Industry 4.0: What Is it?

The term “revolution” implies an abrupt and radical change in the overall system where it takes place (Treccani, s.d.). The three industrial revolutions of the past were all triggered by technical innovations and by new ways of perceiving the world (Schwab, 2016): the introduction of water- and steam-powered mechanical manufacturing at the end of the 18th century, that changed both the production and the logistics world; the division of labour, the mass production and the first assembly line at the beginning of the 20th century; the introduction of Programmable Logic Controllers (PLC), the Information and Communication technology and the Numerical Control programs for continuous automation purposes within manufacturing in the 1970s (Brettel, et al., 2013).

According to experts from the academic and industrial world, today we are on the cusp of the fourth industrial revolution (also called Industry 4.0), that is the industrial result of the deep modification of the way of living, learning and making business that we are living nowadays. Since the novelty of the theme, even if the topic is of high importance and extremely relevant for experts, governments and companies, there is not a unique definition of the term (Brettel, et al., 2013). As a general idea, it can be defined as a “collective term for technologies and concepts of value chain organization” (Gandhi, 2015), which embraces contemporary automation, data exchange and manufacturing technologies.

Often, using a μετωνυμία, it is referred to as Industrial Internet, Smart Factory, Cyber Physical Systems (CPS) or Advanced Manufacturing as its main characteristics. However, even if the name could change, the meaning of the fourth industrial revolution remains the same: it refers to the connection among production departments, tools, machines, “individual things” in general made possible by Internet and CPS (Schlaepfer, et al., 2015). In other words, Industry 4.0 is the theorization of manufacturing paradigm based on CPS, which are informatics systems able to interact with physical systems within they work and equipped with computational, communication and control capabilities (Assolombarda, 2016). The fourth industrial revolution will enable the autonomous exchange and analysis of information coming from intelligent ICT-based machines, systems and networks in order to manage industrial production processes (MacDougall, 2014). Moreover, within the factories of the future, the virtual and physical systems of manufacturing can globally collaborate with each other in a flexible way (Bauernhansl, et al., 2016).

The idea of giving to the fourth industrial revolution the name of Industry 4.0 (or Industrie 4.0, as the German language states) was born exactly in Germany in 2011 during the Hannover fair (Davies, 2015). The term “Industrie 4.0” became publicly known when the namesake initiative, composed by an association of representatives from business, politics, and academia, promoted the digitalization as an approach for strengthening the competitiveness of the German manufacturing industry (Kagermann, et al., 2011). Eventually, the project was aimed at the creation of the smart factory, able to reach the aforementioned smart production: it is characterized by high adaptability, efficiency, strong partnership between different companies and attention to the value chain (Sabo, 2015).

Industry 4.0 will create a world in which virtual and physical systems of manufacturing globally cooperate with each other in a flexible way, with the final aim of offering highly customized products and creating new operating model (MacDougall, 2014). Hence, smart machines, storage systems and production facilities would be capable of autonomously exchanging information, triggering actions and controlling each other independently (Reimer, et al., 2015). Smart factories have to cope with the need of rapid product development, flexible production as well as complex environments; intelligent systems will enable the communication between humans, machines and products (Oriani, 2016). As systems are able to acquire and process data, they can self-control certain tasks and interact with humans via interfaces (Koch, et al., 2014).

The ongoing revolution refers to a further developmental stage in the organization and management of the entire value chain process involved in manufacturing industry (Schlaepfer, et al., 2015). Industry 4.0 will make possible the gathering and analysis of data across machines, enabling faster, more flexible, and more efficient processes to produce higher-quality goods at reduced costs. This in turn will increase manufacturing productivity, shift economics, foster industrial growth, and modify the profile of the workforce. Moreover, Industry 4.0 is supposed to affect positively the global economy, thanks to the substantial increase of effectiveness and to the development of new business models, services and products (Baweja, et al., 2016).

But, more in detail, which are the main innate characteristics of Industry 4.0?

For sure, behind it, there is a strong and pure digitalization of the firm, that will result in horizontal and vertical integration of the value chain. The digitalization of the factory will be enabled mostly by Cyber Physical Systems (CPS), physical objects equipped with microcontroller,
communication systems, and sensors able to communicate with other systems. In fact, unlike more traditional embedded systems, CPS are typically designed as a network of interacting elements with physical input and output instead of as standalone devices. The novelty relies in the integrated computational and physical capabilities of the embedded systems, that will make them able to analyse the incoming
information, determining the current status, planning the following
steps and executing them.

Unfortunately, some problems will incur due to the huge amount of data (big data) gathered automatically from every CPS and stored into the cloud: to cope with this increasing complexity, there is the need of sophisticated algorithms to transform data into useful information. Anyway, a company can strongly benefit from the use of CPS: an overall increase of efficiency will be registered thanks to the possibility of real-time monitoring, of the environment digital simulation and of preventive maintenance. Moreover, thanks to the full connection, a company will be able of a total understanding of customers’ needs and of the realization of personalized products to fulfil any consumer’ requirement.

A part of the aforementioned technology -CPS, that is the main enabled driver for Industry 4.0, there are still some other ones that play a significant role in a digitalized company, bringing further benefits to it: autonomous robots, augmented reality and additive manufacturing. As CPS are the keystones, the just mentioned technologies. Starting with autonomous robots, their capabilities are improving at a rapid pace, thanks to the progresses in sensors and artificial intelligence. They are reaching high levels of flexibility, adaptability and autonomy, and it is expected that they would be able to interact between each other, exchanging data. In fact, thanks to CPS, robots can understand and better respond to the environment, managing themselves and interacting between each other. It is undeniable the increase in efficiency that a spread use of autonomous robots will bring to companies. Augmented reality, related to the possibility to have a transposition of real-environment through glasses or applications, are applied in companies to train workers, to empower personnel, to maintain machines and equipment, to personalize products and, just in few cases, to conduce pilot projects. As a wider employment within factories, workers would have a complete visibility of all the information they need, fostering real time decision making. Lastly, additive manufacturing, also called 3D printing, consists in creating a physical object by printing layer upon layer from a digital 3D drawing or model. It turns out to be useful in order to create prototypes or a very small range of components.

However, none of these technologies, characterized by a digital core, are new on the market: in the fields of robotics, sensors, additive manufacturing, automation systems, etc. the race toward digitalization, along with the increase of performances and the integration between production resources has started years ago. The big break with the past consists in the level of sophistication, integration, and market availability that will make possible a strong transformation of society and global economy. According to (McAfee & Brynjolfsson, 2014), the world is at an inflection point where these technologies will reach full potentialities enabling “unprecedented things”. Here, Moore’s law (1965) can help in understanding: “The complexity for minimum component costs has increased at a rate of roughly a factor of two per year. Certainly, over the short term this rate can be expected to continue, if not to increase. Over the longer term, the rate of increase is a bit more uncertain, although there is no reason to believe it will not remain nearly constant for at least 10 years.”. As well predicted for the integrated circuits, digital progress will follow an exponential growth since it will improve its performance of a factor of two, every defined period. Nowadays, the growth of digital performances has reached unimaginable figures: exponential progress allows technology to keep racing ahead and “makes science fiction reality”. Hence, the potentialities related to Industry 4.0 rely not on a disruption in technology itself, but rather on the completely new way it can support manufacturing activities thanks to the exponentially improved characteristics. Technology nowadays allows to do things that seemed out of reach just few years ago: the availability and the wider diffusion of technological drivers enable a stronger impact of them in respect to the past.

It is hence undeniable that companies who embrace it will find themselves in prime position to leverage a number of key competitive advantages for success in the short, mid, and long-term future. As following, a brief list of the main ones (Ostdick, 2017).

  • Data collected thanks to CPS in real-time within a company will allow it to streamline processes at a variety of touch points across the whole value chain. For doing so, Industry 4.0 demands a powerful platform for storing, sorting, and retrieving massive amounts of detailed data and reporting. With vast amounts of storage space and the capacity to view and manage big data in real-time, the integration of cloud technology represents a key advantage of embracing Industry 4.0.
  • The ability of systems and solutions to work jointly with each other not only fosters greater productivity and accuracy, but it also provides greater visibility into a company’s overall supply situation. Because Industry 4.0 is in large part about making companies more agile and responsive, CPS and industrial internet of things become a core driver in creating valuable insight into a company’s demand planning, production, and inventory practices.
  • Industry 4.0 enhances a greater end-to-end (E2E) visibility and increased supply chain agility, both of which are key in avoiding bottlenecks and creating stability across the entire value chain. In fact, thanks to advanced analytics production programs and processes will be optimized, allowing companies to increase levels of productivity and efficiency.
  • Industry 4.0 – alongside such production principles as additive manufacturing – allows companies to enhance their customization capabilities to address the specific needs of individual customers. The ability to service this level of customization means companies will be more responsive to restraints in production programs and better equipped to weather potential breakdowns or slowdowns in the movement of parts throughout the supply chain.
  • Because Industry 4.0 relies heavily on the coordination and communication of intelligent planning platforms or solutions, planners and managers are better able to gather, sort, share, and collaborate on actionable data sets for improved efficiency and productivity. Industry 4.0 puts more data in the hands of more individuals who can work with that data to streamline how a manufacturer operates it planning and production stages. This helps breakdown functional and planning silos, which can hamper a company’s ability to operate as efficiently as possible.


According to what said until now, it is clear how much Industry 4.0 will have a positive impact on costs. Let’s see the estimations made by BCG for German companies: productivity improvements on conversion costs, which exclude the cost of materials, will range from 15 to 25%, while productivity gains of 5 to 8% will be achieved if the materials costs are factored in (Rüßmann, et al., 2015). During the next five to ten years, Industry 4.0 will be embraced by more companies, boosting productivity across all German manufacturing sectors by €90bn to €150bn. However, these improvements will vary from industry to industry: as shown in the graph below, industrial-component manufacturers stand to achieve some of the biggest productivity improvements (20 to 30%), for example, and automotive companies can expect increases of 10 to 20% (Rüßmann, et al., 2015).

As stated also in a survey conducted by PwC, enabling technologies will enable efficiency improvements and reduce costs along the entire value chain: surveyed companies anticipate Industry 4.0 to yield additional annual savings in the amount of 2.6% on top of the usual cost savings. The expectations of the process industry for a cost reduction of 1.9% per year are considerably more conservative than those of the discrete manufacturing industries (Koch, et al., 2014).

Expected cost savings not only apply to intra-company increases of efficiency but are also the result of an increased horizontal integration. A reduction of production costs in the amount of 2.6% per year can only be achieved if all partners along the entire supply chain are also able to achieve individual cost reductions and pass them on (Koch, et al., 2014)Measured against the cost reductions typical for industrial companies of 3% to 5% per annum, the planned savings due to the industrial internet will make a decisive contribution to the sustainable increase of competitiveness of German companies (Koch, et al., 2014). Thanks to the expected costs reduction, also the productivity will grow enhancing the reshoring effect.

It is well-known that most of the relocation happened with the final goal to save costs, that have been the key in companies’ mission. However, what is happening nowadays is that costs are not the focus anymore: the heart of the companies’ strategy is the final customer. The market has changed his perception of the products, with an higher attention to quality.

The possibility to have real time data and the customers’ requirements to have high level of personalization in products, make unfeasible the production located in faraway low-cost countries. Hence, a smart factory, as defined until now, needs the production close to the design center, in order to optimize all the flows (products and information) and to reduce the time-to-market. However, the costs reduction enabled by Industry 4.0 will strengthen the reshoring effect: as example, design and engineering time will pass from 3-4 years to 12 months, no stocks are needed, just-in-time production… What all this means is an enhancing of companies’ competitiveness, that will lead to the possibility the production’s reshoring.

At the end, this is not only an advantage for final consumers, that will have personalized products with a short waiting time, but also for the workers: in fact, the opening of new factories will create jobs. An important question mark remains: will this counterbalance the jobs that will not be needed anymore?


Concluding, it is important not only to focus on the many and varied benefits that Industry 4.0 could bring to the manufacturing, but also to understand which advantage could take customers. As first, there are some benefits that have always been associated with automating, such as improved quality, repeatability and reliability, leading to better products and user experiences. Product miniaturization and mass production are other advantages. Moreover, Industry 4.0 can take the customer experience to another level: the goal of mass customization and “batch size one” could bring an unprecedented level of personalization to products without the hefty price tag usually associated with them.

3D printing is a rapidly developing technology that could allow even further opportunity for self-designed and locally made unique products. It is not difficult to imagine designing your own smartphone case and sending the file to be printed at a local 3D printing facility. There could indeed be an opportunity for new business models, as companies investing in 3D printing equipment offering the service to customers. Design templates for items could be supplied, for individual personalization or modification. Almost any household item, from cups and plates to furniture and fittings, could be made to your own unique design. As additive manufacturing matures, it is not only plastics that can be printed, but metals, fabrics and even food. Whether printing a bespoke door handle, a unique scarf or a personalized birthday cake, the possibilities allow a new level of customer experience. That is a benefit that just would not be viable with traditional mass-production manufacturing.


According to the definition of Industry 4.0, there are many common points between it and the Computer Integrated Manufacturing (CIM) of ‘80s. In fact, CIM can be depicted as the manufacturing approach of using computers and automation to control the entire production process, allowing individual processes to exchange real-time information between each other, the creation of automated manufacturing processes. So, it is undeniable the strong similarity between the two concepts and it is possible to state CIM is the first conceptual model of completely automated plant, acting as the forefather of Industry 4.0. Unfortunately, since the main theme of Industry 4.0 is still confused, the risk is to repeat the failure of CIM: the true challenge is to deeply understand this revolution as a strong opportunity for a company to commit a real disruption on processes and products.

However, even the huge benefits that will be achieved thanks to Industry 4.0, there are still some barriers that delay companies in fully deploy it (Fitchett, 2016). Looking at the past revolutions, biggest problems were mainly related to physical aspects: let’s think at the one of the energy’s supply, as rivers or digs for producing steam, carbon mines, oil and, later on, electricity supply, or at the transportation or, at last, at the physical change of the equipment and machines used to process the goods (Schwab, 2016). Nowadays, on the other hand, we are facing something different: great obstacles have an unphysical nature (Schröder, 2016). One of the most significant example is represented by the lack of skilled workers able to implement, manage and work with Industry 4.0 related solutions (Hirsh-Kreinsen, 2016). Even if the problem of adapting the competences of the workforce to the new productive solutions was present either in the past, the nature of skills required and the time requested to adapt the workforce’s capabilities were completely different (Schwab, 2016).

The variety of solutions and technologies offered by Industry 4.0 is broad and entails the impossibility, for a person, to concretely master them all (Rüßmann, et al., 2015). The technologies proposed belong to very different technical branches, meaning the unfeasibility of knowing exactly the scientific principles and theories relying behind each of them (Hirsh-Kreinsen, 2016). Additionally, even the single technologies do not have worldwide recognized standards, which led to the impracticality of creating a documentation on which workers can study and build their competences related to Industry 4.0 (Beudert, 2015).

On the other side, the time required to create the new sufficient knowledge of the workforce is considered as a huge criticality: if in the past revolutions, a time horizon of some months was sufficient to adapt the skills of the workforce, nowadays things are pretty different (Rüßmann, et al., 2015). First of all, there is a consistent number of workers will not accept to deal with new technological solutions due to several reasons, as aversion for technology, reluctance to change, lack of basic computer knowledge, labour unions constraints (Brynjolfsson & McAfee, 2014).

Secondly, society needs to establish new working positions which can assure a continuity of workers with skills of Industry 4.0: this entails the necessity of having educational pathways oriented to these new figures, that are actually totally missing (European Commission, 2016). However, it will mean that the new figures will be available, only starting from the next 5 years (if we consider the average time for completing a professional institute study career) (Rüßmann, et al., 2015).

More in detail, the new working profiles required by the implementation of Industry 4.0 will have some common characteristics, presented below (Blanchet & Rinn, 2016).

  • Confidence with Information Technology environment and capabilities of data management. Usually these types of profiles are already present, at least in the most consolidated companies, but are merely bounded to the IT department and they are not integrated in the productive context(Schwab, 2016).
  • Flexible thinking. Industry 4.0 is about enhancing company’s flexibility through the use of different technologies and this requires people working with such technologies to adapt their mind set to flexible thinking(Dickens, et al., 2013). The new supervisors and operators of a plant embracing Industry 4.0 should be able to conduct fast cycles of problem solving, facilitated by complete access to information, and to face situations of very different nature (Frey & Osborne, 2013). This is caused by the shift from repetitive, non-stimulating work to supervising and monitoring activities which are, by their nature, extremely variable and challenging (Schwab, 2016).

However, the advent of the fourth industrial revolution requires not only a shift in workers’ skills, but also a change in company’s organization: in order to let these cross-functional people work efficiently, all the departments within a company need to maximize the exchange and transmission of information both at horizontal and vertical level (MacDougall, 2014). In conclusion, the problem of facing the expected huge demand of technicians and managers, able to deal with Industry 4.0, represents one of the biggest obstacle to the rapid adoption of related technologies and requires changes in modern society working habits and skills (Rüßmann, et al., 2015). The only feasible solution relies in the educational systems, which will be requested to address this matter and to form the workforce of the future (Fornasiero, et al., 2015).

Lack of skills and the risk of a new CIM are not the only obstacles in adopting technologies related to Industry 4.0. Company’s dimension, measured in number of employees, as well as IT infrastructure are critical variables. On one hand, small size companies are reported to benefit less of the full potential of Industry 4.0 (Schröder, 2016). The reasons why the size impacts on the possible gains are imputable on the poor technological background, and on the specific managerial culture. The majority of Italian SME does not own the required technological knowledge for implementing Industry 4.0 solutions on their own (Oriani, 2016). This refers mainly to the scarcity, and sometimes absence, of skilled IT personnel able to master a project of technological development inside the company (Seghezzi, 2015). Moreover, in the typical Italian SME, the entrepreneur has an enlarged authority with additional power due to the absence of middle management positions: this involves that the major decisions are taken just by one person, who often is very unconfident and unaware of those kind of investments (Pascucci, 2016).

On the other, the new industrial paradigm entails the need of upgrading the current IT infrastructure in order fit with new standards: the adaptation of IT assets regards not only the industrial function, but all the departments within a company, such as research and development, purchasing, operations, logistic, finance, marketing, sales and after-sales service (Schlaepfer, et al., 2015). A strong interconnection between all departments will be achieved thanks to Industrial Internet. For SME, this barrier is easier to overcome being more flexible, and having the possibility of totally substituting the existent ERP system with a new generation one at affordable costs (Schröder, 2016).