The Next Industrial Revolution:
How the Internet of Things and Embedded, Connected,
Intelligent Devices will Transform Manufacturing
A Manufacturing Leadership White Paper
Sponsored by Microsoft
frost.com
Introduction....................................................................................................................................3
The Internet of Things in Manufacturing: ...................................................................................3
Business drivers and current initiatives....................................................................................... 4
The Machine-to-Machine Opportunity........................................................................................5
Primary technology enablers....................................................................................................... 5
Turning Manufacturing Data into Business Decisions................................................................6
Capturing and analyzing IoT Information.................................................................................. 7
How Manufacturing Companies Can Harness the Power of IoT..............................................7
Optimizing and integrating the organization............................................................................ 7
What to Watch Out for: Considerations and Challenges..........................................................8
Practical considerations of an IoT in manufacturing strategy.................................................. 8
Conclusion: Don’t Wait for the Future........................................................................................10
The opportunity to benefit from IoT in manufacturing exists now......................................... 10
contents
The Next Industrial Revolution:
How the Internet of Things and Embedded, Connected, Intelligent Devices will Transform Manufacturing
INTRODUCTION
Today’s manufacturers need to be ever more agile and efficient to survive. The ability to monitor and respond
quickly to changes in consumer demand, keep real-time control over product quality and regulatory compliance,
and ensure production lines run smoothly with minimum downtime is now essential to staying competitive.
Companies that do not effectively respond to today’s rapid and often disruptive shifts in both internal and
external forces face an uncertain future.
The Internet of Things (IoT) in manufacturing, along with the German government’s broader Industrie 4.0
smart factory initiative (see below), offer vast potential for companies to improve the capture of critical
operational data, monitor production assets and processes in real time, and connect with customers in ways
previously unimagined. Many of the technologies to do this are already available; they do not always require huge
investments, and the benefits can be swift and significant.
However, harnessing the real business value offered by new IoT approaches, and managing the increased flow
of operational information they create, does require companies to embrace change and adopt transformational
production strategies now to enable greater insights and collaboration across the plant floor.
This white paper identifies the current trends in plant floor networking and embedded intelligence technologies;
the opportunities these developments present for greater real-time, machine-to-machine (M2M) connectivity
and collaboration across the production environment; the business impact on manufacturing operations and key
processes; and some of the primary challenges facing both production managers and leadership teams as they
seek the benefits of the Internet of Things revolution in manufacturing today.
THE INTERNET OF THINGS IN MANUFACTURING
Much has been written and said recently about the “Next Industrial Revolution” that is predicted to
transform the manufacturing industry over the next few years. Often called the Internet of Things (IoT) in
Manufacturing, it envisions a world of pervasive connectivity in which hosts of Internet-enabled physical
devices constantly feed back valuable information to help companies produce and deliver better products
and processes. Machines will communicate with other machines about their status, performance and
location; they will communicate with people; and they will interact directly with the business processes of
an enterprise.
Predictions about the impact of this IoT revolution over the next few years vary widely – anything from an
estimated 26 billion connected devices by 2020, to more than 200 billion, and generating global revenues from
hardware and services of somewhere between $300 billion and an astonishing $8.9 trillion. The specifics of
these predictions are not the issue, however. The key point is that the adoption of IoT technologies, and the
associated business opportunities they will generate, is likely to be enormous.
The potential applications are virtually unlimited. A machine tool will be able to monitor and communicate its
real-time performance on a production line. A farm vehicle will notify the supplier it is in need of a service.
A refrigerator will be able to indicate which foods are out of date or need replenishment. City water or power
grids will self-optimize to avert or by-pass potential breakdowns. Your car will be able to help direct you along
the least congested route to your destination.
The big question now is: How can companies prepare for, and benefit from, this new revolution today?
3
frost.com
Current IoT Initiatives
This next wave of change now forms the basis of a number of industry, government, and technology initiatives
around the world, but, in essence, they all focus on the same approaches. The initiatives include:
• Industrie 4.0: Promoted as a high-tech manufacturing sector strategy by the German government, this is
based on the premise that industry has moved through history from the age of steam, to mass production,
to computing and electronics, and is entering a fourth state of embedded intelligence and connectivity.
The goal of the initiative is the creation of more intelligent, “Smart,” factories, harnessing the power of
new cyber-physical systems, connected sensors, and embedded intelligence to increase the adaptability,
resource efficiency, and the ergonomics of the production environment. Industrie 4.0 is also aimed at
accelerating the integration of customers and business partners into better business and value processes.
• The Internet of Things: A term first coined back in 1999 by Kevin Ashton, a British technology pioneer
and co-founder of the Auto-ID Center at MIT. It defines a global environment where the Internet is
connected to a host of physical devices via ubiquitous sensors and embedded intelligent systems–from
bridges to plant tools, and from cars to everyday household appliances. The Internet of Things was added
as a new entry in the Oxford English Dictionary in 2013 and is now used extensively by leading industry
analysts and technology suppliers to describe the new wave of cyber-physical connectivity.
• The Industrial Internet: An initiative led by General Electric to describe how powerful advances
in computing, information, and communication systems can be applied to production environments. It
focuses on three key elements: intelligent machines, advanced data analytics, and people at work.
• Smart Manufacturing: A concept promoted by the US-based Smart Manufacturing Leadership
Coalition, a non-profit organization that brings together manufacturers, suppliers, technology companies,
academia, and government agencies to explore and develop new approaches, standards, platforms, and
shared infrastructures that support the broad adoption of greater manufacturing intelligence.
• Intelligent Systems: An enterprise implementation of the Internet of Things in which integrated sets
of systems and tools harness the power of embedded devices by providing an adaptable foundation for
connectivity, security, and identity verification, making it easier for manufacturers to capture, manage, and
analyze key data flows. Researchers predict that the market for intelligent systems will account for more
than one-third of all electronic system unit shipments by 2015.
IoT Business Drivers
So why is all this activity so important to the future of manufacturing companies and the manufacturing industry
as a whole?
Intense competitive pressures and rising market demands in today’s business world require enterprises to
increasingly personalize and regionalize products by adopting rapid-response, agile, build-to-order production
models that serve multiple markets around the world. Operational efficiency; the need for speed, agility, and
customer-centricity; and a continual focus on both product and process innovation are key drivers to survival
and success. The valuable new flows of real-time information generated by IoT technologies will allow far
greater visibility for an enterprise into its key business processes and operations.
4
The Next Industrial Revolution:
How the Internet of Things and Embedded, Connected, Intelligent Devices will Transform Manufacturing
The adoption of IoT technologies promises to significantly impact three key areas of a manufacturing enterprise by:
-Maximizing the efficiency of industrial machines, tools, instruments, and other assets in the production
environment;
-Generating new products with embedded intelligence that increase functionality and improve the
customer experience, spur product innovation, and foster the introduction of new product-related
services; and
-Transforming and streamlining enterprise processes –from supply chains to distribution strategies –by
capturing and analyzing the performance data to help companies become faster, operationally efficient,
and more responsive to changing market demands.
IoT in manufacturing is therefore poised to create a new imperative for manufacturers to transition from standalone assets to connected, intelligent, collaborative production systems where the increased flow and in-depth
analysis of critical information will help tomorrow’s manufacturers transform their organizations to be more
efficient, responsive, collaborative, and competitively successful.
THE MACHINE-TO-MACHINE OPPORTUNITY
Traditional machine-to-machine communication initiatives have often been hindered by a lack of adequate and
affordable technologies at both the device and enterprise levels. But new IoT cyber-physical systems promise
to add new momentum to the machine-to-machine opportunity, allowing companies to easily generate vast
amounts of valuable, machine-generated data and then communicate that data not only to other machines, but
also to management systems. By doing so, they can keep management informed about machine status, allowing
teams to prevent errors or failures and better schedule preventative maintenance on both their in-house plant
assets and the products they produce.
It is important to recognize, however, that despite all the current hype around IoT and the ambitious
predictions for the future, many of the key technologies involved are already available and companies can
start to benefit today.
The availability of low-cost network connectivity, including Ethernet, Wi-Fi, Bluetooth and cloud systems; the
development of advanced sensors, meters, and RFID devices; and recent innovations in intelligent software have
changed the dynamics of how companies can embed intelligence into physical goods at a low cost.
For example, it is estimated that it now costs less than $10 to incorporate a Wi-Fi module into a piece of
equipment. Some analysts suggest connectivity will become standard in almost all electronics components, even
a basic, sub-$1 processor.
Along with this pervasive network connectivity, there are a number of other key technology aspects to the IoT
revolution that already allow intelligent remote control, monitoring, and sensing:
-Sensors and meters: Embedded devices that monitor the status and performance of machines and
products and communicate essential feedback data on their operational effectiveness. These may be
designed to measure key operational parameters, such as temperature or vibration, or alert operators to
potential equipment or product failures. Such devices can already be attached to existing assets, making
the IoT journey faster and easier for many companies.
5
frost.com
-RFID/NFC devices: Active devices and tags that can provide essential identification, traceability, or
location data for pieces of equipment, parts, materials, factory assets, inventory, or finished products.
RFID can be highly valuable for tracking items in the factory or during the warehousing, transportation,
distribution, or retail phases. Other emerging proximity technologies, such as near-field communications
(NFC), often used in smartphone payment systems, also allow devices to establish radio connection
by physically touching together or when within close proximity of each other, up to a few inches.
Adapted for plant environments, NFC also opens up multiple possibilities for in-plant asset and device
intercommunication.
-Intelligent software systems: Embedded software is at the heart of the IoT revolution, helping to make
sense of all the inputs from embedded physical devices and communicating the results for aggregation and
analysis. Event-driven or rule-based software can distinguish between normal and abnormal patterns, selfdiagnose, and potentially self-heal without human intervention. Intelligent systems will also help monitor
product quality in the field and identify customer usage patterns, then feed that data back into the product
development or production processes. Intelligent embedded systems also provide the basis for innovative
new product-related services to be developed to enhance a product’s effectiveness when in use and to
deliver greater customer value.
Such a wealth of machine-generated, real-time data provided by these IoT technologies is destined to become
increasingly important to support both immediate and long-term decision-making for manufacturers. It offers an
unprecedented opportunity for companies to better coordinate and integrate their processes–end to end, from
ideation, through production, to final service delivery–in more collaborative ways that accelerate their speed of
business and improve the quality, competitiveness, and performance of their products.
TURNING MANUFACTURING DATA INTO BUSINESS DECISIONS
To maximize the value of an IoT strategy, however, one of the biggest challenges for any manufacturer today and
increasingly in the years ahead will be how to gather and make sense of all this new information.
Big data may create big business opportunities, but it may also be a big headache for companies that are
unprepared for the exponential increase in machine-generated information.
Companies will need to understand and decide exactly what IoT data is going to be most valuable, and distinguish
between what is critically actionable in the immediate term and what can simply be archived for future trend
analysis. They will also need to plan how they capture and aggregate the information so it can be best analyzed
and used to support better business decisions.
Cloud technology is poised to become increasingly important in this exercise. A cloud approach can allow
products, machines, and production sites to communicate remotely in real time at a reasonable network cost
from almost any location, and will allow companies to transfer key data from multiple sites to central data stores
or locations for subsequent access, aggregation, analysis, or archiving using powerful, cloud-based applications
and tools.
Cloud networks are also comparatively easy to scale to support a growing number of devices as they are
deployed over time, and they can be swiftly updated to support new device interfaces as they emerge.
New cloud-related IoT developments are already underway, including a sharper focus on the common interface
standards needed to support networks of thousands of different devices, and how computing power could be
6
The Next Industrial Revolution:
How the Internet of Things and Embedded, Connected, Intelligent Devices will Transform Manufacturing
distributed across a cloud network so that some pre-processing may be done locally before key data is uploaded
to the main analytical or storage systems.
The Analytical Skills Gap and the Rise of the IoT Data Scientist
Gathering IoT data is only part of this issue. The next step is to analyze that data and turn the knowledge gained
into useful action.
For issues such as real-time machine tool error alerts, this is relatively straight-forward; action needs to be taken
to fix the problem. But the vast amount of data becoming available can also provide visibility into longer-term
trends in areas such as product quality, production process effectiveness, or customer usage patterns.
As a result, the need for both more advanced and easier-to-use data analytics tools, and the people with the right
skills to be able to use them effectively, will become acute.
Today’s data analysis tools may well seem primitive to future generations. Despite significant advances, they
are still often complex to use, cumbersome, and costly. There are already calls from across the industry
for developers to make the next wave of analytical tools far more intuitive and more visual so they can be
easily understood and immediately useful to less-skilled workers, whether on the plant floor or across the
supply chain.
To complicate the issue further, people with deeper, more specialized analytical skills capable of assessing and
managing big data flows in a meaningful way from an enterprise-wide perspective are already at a premium.
As companies come to depend increasingly on gathering IoT data insights into how their business runs and how
it can be improved, the demand for these highly-trained data scientists will increase significantly.
What’s more, when companies also look to identify or anticipate future market trends based on the vast
quantities of customer usage data flowing in from the field, they are likely to need people with far broader
insights than traditional statistical data warehousing skills – people like sociologists, psychologists, or ergonomists.
Such people are very rare commodities in today’s labor market. Again, the demand for people with such broader,
holistic analytical approaches is set to intensify.
It is becoming increasingly clear that progressive companies, industry associations, educators, and governments
alike now need to act swiftly, and collaboratively, if they are going to provide the right skills pipeline to reap full
benefit from an IoT data-rich future.
HOW MANUFACTURING COMPANIES CAN HARNESS THE POWER OF IOT
With multiple IoT devices deployed, and a workable strategy for gathering and analyzing the flow of information
established, where should companies now expect to focus their efforts on improving their business?
By providing greater visibility into many manufacturing company activities, the IoT revolution has the potential
to both increase operational efficiency and help tear down the traditional walls within an organization to help
better integrate an enterprise.
Optimizing assets: On the factory floor, the whole process of production and real-time workflows can be
optimized in new and innovative ways. Real-time status and performance data from built-in equipment sensors
and meters added to existing assets can help companies identify sudden or potential delays and errors, and
adjust to maximize production flows and quality. Intelligent alerts can help site managers prevent machine
7
frost.com
breakdowns by planning maintenance or parts replacement work before a problem occurs, thus reducing
downtime. Location data can also help companies track materials, parts, tools, or finished goods to optimize the
manufacturing flow through the factory and ensure constant availability at every stage.
Optimizing processes: Traceability and location data can also help companies better structure and manage
their supply chains to ensure the right materials are available to fulfil production runs, creating new types of
“smart” supply chains for the future. Traceability data can also help improve regulatory compliance, especially in
areas where goods are perishable, such as food processing or pharmaceuticals. Location data can help companies
better manage their inventory control, warehousing, and logistics activities. Market feedback from IoT devices
built into final products can also feed directly into a company’s innovation process to help improve the design
and performance of future models.
Agile Production: By combining market demand, production, and supply chain data into a more integrated
system, manufacturing teams will be better able to respond rapidly to changing customer requirements or
supply chain volatility, and adapt factory workflows in real time to align more closely with the latest production
priorities or innovative developments.
Driving Innovation: Perhaps most significant in terms of future business opportunities for many manufacturing
companies, however, is their ability to begin embedding increasingly intelligent software and monitoring devices
into both existing and new products. This will not only provide them with essential real-time feedback information
on the performance and quality of their products when in use, but also create an intelligent platform on which to
develop a range of ground-breaking new services for their customers –whether it’s a remotely controlled home
heating system operated from a mobile phone, or a congestion-busting route finder for the driver of a vehicle,
or an intelligent dosage advisor for pharmaceuticals.
Managed effectively, the IoT revolution promises to create more collaborative corporate structures, with highly
integrated end-to-end processes and future-proofed production platforms for the design, manufacture, and
delivery of increasingly intelligent products and services.
WHAT TO WATCH OUT FOR: CONSIDERATIONS AND CHALLENGES
No revolution, of course, happens without a few challenges along the way. The IoT revolution may have already
begun, and benefits may be gained swiftly by those companies willing to embrace the new opportunities, but
there remains a number of practical considerations that companies need to be aware of to protect their
investments and gain maximum benefit today.
IoT Standards: The development of common interfaces for many embedded devices, including sensors and
meters, is in its early days. Companies with a stake in the IoT revolution are now beginning to cooperate more
actively to overcome technical incompatibilities, but there is still work to be done. Industry agreement, either
by sector or at a broader industry level, will be critical to the speed at which such devices can be effectively
integrated on a wide scale into both existing assets and new products. The same is true for data itself. There
is no universal standard for IoT data models at this stage, but this will become increasingly important as
IoT data from multiple sources is integrated into consolidated, analytical, decision-making systems. The best
strategy today is to adopt the best common standards currently available, but keep a watching brief as new
standards emerge.
IoT Security: Experience over the past few decades has clearly shown that when devices of any kind are
networked in some way, the level of vulnerability to interference or cyber attack increases. It is incumbent
on individual companies, working closely with industry associations and governments wherever necessary, to
8
The Next Industrial Revolution:
How the Internet of Things and Embedded, Connected, Intelligent Devices will Transform Manufacturing
ensure that their IoT initiatives have the strongest possible security measures built in from the very earliest
stages of development. This is true whether a company is fitting sensors to existing or new factory assets, or
embedding intelligent systems into new products for their customer base. Each point of contact and all methods
of communication between devices need to be secure. One unsecured device could have an extensive impact
on the overall system.
Data Deluge: Don’t underestimate the work required, or the new skill sets needed, to effectively gather,
analyze, and make maximum use of the flood of IoT data that will be generated by a multitude of intelligent
devices. The ability to isolate, analyze, and interpret this key data will be at the core of manufacturing
competitiveness in an IoT world. It can often be more productive for companies to focus on carefully selected
key elements and then dive deeply, rather than try to analyze everything at once.
Enterprise Impact: Embedding ubiquitous intelligence into products, factories, and many other aspects of our
physical world will not be a matter of “business as usual.” Be prepared to adjust the processes and structures
of your organization to ensure you are ready to grasp new opportunities and respond to imminent competitive
disruption. This should apply not just to individual plant floors, or inter-plant connections, but also to connecting
production sites to all other parts of the organization– from product development teams, to the supply chain,
to distribution networks, to front-line field service operations. This may require establishing dedicated new IoT
data analytics units, market-facing intelligence capabilities, innovative new product development partnerships, or
cross-functional teams that can assess the internal potential for more collaborative working structures within
the organization.
Embrace Change: Leadership is not just about authority. It is about the vision and the ability to inspire a
team to embrace disruptive change. Positive change can not only result in identifying new capabilities and
opportunities for the future, it can also significantly improve existing systems and assets at a minimum outlay.
To survive and succeed over the next few years, manufacturing industry leaders, whatever size of company they
work for, will need to understand the competitive imperative to build a culture that supports and strives for
smarter, connected, flexible, end-to-end production strategies and new product ideas for the future.
9
frost.com
CONCLUSION: DON’T WAIT FOR THE FUTURE
For all the future predictions you may hear, the reality is that IoT opportunities are already upon us. From
cars to household appliances, from oil rigs to national energy grids, intelligent devices are already feeding back
valuable information that helps their suppliers and operators run their businesses more effectively and deliver
greater value to their customers.
Many IoT intelligent systems and devices are already available and at a reasonable cost to both install and
operate.
Here are five ways to get started with IoT technologies:
1.If you haven’t already done so, begin installing connected intelligent devices onto your key factory assets so
that you can gain greater real-time visibility of your production environment to improve agility, performance,
and operational efficiency. Connecting these plant-floor assets with other enterprise-wide systems will also
allow companies to gain even more valuable insights.
2.Explore ways to embed intelligent systems into your products to allow for the capture of real-time
performance and usage data that could help drive quality improvements, new product innovations, and the
development of valuable new customer-centric services.
3.Harness the power and flexibility of mobile networks and the cloud to establish rapid, scalable connectivity
across your production facilities and your most populated customer locations at minimum cost.
4.Identify and deploy new analytical tools to give your internal teams early hands-on experience and insights
into how to understand new data flows, use them to streamline their internal processes, and work more
collaboratively.
5.Educate and train your employees so that they have a clear vision of the potential of IoT in your industry and
they feel empowered to help you drive your company into the IoT revolution.
The opportunity to start benefiting from IoT in manufacturing exists now. It’s time for manufacturers to grasp
that opportunity to stay ahead of the IoT curve.
10
The Next Industrial Revolution:
How the Internet of Things and Embedded, Connected, Intelligent Devices will Transform Manufacturing
RESEARCH AND WRITING TEAM
David R. Brousell, Global Vice President, Research, and Editorial Director
Jeffrey R. Moad, Research Director and Executive Editor
Paul Tate, Research Director and Executive Editor
ABOUT MICROSOFT CORPORATION
Founded in 1975, Microsoft (Nasdaq “MSFT”) is the worldwide leader in software, services and solutions that
help people and businesses realize their full potential.
ABOUT THE MANUFACTURING LEADERSHIP COUNCIL
The Manufacturing Leadership Council, a unit of Frost & Sullivan, is the world’s first member-driven, global business
leadership network dedicated to senior executives in the manufacturing industry. The Manufacturing Leadership
Council’s mission is to help senior executives define and shape a better future for themselves, their organizations,
and the industry at large. The Council produces an extensive portfolio of leadership networking, information, and
professional development products, programs, and services, including the Manufacturing Leadership Community
website, an online global business network with over 6,700 members worldwide; the Manufacturing Leadership
Council, an invitation-only executive organization of over 100 members; the annual Manufacturing Leadership
Summit; the Manufacturing Leadership Awards, celebrating industry achievement; and the thought-leading
Manufacturing Leadership Journal. For more information, visit www.MLCouncil.com.
11
Auckland
Bahrain
Bangkok
Beijing
Bengaluru
Buenos Aires
Cape Town
Chennai
Colombo
Delhi/NCR
Detroit
Dubai
Frankfurt
Houston
Iskander Malaysia/Johor Bahru
Istanbul
Jakarta
Kolkata
Kuala Lumpur
London
Manhattan
Miami
Milan
Mumbai
Moscow
Oxford
Paris
Pune
Rockville Centre
San Antonio
São Paulo
Seoul
Shanghai
Shenzhen
Silicon Valley
Singapore
Sophia Antipolis
Sydney
Taipei
Tel Aviv
Tokyo
Toronto
Warsaw
Silicon Valley
331 E. Evelyn Ave., Suite 100
Mountain View, CA 94041
Tel 650.475.4500
Fax 650.475.1570
San Antonio
7550 West Interstate 10,
Suite 400
San Antonio, TX 78229
Tel 210.348.1000
Fax 210.348.1003
London
4 Grosvenor Gardens
London SW1W 0DH
Tel +44 (0)20 7343 8383
Fax +44 (0)20 7730 3343
877.GoFrost
[email protected]
www.frost.com
Frost & Sullivan, the Growth Partnership Company, works in collaboration with clients to leverage visionary innovation that
addresses the global challenges and related growth opportunities that will make or break today’s market participants. For more than
50 years, we have been developing growth strategies for the Global 1000, emerging businesses, the public sector and the investment
community. Is your organization prepared for the next profound wave of industry convergence, disruptive technologies, increasing
competitive intensity, Mega Trends, breakthrough best practices, changing customer dynamics and emerging economies?
For information regarding permission, write:
Frost & Sullivan
331 E. Evelyn Ave., Suite 100
Mountain View, CA 94041