Here is an interview conducted by McKinsey’s Markus Löffler and Andreas Tschiesner during which executives at Robert Bosch and McKinsey experts discuss the technology-driven changes that promise to trigger a new industrial revolution.
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In what’s called the “Internet of Things,” the physical world is becoming a type of information system—through sensors and actuators embedded in physical objects and linked through wired and wireless networks via the Internet Protocol.
In manufacturing, the potential for cyber-physical systems to improve productivity in the production process and the supply chain is vast. Consider processes that govern themselves, where smart products can take corrective action to avoid damages and where individual parts are automatically replenished. Such technologies already exist and could drive what some German industry leaders call the fourth industrial revolution—following the steam engine, the conveyor belt, and the first phase of IT and automation technology. What opportunities and challenges lie ahead for manufacturers—and what will it take to win? To discuss the future of manufacturing, McKinsey’s Markus Löffler and Andreas Tschiesner recently sat down for a conversation with Siegfried Dais, deputy chairman of the board of management at German engineering company Robert Bosch GmbH, and Heinz Derenbach, CEO of Bosch Software Innovations GmbH.
A new era for manufacturing and logistics
Markus Löffler: The Internet of Things has already set in motion the idea of a fourth industrial revolution—a new wave of technological changes that will decentralize production control and trigger a paradigm shift in manufacturing. My question for the group is how do we think this paradigm shift will affect the classic production process and the manufacturing value chain?
Siegfried Dais: Given the Internet of Things—or Industry 4.0 as we call it when referring to manufacturing production—it is highly likely that the world of production will become more and more networked until everything is interlinked with everything else. And logistics could be at the forefront of this shift.
Andreas Tschiesner: I agree. And it will make logistics and the supplier network grow enormously more complicated. Although lean manufacturing can certainly reduce inventories, manufacturers will need to coordinate with more and more suppliers—often globally, and with longer transport times, more manufacturing steps, and significantly more parties.
Dais: Right. If a plant implements lean manufacturing, it keeps stocks to a minimum—not one part too many or too few. Components are constantly traveling the planet, often arriving within a day. With the Internet of Things, this system must extend beyond the limits of individual factories to interconnect multiple factories and even regions. Now the questions become who will do this? How do we find an architecture that is stable enough to keep everything networked together? I think it will primarily require algorithm specialists and software architects. We will need “steering instruments”—new algorithms and applications that interlink millions of things, that ensure that everything runs stably, and that are synchronized across the entire value chain.
Tschiesner: So how do we assess our existing logistics systems and identify the gaps? Let’s take container logistics in maritime shipping, which might be considered almost Stone Age in view of what is to come. It will be a tremendous effort to bring container logistics into the next generation of manufacturing.
Dais: To really drive developments, two competencies must come together. First, we need to recognize the change potential, value creation, and cost reductions we can achieve if we apply what’s actually “new” about new technologies. For example, take cyberphysical systems, which can tell us where every single unit is at any given time. Logistics players often use this tool, but with an old mind-set that fails to exploit the advancements the tool was designed to offer. So the first requirement is that logistics players truly use what’s new. The second competency is finding people who are able to design robust algorithms: those who make the system user-friendly so that the people who use it day-to-day can immediately recognize problems and know how to react without getting tangled up in a web of interdependencies.
Heinz Derenbach: One core element is the ability to create models. It is essential to translate the physical world into a format that can be handled by IT. This requires mathematical, domain, market, and context know-how. In the connected world, we cannot separate the physical world from business processes. We capture this in the slogan “process2device.” That means a physical device becomes an active part of a business process: delivering data, sending events, and processing rules. This notion is driving us.
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To read the complete interview, please click here.
Siegfried Dais has been deputy chairman of the board of management at Robert Bosch GmbH since 2004 and a limited partner at Robert Bosch Industrietreuhand KG since 2007. He oversees the business divisions that cover drive and control technology, solar energy, Bosch Software Innovations, and health-care telemedicine.
Heinz Derenbach has been chairman of the executive board of Bosch Software Innovations GmbH since 2011. He has direct management responsibility for business planning, strategic portfolio management and technology, and product development.
Markus Löffler is a principal in McKinsey’s Stuttgart office, and Andreas Tschiesner is a director in the Munich office. The authors wish to thank Oliver Bossert for his contributions to this article.