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When Lean Meets Industry 4.0 - The Next Level of Operational Excellence

January 3, 2018 | The Boston Consulting Group

by Daniel Kupper, Ailke Heidemann, Johannes Strohle, Daniel Spindelndreier, and Claudio Knizek | The Boston Consulting Group

For several decades, manufacturers have used lean principles and tools to reduce operational complexity and improve productivity. The lean approach provides the foundation for operational excellence by standardizing processes, instilling a culture of continuous improvement, and empowering workers on the shop floor. However, given the increasing complexity of operations, many companies have found that lean management by itself is not sufficient to address their operational challenges. Recently, a set of advanced digital technologies known as Industry 4.0 has emerged to offer new approaches for dealing with complexity and improving productivity. By deploying the right combination of technologies, manufacturers can boost speed, efficiency, and coordination and even facilitate self-managing factory operations.

The Basics of Lean Management and Industry 4.0

Both lean management and Industry 4.0 support the objectives of operational excellence, but they apply different types of tools to achieve these goals.

Lean Management. This approach reduces complexity and cost by eliminating waste and non-value-adding activities throughout a process or value chain. It provides techniques for involving all employees in continuously reviewing and improving efficiency. The approach is built on such management techniques as waste reduction, takt time planning, and standardized processes. A variety of tools are applied to achieve lean objectives: value stream mapping identifies waste and critical process steps, single-minute exchange of dies reduces equipment downtime that results from tool changeovers, visual controls help operators identify the right times to replenish material or adjust equipment, and preventive maintenance reduces the number of breakdowns by proactively maintaining and controlling equipment at fixed intervals.

Industry 4.0. The fourth wave of technological advancement in manufacturing is powered by nine foundational technologies: additive manufacturing, advanced robotics, augmented reality, big data and analytics, cloud computing, cyber security, horizontal and vertical system integration, the industrial internet, and simulation. Sensors, machines, work pieces, and IT systems are connected along a value chain that extends beyond a single enterprise. These connected systems can interact and analyze data to predict failure, reconfigure themselves, and adapt to change. Manufacturers can reach new levels of operational performance. They can, for example, advance from preventive to predictive maintenance, which means that maintenance tasks are performed only when necessary. 

Industry 4.0 also allows companies to share the benefits of automation technology more broadly within the organization by, for example, equipping and training line workers to receive and apply real-time information about their machinery. By increasing transparency, improving predictability, and, ultimately, allowing for self-controlled systems, Industry 4.0 promotes faster, more flexible, and more efficient processes. Manufacturers can apply these benefits to achieving the broader objectives: producing higher-quality goods and reducing costs. (See Industry 4.0: The Future of Productivity and Growth in Manufacturing Industries, BCG Focus, April 2015.)

Manufacturers seeking to optimize their operations need to understand the interplay between traditional lean management and Industry 4.0. Supporting hundreds of operational excellence programs in recent years, we have seen companies generate valuable synergies by implementing lean management and Industry 4.0 holistically, rather than independently or sequentially. Indeed, in most cases, the integrated application of lean management and Industry 4.0—which we call Lean Industry 4.0—is the most effective way to reach the next level of operational excellence.

Manufacturers that have successfully deployed Lean Industry 4.0 can reduce conversion costs by as much as 40% in five to ten years—considerably better than the reductions captured by best-in-class independent deployment of lean or Industry 4.0. The higher cost reductions are, in many cases, achieved with technologies that improve plant processes and structures by, for example, optimizing layouts. (See The Factory of the Future, BCG Focus, December 2016.) However, fewer than 5% of the manufacturing companies that we have observed have reached a high level of maturity in Lean Industry 4.0. (See Exhibit 1.)

To capture the greatest benefits, a manufacturer must tailor the application of Lean Industry 4.0 to address its specific challenges along the supply chain and at the plant level.

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About Catalyst Connection

Based in Pittsburgh, Catalyst Connection is an economic development organization dedicated to helping small manufacturers to improve their competitive performance. Catalyst advisors, consultants, and instructors offer training, consulting and administer financial programs that can provide funding for equipment, machinery, or capital improvements. As a nonprofit 501 (c)3 firm, the organization has been supporting Southwestern Pennsylvania manufacturers for more than 25 years. For more information call 1-888-887-7472 or go to www.catalystconnection.org.