Internet contributed approximately $1.7 trillion to global GDP,” McKinsey pointed out in March.

“What’s in store when 50 billion smart machines—deployed across factory floors, through supply chains, and in consumers’ hands—can connect with one another?”

Secondly – and worryingly for Australia – is that without movement towards the Industry 4.0 world of manufacturing and the right investment in the enabling technology, the country’s industry will make itself irrelevant.

Years of weak investment in new technology are a bad sign, said Connolly.

“If we [Siemens] try to sell capital equipment to help people in their manufacturing to become more efficient, and we say ‘listen, there’s a two- or three-year payback on that’ the short text answer in a number of cases is ‘We’re not sure we’re going to be here in two or three years’ time,’” he said.

“And that lack of confidence is actually causing an accelerated decline in manufacturing.”

Among investments mentioned was his company’s Teamcenter PLM software platform, which is, for example, the very minimum requirement to engage as a supplier on US defence projects.

The race to invest and to stay relevant is certainly on. According to a much-cited Strategy& report from last year, surveying 235 German industrial firms, a quarter had digitised key value chain processes. By 2020, over 80 per cent expected to have done so.

Extrapolating the survey results, the report predicted German industry would be forking out 40 billion Euros annually by 2020. Extrapolating further, European industry would be spending 140 billion Euros on Industry 4.0 technologies by that year.

These companies expected to see benefits in areas including efficiency increases of 3.3 per cent annually, and value chain benefits through data analytics and improved customer satisfaction. They also expected to spend 3.3 per cent of revenues on Industry 4.0 solutions.

Not being up to the standard risked dealing local manufacturers out of work as suppliers. Again, the competition and the opportunities are global.

A new paradigm

Take the example of automotive. Though passenger car assembly will cease to exist locally by 2018, Australia can still be very much involved in auto manufacturing. With the right capabilities.

“In the new paradigm, can I participate in the automotive industry? Yes I can, provided I use the tools, the global engineering collaboration tools, and I’m capable of using them,” said Connolly.

Australian companies exporting have the right mindset, he said. And there were signs that the paradigm has started to change among others. Part of this could be due to recent initiatives to promote the idea of “advanced manufacturing” at policy and industry levels.

Examples include the Advanced Manufacturing Growth Centre, the CEO-level Australian Advanced Manufacturing Council, and last year’s Advanced Manufacturing: Beyond the Production Line report from CEDA (to which Connolly contributed).

The paradigm shift recognises a whole-of-value chain approach (including a global mindset) and a realisation that manufacturing doesn’t begin and end with assembling a product, as is, within the four walls of a factory.

“In that world we could, for example, still be a part of the automotive industry, where if you mentioned that 12 months ago they’ve laughed at you,” he said.

“Because they’re using an old paradigm of manufacturing definition.”

Engineering skills beat labour costs

There are obstacles on the road to Industry 4.0, besides an apparent unwillingness and/or inability to invest in technology. Broadband connection speeds outside of the world’s top 40 are no help when trying to send large packets of data in real-time to clients elsewhere in the world.

And there are concerns from some (including participants in the Strategy& report cited above) around data protection, employee qualifications and standardisation.

But the cyber-physical world is promising for local manufacturers, with Australia’s much-maligned labour costs less important in a highly productive, integrated, automated factory.

The emphasis on engineering is also in Australia’s favour, as is the ability to collaborate with any client, anywhere, unhampered by the “tyranny of distance”.

“The content of the manufactured product today is over-proportional compared to the material content, but in the future it will certainly be over-weighted in the engineering content,” said Connolly.

“So the value of a product in the future is almost certainly trending towards the engineering and design piece. So if I want to be in the auto industry, the last five yards of actually putting the car physically together, is of lesser importance than participating in the engineering/design piece at the front, and the product lifecycle evolutions that happen in that industry.”

 

Images: Siemens except for slider/top image (Fraunhofer IGD)