February 2020

Special Focus: Digital Transformation

Implementation strategy and opportunities with Industry 4.0

The term Industry 4.0 refers to the fourth industrial revolution. Widely hailed as a new level of organization and control over the entire value chain of the lifecycle of products, Industry 4.0 is geared toward progressively personalized customer requirements.

Phukan, P. K., Bharat Petroleum Corp. Ltd.

The term Industry 4.0 refers to the fourth industrial revolution. Widely hailed as a new level of organization and control over the entire value chain of the lifecycle of products, Industry 4.0 is geared toward progressively personalized customer requirements.

This cycle initiates at the product idea, covers the order placement, spreads through development and manufacturing, continues to product delivery for the end customer, and concludes with recycling, encompassing all resulting services. The basis for the fourth industrial revolution is the availability of all relevant information in real time by linking all instances involved in the value chain. The ability to derive the optimal value-added flow from the data at any time is also vital. The connection of people, things and systems creates dynamic, self-organizing, real-time, optimized, value-added connections within and across companies. These can be optimized according to criteria such as costs, availability and consumption of resources.

Transformational benefits

Industry 4.0, also known as the Industrial Internet, not only encompasses the digitalization of horizontal and vertical value chains but will also transform companies’ product and service portfolios with the decisive goal of better satisfying customer needs. The potential uses of the Industrial Internet go far beyond the optimization of production technologies. However, exploiting these opportunities requires substantial investment. This topic inevitably occupies a leading position on the agenda of directors and managers of industrial companies. The industrial sector is required to produce ever larger quantities of product, using fewer raw materials and less energy. The Industrial Internet permits higher productivity and resource efficiency, creating conditions for sustainable and efficient production, as detailed in TABLE 1.1

From a functioning perspective, Industry 4.0 facilitates process optimization even before value creation is realized in practice. This is mainly due to virtual imitations of production activities or even entire supply chains; vertical and horizontal connections enable shorter lead times and accelerated time-to-market. This allows manufacturing companies to respond more quickly and flexibly to volatile market demands and last-minute changes in customer orders.

Smart components and products are conscious of their current state and monitor critical process parameters, as well as disparities in quality, autonomously. This results in reduced process mistakes, a lower scrap rate, more reliable production systems and minimized downtime. Eventually, the overall quality level of manufacturing increases.

Furthermore, connected goods enable the collection and analysis of information about product use and features over the product’s lifecycle. This allows for constant development and improvement of product quality. For example, the capacities in terms of efficiency, time, quality and stock levels are directly and positively related to significant cost reductions.

From an environmental and social viewpoint, Industry 4.0 promises several opportunities. Industry 4.0 enables the lessening of greenhouse gas emissions by data-centered and traceable carbon footprint analyses. In addition, it targets reductions in waste, resource use and energy consumption. Examples include closed value creation networks, reuse of resources and tools, and the retrofitting of machines. Additionally, due to the opportunities of, for example, additive manufacturing—which is considered one of the core technologies in the Industry 4.0 era—physical transport and logistics processes are reduced.

Factory of the future

The factory of the future is a vision for how manufacturers should enhance production by making improvements in three dimensions:

  • Plant structure
  • Plant digitization
  • Plant processes.

The factories of the future will deploy a multidirectional layout in which products are placed on driverless transport systems and individually guided through production by communication with production machinery. These factories will have interchangeable line modules and production machinery that can be easily reconfigured, and they will be designed for ecologically sustainable production, including the efficient use of energy and materials.

Manufacturers are increasingly using digital technologies, such as installing smart robots that can perform more complex tasks than human workers, as well as collect information from each work piece being produced and automatically adjust their actions to its characteristics. Other digital technologies being introduced in various sectors are collaborative robots, additive manufacturing, augmented reality, production simulations, decentralized production steering and big data and analytics.

Transforming the petrochemical industry

This digital transformation will affect the petrochemical industry in three main ways. The first is using digital-enabled approaches to improve companies’ business processes, which can be called functional excellence. The second is the potential for digital to affect demand patterns in end markets, with implications for the chemical industry’s value chains. The third is when digital developments lead to changes in the business models through which chemical companies capture and create value for customers.

Other digital-enabled advances may create significant value in manufacturing operations (e.g., the use of automated guided vehicles, such as self-driving forklifts, and the use of robots to fill big bags). These advances should reduce costs and improve process stability and safety performance. At the same time, deploying an automated and centralized plant performance-management system will make it possible to better steer operations and react faster when corrections are needed.

Throughout the value chain, manufacturing will be facilitated by the comprehensive integration of information technology (IT) systems and the availability of all required production data. Within a company, this integration will strengthen connections across R&D, production, sales and other functions.

To realize the vision of the factory of the future, manufacturers must address topics related to three enablers:

  • Strategy and leadership
  • Employee skills
  • IT infrastructure.

Companies must make their factory-of-the-future strategy an integral part of their corporate strategy and adapt their leadership styles to new ways of working. Manufacturers must also focus on developing a workforce with the new skills required to perform technology-centered production tasks. Companies must install IT infrastructure that supports connectivity throughout the value chain while ensuring the security of data.

Rapid acceleration of change

Many improvements will result from the digitization of processes and value chains, including:

  • Focusing on core areas in the individual value chain
  • Reducing redundancies in processes
  • Minimizing quality losses
  • Making processes more flexible
    and coherent.

In concrete terms, increased transparency improves the utilization of machines and systems (e.g., by optimizing batch sizes). Digitalization and greater connectivity in process organization may permit areas of work to be rationalized and may yield gains in productivity. The intelligent analysis and integrated use of data for controlling purposes also reduces the rejection rate in production.

Industry 4.0 goes far beyond digitalizing processes and value chains; it leads to a higher level of digitalization in the product and service portfolio. A mechanically perfect product will no longer be enough to successfully compete on a global scale. The differentiation of products is moving increasingly in the direction of software, as well as superior sensor technology, connectivity and the generation of data.

As the Industrial Internet evolves, existing business models will change permanently, and new digital business models will be created. The focal point for this development is the increase of customer benefits due to a growing range of value-added solutions (rather than products). The expansion of digital service elements will increase connectivity between products and manufacturing equipment, as well as between customers and partners. The special quality of digital change lies in the rapid acceleration of change. Disruptive innovations will also prompt sectors like the information and communications industries to change permanently within a short period of time.

The most important aspects to be analyzed and implemented by business for Industry 4.0 are shown in FIG. 1.

FIG. 1. Physical-to-digital-to-physical loop and related technologies. Source: Deloitte Center for Integrated Research.
FIG. 1. Physical-to-digital-to-physical loop and related technologies. Source: Deloitte Center for Integrated Research.

Digital and new business models in chemicals

Will digitalization change the ways that chemicals are sold and distributed? How will value flow? Will we see a shift from sales of products to sales of services and solutions? Will attackers emerge that disintermediate established producers from their customers, as we have seen with B2C platforms in other industries? Different segments of the chemicals industry will have different answers to these questions—generally, while crop-protection chemicals and some specialty chemical segments are at risk of business model disruption, and some chemical distributors see themselves as potential actors in future possible disruptions, petrochemicals will probably be less affected.

First, business models that remain connected to the product in use might provide a substantial opportunity in some areas of the chemical industry (e.g., through systems that monitor chemical applications in industrial processes). One example drawing significant interest is catalysts, where process catalyst manufacturers are increasingly moving toward “performance pay” models rather than simply selling the product.

Staying connected to the catalyst in use allows the catalyst manufacturer to optimize its customers’ production process and presents the opportunity to build a large and valuable knowledge base that can be used to improve catalyst use across its customer base, and charge for the service. Several such models have been in development for more than a decade in parts of the specialty chemical industry, and the potential exists for an acceleration in their adoption linked to digital. However, such approaches will not be applicable for the chemical industry as a whole; the focus is where a specialty chemical does a specific job, such as a catalyst or water treatment chemical.

Second, opportunities for intellectual-property-based business models that generate licensing or consulting fees are emerging. Under this model, a company can charge a fee for providing guidance on how to best use its product, or it can license production of a proprietary molecule to another producer. Examples to date are isolated and unproven.

The IIoT

Significant potential exists for the use of these solutions. One of the key factors to keeping the downstream business profitable is the adequate handling of safety, shutdowns, turnarounds and outages. This is the result of being proactive regarding different decisions, and the Industrial Internet of Things (IIoT) is the basis for achieving such success.

The IIoT is the key to gathering information and automating the physical processes. In terms of the Industry 4.0 paradigm, the IIoT is the base for a fully digitalized facility; this technology, combined with the cloud, analytics and artificial intelligence (AI), can enable new operational models based on automation and augmented human activities that rely on predictive analyses for operations and maintenance, production and inventory monitoring, and improving security.

This technology can help prevent human and monetary losses, reduce costs and improve performance. According to Accenture research, the IIoT could help increase productivity by as much as 30% due to the introduction of automation, saving up to 12% in scheduled repairs, reducing maintenance costs up to 30%, and eliminating breakdowns by up to 70%. The US Department of Energy identified that 92% of the maintenance-related shutdowns from 2009–2012 were unplanned, and some researchers estimate a daily cost per refinery of $340,000–$1.7 MM. In the safety arena, the 2015 explosion of a petrochemical plant in the Czech Republic cost approximately $177 MM, while a similar event in Canada in 2005 cost $870 MM.

Creating an Industry 4.0 implementation roadmap

While Industry 4.0 improves operations through technology, it requires more than just a simple technology implementation and mandates a corporate design strategy. Companies and executives must understand that while Industry 4.0 can transform their business, it is also important to evaluate how it aligns with future goals, corporate culture and the organization’s core strength and corporate strategy. Designing an Industry 4.0 roadmap requires a wholistic understanding of the entire organization, including its capabilities, priorities, culture and digital maturity level.

Studies have shown that the integrated and connected assets of oil and gas companies can generate as much as 1.5 terabytes (TB)/d of data. Despite this, many companies still lack the capabilities to leverage this information for relevant business insights. To overcome this digital bottleneck, companies must look at adopting Industry 4.0 using an enterprise-wide and holistic approach.

The Industry 4.0 Maturity Index, developed by the acatech lead consortium,2 provides a useful framework for organizations to evaluate their current maturity and define a roadmap for Industry 4.0 implementation. The Industry 4.0 Maturity Index (FIG. 2) assesses organizations from three perspectives: cultural, organizational and technological.

Fig. 2. The Industry 4.0 Maturity Index. Source: Infosys.
Fig. 2. The Industry 4.0 Maturity Index. Source: Infosys.

The first step is to analyze the organization’s current situation and goals. Key questions to be considered include:

  • What are the strategic goals and objectives over the next few years?
  • What technologies and systems
    are being implemented?
  • How do these technologies
    and systems operate within
    the company?

The answers to these and other questions will determine the organization’s capabilities. Through this approach, organizations can define a digital roadmap to implement Industry 4.0 across all relevant areas of business.

The Industry 4.0 Maturity Index contains four levels of maturity:

  • Transparency
  • Visibility
  • Predictability
  • Adaptability.

It is important to note that in this framework, every stage builds on the strong foundation established in the previous stage. To ensure successful implementation of Industry 4.0, all four stages should be followed in sequence for maximum benefits.

The challenges of change

Many companies have not developed any specific plans for the implementation of Industry 4.0 solutions, nor have they made any larger investments. Solutions are new for many companies and require significant changes. The quantification of potentials is also complex and diverse. There is an urgent need for increased transparency and an exchange of experience across industry sectors.

Despite the opportunities discussed here, Industry 4.0 implementation presents several challenges and takes place in a highly dynamic competitive environment. It reshapes industry boundaries, creates entirely new industries and exposes established manufacturing companies to new competitive challenges. For instance, new competitors that offer smart and connected product solutions (or even entirely new business models, such as platforms) can emerge quickly, threatening the current market position of established players. Likewise, increasingly competitive dynamics and the facilitated market entrance of new competitors are among the most critical challenges in the Industry 4.0 era.

Moreover, digital connectivity implies sharing of data and opening to a competitive market environment, resulting in transparent business ecosystems that are largely facilitated by (online) platforms. In this regard, companies must deal with two issues:

  • A high level of transparency exposes manufacturers to the risks of cyber-attacks and industrial spying, and the challenge of securing data rights and access.
  • Companies that set platform standards may hamper established companies’ unique selling propositions and eventually drive them out of the market. To meet these challenges, manufacturing companies must systematically upgrade their business models.

A varied perspective on different industry sectors shows that exclusively mechanical and plant engineering companies are put off from implementing Industry 4.0 due to challenges regarding competitiveness and future viability. Mechanical and plant engineering companies are largely confronted with insufficient IT and software know-how due to their strong focus on hardware, machinery and products. Implementing Industry 4.0 can pose the threat of exposure to experienced IT and software companies within platform ecosystems. Rather than perceiving this as an opportunity to source external knowledge, they might fear the threat of becoming dependent on companies that possess more contemporary data, software, virtualization and IT competencies.

Developers and implementers of Industry 4.0 facilities face two major challenges: security and standards. Security will always be a primary concern: as each new technology evolves, malefactors attack, and developers must continually repel these intrusions and adapt their systems for tighter control. Since Industry 4.0 is highly dependent on information sharing and transfer, a lack of universally accepted standards for data formats, protocols and the like continues to offer challenges. Many organizations are working to develop the needed standards and push for general acceptance. While this is still a work in progress, implementers remain at risk of selecting systems that may not use the protocols that eventually emerge as industry standards.

Digital transformation is not a simple task—it is a journey. Companies know that their processes must become more automated and integrated. To make them more efficient, companies require intelligent, interconnected systems to drive processes, and they need visibility into operational performance. This is the essence of Industry 4.0.

Industry 4.0 comprises three key technological components:

  • The IoT—the ability to gather data from machinery and equipment
  • The cloud—storing this data on a centralized system
  • A data analytics engine—allowing the user to reveal trends in data and predict future trends with a high level of certainty.

While these three technological components are requirements of Industry 4.0, the true enabling factor of the next industrial revolution begins much closer to home, with tools already available.

While companies connect their commercial configuration system to a design system (PLM), new product configurations are made available in real time and in a controlled manner. Factory systems can reach a level of product customization that is extremely fine-tuned.

This concept enables companies to manufacture any product, quantity, variant, sequence and assembly line, at any time. Of course, this means different things for different industries.

In the industrial machinery sector, for example, it means the ability to switch from a traditional sales model based on acquisition, to a sales model where the performance that each machine can deliver is sold to clients. Income and revenue will then be generated from an applied pricing model based on equipment usage and maintenance fees.

The terms smart factory, digital manufacturing and even Industry 4.0 are interchangeable, according to Paul Miller, senior analyst at Forrester. An organization’s preferred term typically reflects its marketing strategy. In the end, however, what matters is that the factory technology connects.

Obviously, the level of investment in a smart factory depends on budget. Digital technology can be expensive, especially if a manufacturer has spent little or nothing on upgrades over the years and needs to connect its infrastructure. Once a manufacturer has streamlined existing data flows and gained insight into how to improve current manufacturing processes, it can slowly make new technological investments that will further digitize operations. Companies are advised not to delay simply because they may have old manufacturing equipment that is seemingly incompatible with the IoT, 3D platforms and other new technologies.

Takeaway

Digital technology, and the data it brings, hold tremendous promise for the refining, petrochemicals and chemicals industries. These technologies can play a role in driving business value:

  • The IoT, leveraging sensors to capture data from manufacturing, storage and distribution
  • The cloud, a platform to support a common system of record for both suppliers and customers
  • Analytics to correlate supply data to product quality and customer satisfaction
  • Machine learning to assist in predictive maintenance of operational equipment
  • Blockchain to better track transactions for assets, materials and products.

Technology alone is not the answer. In the chemicals industry, it is the use of technology against the right digital strategy that holds the real value. This requires a focus on implementing a true digital core that enables a common system of record through the business. It also requires a corporate mindset that embraces agility, adaptability and innovation, and is driven by a customer-first, design-focused perspective. HP

LITERATURE CITED

  1.  Online: https://www.ibm.com
  2. Schuh, G., R. Anderl, J. Gausemeier, M. ten Hompel and W. Wahlster, “Industrie 4.0 Maturity Index: Managing the digital transformation of companies,” acatech study, online: https://www.acatech.de/wp-content/uploads/2018/03/acatech_STUDIE_Maturity_Index_eng_WEB.pdf

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