The Industrial Internet of Things (IIoT) and Industry 4.0 are transforming the world of manufacturing. The two terms are relatively interchangeable and basically mean the same thing: Manufacturers using internet-enabled technologies to improve their business strategies and outcomes.

Most early adopters of artificial intelligence (AI), augmented reality, data analytics, digital twins and other advanced technology have been large companies, such as automotive OEMs and their suppliers. But, that doesn’t mean the concepts and tools are out of reach for small shops. The challenges are just more pronounced.

Earlier this year, the World Economic Forum released an updated list of “lighthouse factories” that are at the forefront of applying Industry 4.0 technology. The companies in that elite group represent a who’s who of the manufacturing world, with names like BMW, Foxconn, General Electric, Haier, Hitachi, Johnson & Johnson, Procter & Gamble, Siemens and Unilever. Each organization is a global powerhouse with an unlimited amount of resources and state-of-the-art factories.

However, in reality, more than 90 percent of American manufacturers can be classified as either “small” or “medium.” To survive, those companies must learn how to identify, assess and scale Industry 4.0-enabling technologies that will help them achieve greater agility, efficiency, productivity, reliability, speed and quality.

“Small- and midsized manufacturers are well aware of the term Industry 4.0,” says Tom Kelly, CEO and executive director of Automation Alley, which serves as an Industry 4.0 knowledge center for manufacturers in Michigan. “However, the disconnect is they’re not very good at understanding how to use those technologies.

“Owners of small companies tend to have a ‘let’s roll up our sleeves and get it down’ type of personality,” notes Kelly. “Deploying Industry 4.0 involves overlaying a digital mindset on a physical business, which is causing tremendous cultural distraction.

“Many small manufacturers are not prepared to culturally embrace what has to occur today to be competitive in the global landscape of tomorrow,” warns Kelly. “They’re at greater risk, because they can’t allocate capital geographically around the world the way that large companies can.”

“Larger organizations are better set up to invest in and integrate Industry 4.0 technology, both within their factory walls and the outside supply chain,” adds Erich Bergen, director of the Detroit office of Baker Tilly, a Midwestern advisory firm that works with numerous manufacturing clients. “But, smaller manufacturers can certainly take advantage of cloud-based technologies to help accelerate the movement to connected devices and machines.

“Tier Three and Tier Four suppliers will have to adopt new technology as they try to move up the supply chain,” warns Bergen. “Companies that invest will have a better competitive edge in the future than those that don’t.

“Any small manufacturer that is involved in a multi-tier supply chain is actively pursuing Industry 4.0 technology,” says Bergen. “Investing in systems that are connected and integrated will create efficiencies that ultimately make their business perform better.”

“I haven’t heard of any OEMs or Tier One suppliers pushing Tier Two and Tier Three suppliers to adopt Industry 4.0 technology,” says Kelly. “That’s what they did during the quality movement in the 1980s and the lean manufacturing movement in the 1990s. However, things are different today, due to globalization.

“Large companies are following the sun in terms of how they do product design and manufacturing,” Kelly points out. “There’s less of an impetus to continue doing business with local suppliers.

“Back in the old days, big manufacturers would often patiently nurture small firms along with new things such as ISO 9000 or QS9000,” recalls Kelly. “Today, if a big manufacturer comes to a small supplier asking for data, it can’t just wait for it like in the past.”

According to Kelly, the speed at which manufacturing is moving today doesn’t allow big companies the luxury of saying things like “here’s how we’re going to expect you to share your line data or inventory with us.”

“Throughout the third industrial revolution, technology was used to leverage the business model,” says Kelly. “However, Industry 4.0 is fundamentally changing that model today. All companies have to change from being manufacturers that use technology tools to help them do their job better. Instead, they need to become technology companies that happen to be in manufacturing.”

Unique Challenges

Small manufacturers face a number of unique challenges that Industry 4.0 technology can help with. However, one challenge that can hinder adoption efforts has to do with terminology.

For instance, software and equipment suppliers often use different types of marketing lingo. Bosch Rexroth Corp. prefers to say “factory of the future,” while Festo Corp. touts “digitization.”

Even some nonprofit organizations, such as the National Association of Manufacturers (NAM), are inconsistent in their approach. NAM, which claims to be the “voice of the manufacturing community and the leading advocate for a policy agenda that helps manufacturers compete in the global economy,” insists on using “Manufacturing 4.0.”

“Several terms are used interchangeably with Industry 4.0, such as digitization, digital manufacturing and smart factory,” says Kelly. “They all basically mean the same thing, which is ‘how can we manufacture smarter, more efficiently and more effectively?’”

“Unfortunately, there are a lot of terms being used to describe the same thing,” adds Richard Lebovitz, CEO of LeanDNA, a factory-focused inventory optimization software provider. “Some companies refer to Industry 4.0 technology as the digital thread, digital transformation or smart manufacturing.

“There are a lot of great things going on out there, such as downtime tracking and load monitoring,” notes Lebovitz. “However, it’s not always wrapped up into one word or strategy. There’s some disconnect and confusion in the marketplace over using consistent terminology.”

While not everyone can agree on the same words to use, they all insist that Industry 4.0 is important for small- and medium-sized manufacturers.

“When looking at the unique challenges that those companies face, I believe that they may be the biggest beneficiaries of adopting advanced technology,” says Rodney Rusk, connected industry business leader at Bosch Rexroth. “They face pressures such as price, delivery, warranty costs, down time and supplier quality requirements.

“The benefits that can be derived from the judicial application of Industry 4.0 can help improve return on investment,” explains Rusk. “It can also show potential customers that small manufacturers are forward thinking organizations that embrace the challenges and benefits of innovation.

“Industry 4.0 technology by itself can bring faster speeds, real-time information and allow for more transparency,” Rusk points out. “Although these are powerful, when combined with agile approaches and solid lean practices, the Industry 4.0 journey becomes the engine that drives the benefits.”

When implementing Industry 4.0, one of the biggest challenges small manufactures face is having a workforce equipped with enough expertise and knowledge to tackle new opportunities.

“Understanding and adopting a new approach to problem-solving can be a challenge,” warns Rusk. “It takes deliberate vision, planning and real business cases to drive ROI. A bigger gap for small manufacturers is the capability and knowledge around systematic change management, while creating a clear and transparent vision that clearly includes advanced technologies.”

“Small manufacturers don’t always have the personnel and resources needed to digest the vast amount of data they can get from their production floor and apply it in the best ways,” adds Frank Latino, product manager for electric automation at Festo. “I see a lot of large manufacturers deploying their own cloud systems and employing data scientists to analyze the data.

“Smaller manufacturers usually don’t have these same resources available,” explains Latino. “But, they may actually have less challenges than larger manufacturers in other areas.  For example, because there are less layers of IT to deal with, it might be easier for them to use cloud-based systems.”

In addition to a lack of technical knowhow and investment capital, small- and midsized manufacturers must address cultural adaptation issues when trying to implement Industry 4.0 technology.

“Small manufacturers need to understand that it’s not about applying technology to the process you know; it’s about how technology is going to blow up the process you know,” say Automation Alley’s Kelly. “They need to be thinking about new processes that are beginning to emerge and how that will shift their business model. Instead, some small companies focus on a more efficient way to do Industry 3.0, which is fundamentally missing the boat.

“Smaller manufacturers often have a hard time understanding the technologies that are available,” explains Kelly. “They don’t understand how they can apply it to what they have and how they can scale various Industry 4.0 technologies in a way that doesn’t bankrupt them.

“Small manufacturers are in the worst possible position,” claims Kelly. “The whole world is changing around them on multiple fronts. They are wondering if they should focus first on additive manufacturing, AI, collaborative robotics or virtual reality. On top of that, there are concerns such as cybersecurity and where to store vast amounts of data.

“People are coming to me saying ‘I have 2 cents in my pocket, but Industry 4.0 is a $1,000 problem,’” says Kelly. “’I’m handcuffed and don’t know what to do or where to begin.’

“In the manufacturing world, we’ve been taught to get the process to run efficiently and then don’t tinker with it,” Kelly points out. “In the digital world, it’s all about moving fast and breaking things. To succeed with Industry 4.0, small manufacturers need to do both. You need to overlay a digital mindset on the physical manufacturing business.

“We’re accustomed to seeing hard numbers, which can be challenging to do in the Industry 4.0 world,” warns Kelly. “If I told a small manufacturer to put some digital sensors on his equipment, make sure that data is flowing to a cloud repository and then see if he has enough data to run an AI algorithm against it, the ROI may be nothing more than learning and putting him in position to take the next iterative step.”

“There’s no magic bullet with Industry 4.0,” adds Baker Tilly’s Bergen. “Contrary to some perceptions, it’s not something that will solve all of your challenges.

“Some small manufacturers make the mistake of thinking that just by investing in cutting-edge technology, everything is going to be connected and automated,” says Bergen. “However, that won’t work if it’s not aligned with your business strategy.”

Bergen urges small companies to assess where they’re at today and how mature their core production technology is. Then, ask “does my business strategy align with investing in new Industry 4.0 technology?”

Unfortunately, many small manufacturers tend to be family owned and operated. “That can make it harder to implement changes like Industry 4.0, especially if the patriarch is not willing to take input from younger generations who may be advocating for investment in newer digital technologies,” says Bergen.

How and Where to Start

Every company is different and has its own unique challenges. Because of that, there’s really no one-size-fits-all approach to implementing Industry 4.0.

“Small manufacturers have many of the same opportunities to benefit from Industry 4.0 as larger manufacturers,” says Eskander Yavar, partner and national leader of the manufacturing practice at BDO, a consulting firm that specializes in small business. “Many of the technologies that enable Industry 4.0 have become much more affordable and are no longer a barrier of entry for small manufacturers. So, there’s no excuse for failing to act.

“Data analytics is the most important place to get started with Industry 4.0, because you can exploit data to get operational improvement,” claims Yavar. “As a result, we’re getting a lot of requests for data-related projects. You don’t necessarily have to go out and buy new production equipment, such as presses, because many older devices can be retrofitted.”

“We tell manufacturers to start small,” adds Kelly. “I suggest small-scale experimentation with technology and having a clear expectation of what you want to learn. You have to think of it as a chess move in which you spend a little bit of money to validate whether or not you can take the next move.

“It’s important to take baby steps and have a strategy in place,” explains Kelly. “Saying ‘I have a problem, now let me look at the technology landscape to figure out how to solve it,’ is usually not a good idea. Instead of using technology as a tool, small manufacturers need to ask ‘what business model could put me out of business if my competitor adopted it?’”

According to Kelly, AI is the most important element of Industry 4.0 for all manufacturers—big or small—to pay attention to. “However, it’s the scariest element, because it’s the least well known,” he points out.

“Whether you’re the CEO of a Fortune 500 company or a little mom-and-pop shop, if you don’t understand the implications of AI, you’re going to be in a lot of trouble,” warns Kelly. “That technology field is moving very quickly.

“As more people understand AI and how to apply it to manufacturing processes, you risk falling behind and becoming uncompetitive very quickly,” says Kelly. “Don’t hesitate starting to understand AI today, or it will be hard to catch up.

“Collaborative robotics can also be a great investment for small manufacturers,” notes Kelly. “Everyone I talk to today says ‘I could take more orders if I had more employees, but I can’t find enough people for my shop.’ If that doesn’t scream of automation and Industry 4.0, I don’t know what does. Now is the time for small manufacturers to look at collaborative robots.”

Help Is Available

To help small manufacturers, Automation Alley sponsors a weekly Tech Takeover event that focuses on AI and other cutting-edge topics. The goal is to teach, not sell, technology, and help small- and medium-sized manufacturers prepare for rapid changes as advanced technology transforms manufacturing. Manufacturers are encouraged to attend in person, but the sessions are also live streamed and archived.

Previous talks have covered topics such as “Forecasting and Managing Revenue with Artificial Intelligence” and “Manufacturing at the Speed of Light with Augmented Reality.” Although sessions are geared toward small manufacturers, attendees sometimes include representatives from large companies such as FCA, Ford and General Motors.

Automation Alley also sponsors an annual conference called Integr8 that covers all of the technologies in the Industry 4.0 spectrum. It enables companies to see what’s going on in fast-changing areas such as AI, collaborative robotics and data analytics. The next Integr8 conference is scheduled to take place in Detroit on Nov. 10.

LeanDNA’s Lebovitz recommends focusing on materials and the procurement side of business first, because it tends to be a data-intense part of manufacturing. “Make sure that you have good, clean data,” he suggests. “Today, with the cloud, you can now do things much more cost-effectively than you could just five years ago.

“After you address procurement issues, you can start moving into more advanced things, such as using Industry 4.0 tools to optimize work in process and balance assembly lines,” says Lebovitz.

“Where manufacturers are with Industry 4.0 today is similar to where we were with lean manufacturing two decades ago,” claims Lebovitz. “A lot of the physical systems are in place and the strategy exists. The next step is to start driving efficiencies on the people side. Companies just need to connect all the data and use it strategically.”

Local manufacturing extension partnerships (MEPs) are a good place for small companies to go for help with implementing Industry 4.0 initiatives. The MEP organizations are run under the auspices of the National Institute of Standards and Technology.

“The same problems that large manufacturers are using Industry 4.0 technology to solve are often the same problems that small- and medium-sized manufacturers have,” says Chuck Werner, manager of operational excellence at the Michigan Manufacturing Technology Center, a MEP that works with many small companies. “If you choose not to invest in Industry 4.0, you’ll find yourself at a distinct disadvantage.

“The biggest thing that small companies can get from Industry 4.0 is cost savings,” notes Werner. “They can also gain improved agility and an ability to react to problems.

“Big companies can throw people and resources at problems; small manufacturers can’t,” Werner points out. “Many small business owners spend half their time trying to figure out what they should be doing. A lot of small companies don’t have an overall strategy for implementing technology.”

That’s why Werner’s organization offers an assessment to help small manufacturers identify how advanced technology can be used to address their common problems. It works just like a lean assessment.

“Our technology opportunity assessment asks 42 questions,” says Werner. “The questionnaire takes about 2 hours to complete, including a quick plant tour. The goal is to come up with a list of four or five opportunities to invest in.

“Usually, interconnectivity is the most prevalent need for small manufacturers,” explains Werner. “That will enable them to collect accurate, real-time data and then analyze it.

“Unfortunately, there are a lot of gun-shy small manufacturers out there,” laments Werner. “They are afraid to invest in robotics and other technology, because they got burned with enterprise resource planning (ERP) systems in the past. Many small companies never achieved the full implementation of their ERP investment. They often had a bad experience with it and never ended up using more than 20 percent of what the technology was capable of.”