Germany Provides an Excellent Example of the Economic Impact of the Digital Revolution, Growth of About 1 Percent GDP and Labor Increases of About 6 Percent Are Possible in Ten Years, According to a New BCG Report
The race to adopt elements of Industry 4.0 is already under way among companies in Europe, the U.S., and Asia. In the next five to ten years, Industry 4.0 will transform the design, manufacture, operation, and service of products and production systems. Connectivity and interaction among parts, machines, and humans will enable production systems to become up to 30 percent faster and 25 percent more efficient and will lift mass customization to new levels, according to a new report from The Boston Consulting Group (BCG). The report, titled Industry 4.0: The Future of Productivity and Growth in Manufacturing Industries, is being released today.
“Although the full shift toward Industry 4.0 might take 20 years to reach fruition, in the next 5 to 10 years key advances will be established and winners and losers will emerge,” says Michael Rüßmann, a BCG partner and coauthor of the report.
Germany, renowned for its manufacturing prowess and a world leader in industrial automation, is a good example to use to quantify the impact of Industry 4.0. The report predicts growth of about 1 percent in GDP, the creation of about 390,000 jobs, and additional investments of 1 to 1.5 percent of manufacturers’ revenues (equaling about €250 billion over ten years).
In Germany, the benefits of Industry 4.0 will manifest in four areas:
- Productivity. During the next five to ten years, Industry 4.0 will be embraced by more companies, boosting productivity across all German manufacturing sectors by €90 billion to €150 billion. Productivity improvements on conversion costs, which exclude the cost of materials, will range from 15 to 25 percent. When the material costs are factored in, productivity gains of 5 to 8 percent will be achieved. These improvements will vary by industry. Industrial-component manufacturers stand to achieve some of the biggest productivity improvements (20 to 30 percent), and automotive companies can expect increases of 10 to 20 percent.
- Revenue Growth. Industry 4.0 will also drive revenue growth. Manufacturers’ demand for enhanced equipment and new data applications, as well as customer demand for a wider variety of increasingly customized products, will drive additional revenue growth of about €30 billion a year, or roughly 1 percent of Germany’s GDP.
- Employment. In our analysis of Industry 4.0’s impact on German manufacturing, we found that the growth it stimulates will lead to a 6 percent increase in employment during the next ten years. Demand for employees in the mechanical-engineering sector may rise even more—by as much as 10 percent during the same period. However, different skills will be required. The trend toward greater automation will displace some of the often low-skilled laborers. At the same time, the growing use of software, connectivity, and analytics will increase the demand for employees with competencies in software development and IT technologies, such as mechatronics experts with software skills. This competency transformation is one of the key challenges ahead.
- Investment. Adapting production processes to incorporate Industry 4.0 will require that German producers invest about 1 to 1.5 percent of their revenues, or about €250 billion during the next ten years.
The report also addresses the impact of Industry 4.0 on suppliers. “German suppliers are currently leading where domain expertise is in demand—for instance, in the food and beverage, automotive, and packaging industries. Additionally, application engineering and state-of-the-art technical know-how are key drivers of the success of German automation suppliers. However, systems will become even more intelligent and interlinked in the future, so German companies will need more competencies in IT software and data analytics. Otherwise, they risk losing market share to IT companies that capture the relevant tasks analytics and control,” notes Markus Lorenz, a BCG partner and coauthor of the report.
Industry 4.0 can be a real productivity accelerator for the German industry. “Germany has excellent chances of further expanding its global leadership role in machine building and automation, considerably increasing productivity and growth and creating more high-skilled jobs,” says Rüßmann. “To maintain this advantage in the long term, however, German companies have to invest much more strongly in building production-related IT and software competence and train highly skilled workers in these fields in a targeted manner.”
Reprinted with permission of The Boston Consulting Group (BCG)