BDO Survey: Majority of middle market manufacturers recognize Industry 4.0 opportunity

Ninety-nine percent of middle market manufacturing executives today are at least moderately familiar with Industry 4.0, according to BDO’s Middle Market Industry 4.0 Benchmarking Survey.

But, although more than half (54%) have either developed or are in the process of developing an Industry 4.0 strategy, only 5% are currently implementing one. Another 25% plan to develop an Industry 4.0 strategy, but have yet to get started on it.

“Over time, Industry 4.0 will radically transform how manufacturers derive and deliver value,” said Eskander Yavar, Industry 4.0 co-leader and national leader of BDO’s Management & Technology Advisory Services. “But the window of opportunity is closing fast. Manufacturers who don’t invest in 2019 risk falling behind the curve. The middle market is no exception.”

In its inaugural year, BDO’s Middle Market Industry 4.0 Benchmarking Survey polls senior executives at U.S. manufacturing companies with annual revenues between $200 million and $3 billion on their Industry 4.0 readiness and strategic goals. The survey finds that middle market manufacturers have ambitious goals to transform their business models and are tentatively taking steps to digitize their operations. However, significant challenges lie ahead as they struggle to get major strategic initiatives off the ground.

“We see manufacturers are starting to grasp the concept of digital change. In the past it was obvious they were trying to educate themselves on what this all means, the costs and resulting change,” Yavar said. “It has been interesting to see their progress, but it’s surprising that still only a minority are executing a strategy. I expect you’ll see those numbers shift toward actual implementation in the middle market.”

For those people who may not think Industry 4.0 is real, obtainable or relevant, Yavar says there are plenty of real-world examples to the contrary. The private equity community is especially keen on digital change, he adds, and is looking at not just hardware but analytics that assess performance. Instead of each customer creating its own analytics capabilities, a provider can build and supply that intelligence on a subscription basis. Yavar says this is a very different business model from a traditional manufacturing analytics provider.

Additional survey findings include:

Business model diversification tops Industry 4.0 goals
Middle market manufacturers know that Industry 4.0 has the potential to transform their business. As they look beyond their immediate needs and toward tomorrow’s digital future, most (71%) are prioritizing business model diversification above all else, which suggests a fundamental shift in customer demand that can’t be met by the traditional manufacturing toolset. Improving operational efficiencies and increasing market penetration tie as the second most-cited goals, at 67% each.

The biggest barrier to implementation is poor communication
Successful Industry 4.0 adoption requires collaboration between functional areas of the business that have historically operated in silos, like information technology and operations technology. Two in three executives view poor communication as the biggest barrier to successful Industry 4.0 implementation. Rounding out respondents’ top five implementation barriers is interoperability with legacy technology (64%), lack of skills or insufficient training (63%), lack of leadership and vision (60%), and underinvestment (54%).

Industry outsiders pose the greatest threat
Even without manufacturing roots, a technology upstart has the potential to disrupt manufacturing, whether through hyper-customization or transforming the economics of production. As a result, 69% of middle market manufacturers are most concerned that failure to adequately invest in Industry 4.0 will lead to encroachment from non-traditional competitors.

The digital thread is more theory than reality
In an idealized Industry 4.0 world, supply chains become the digital thread—integrated value chains with end-to-end traceability and transparency, enabled by the constant, bi-directional flow of information. Most middle market manufacturers, however, aren’t there yet. While just 7% of respondents say their data is totally siloed, pointing to increased information sharing internally, only 6% claim they have transparency across the entire value chain.

Industry 4.0 is creating jobs
While 63% of middle market manufacturers plan to leverage third-party outsourcing solutions to support Industry 4.0 enablement, more than half (57%) plan to hire new talent. To close knowledge gaps within their existing talent pools, 60% are implementing training to upskill current employees.

“Manufacturers must evolve their businesses to be successful in a service economy,” said Rick Schreiber, Industry 4.0 co-leader and national practice leader of BDO’s Manufacturing & Distribution practice. “That evolution starts with small, incremental investments in Industry 4.0 that deliver immediate ROI, while building towards a more digital future.”

The Middle Market Industry 4.0 Benchmarking Survey offers manufacturing executives a useful barometer to measure their Industry 4.0 maturity against their peers across six key dimensions, including: organizational strategy, governance, technology, process, data and security. To see the full survey results, click here.