After a visit to Germany earlier this year, John Pollaers, chairman of the Australian Advanced Manufacturing Council, said: "Between now and 2020, German industry will invest €40 billion ($A59b) annually in Industry 4.0 applications. Industrial firms will invest, on average, 3.3 percent of their revenues in digitalisation solutions over the next five years. This corresponds to nearly 50 percent of all planned capital investments."

Clearly the Germans take Industry 4.0 very seriously, and so they should. They invented it, unveiling the concept at the 2011 Hannover Fair

The term refers to the fourth generation of industrialisation, the first three being industrialisation driven by water and steam power, the age of mass production and today’s automated manufacturing driven by IT and robotics.

Unlike similar umbrella terms—such as Web 2.0, that was coined by an imaginative individual and that gradually gained widespread acceptance as its meaning crystallised—Industry 4.0 (also known as Industrie 4.0) first saw the light of day as a clear vision for advanced manufacturing backed by the German Government. It is a vision that the German Government continues to pursue aggressively, as do the governments of a number of other major nations.

After introducing the concept at the Hannover Fair, the German Government established a promoters group to draft comprehensive strategic recommendations for implementing Industry 4.0. That group initiated, in early 2012, a working group on Industry 4.0, which published its Recommendations for Implementation (only in German) in April 2013. An English document Industrie 4.0: Smart Manufacturing for the Future was published in August 2014.

Defining Industry 4.0

Pinning down exactly what Industry 4.0 means can be tricky. Wikipedia describes it "as collective term for technologies and concepts of value chain organisation." It goes on to say "Based on the technological concepts of cyber-physical systems, the Internet of Things and the Internet of Services, it facilitates the vision of the smart factory. Within the modular structured smart factories of Industry 4.0, cyber-physical systems monitor physical processes, create a virtual copy of the physical world and make decentralised decisions." Not very helpful.

The German document does a much better job: "[Industry 4.0] constitutes a reversal of conventional production process logic. … This means that industrial production machinery no longer simply 'processes' the product, but that the product communicates with the machinery to tell it exactly what to do."

One aspect of Industry 4.0 is that it enables the manufacturing process to respond to the external environment: this could mean buyers ordering a product with specific characteristics and that product being manufactured, packaged and shipped without human intervention. Or it could mean production quantities and qualities being varied according to the external environment: if social media monitoring suggests one flavour of a soft drink is more popular than another, for example.

Clearly the impact of Industry 4.0 on manufacturing, if the vision can be realised, will be transformative, but its impacts could extend well beyond manufacturing.

Gartner suggests that, although Industry 4.0 starts with advanced manufacturing, it will impact other segments such as utilities and smart cities. So, for example, "At some point, production activities will be coordinated (or even suspended) to accommodate increased energy demand within the smart grid and other elements of the smart city."

Early days for Industry 4.0

However, Industry 4.0 is still in its infancy. Professor Steffen Hütter from Saarland University of Applied Sciences, interviewed on a SAP web site, said: "It still has quite a long way to go. … I’d say it was somewhere between kindergarten and elementary school."

The Boston Consulting Group (BCG) estimates that the full shift to Industry 4.0 might take 20 years, but says the next five to 10 years will be when "key advances will be established and winners and losers will emerge."

The Internet of Things (IoT) and Machine-to-Machine (M2M) technologies will be key to realising the vision of Industry 4.0, as will software and several other technologies. BCG has identified nine technologies underpinning Industry 4.0: additive manufacturing (aka 3D printing), augmented reality, autonomous robots, big data and analytics, cloud, cyber security, horizontal and vertical systems integration, simulation and the industrial Internet of Things (including machine to machine communication).

Germany sees itself as becoming a global leader in Industry 4.0: "Technological leadership and vision in the fields of manufacturing, automation and software-based embedded systems, as well as historically strong industrial networks, lay the cornerstone for the long-term success of the Industrie 4.0 project,” it says in Industrie 4.0: Smart Manufacturing for the Future.

Huge gains forecast

BCG agrees. It estimates that Industry 4.0 will drive productivity gains of five to eight percent on total manufacturing costs over ten years, add one percent to Germany's GDP over ten years, create up to 390,000 jobs (in a population of 81 million today) and add €250 billion ($A370b) to manufacturing investment.

Australia appears to be lagging in the Industry 4.0 race. In May 2014, following the release of its policy perspective Advanced Manufacturing: Beyond the production line, the Committee for Economic Development of Australia (CEDA) held a panel session to discuss the future of manufacturing in Australia.

Paul Ravlich, Siemens' regional manager NSW, was reported telling Australia to take action on Industry 4.0. He said the transition would likely take 15 to 20 years, and he warned that manufacturing policies in Europe, India and the US were already looking towards this future. “Waiting for Industry 4.0 before making investments could be a disastrous error," he said.

His advice was echoed in a foreword to the report from Jeff Connolly, CEO, of Siemens Australia, who said: "Australia needs to embrace Industry 4.0, find our place in the global supply chain and have the right mechanisms, policies and levers to help Australian companies and industries compete globally. We also need to encourage investment into advanced technologies which are available today because this is a journey and transition towards Industry 4.0 and we are at a critical fork in the road right now and we must become competitive."

It may not be a good sign that the CEDA report contained no other mention of Industry 4.0. Nor does the concept appear to have registered with the Australian Government. The only significant mention on any Government web site came from Connolly. Announcing him as a speaker at the 2014 Annual German – Australian Business and Technology Forum in Munich, Austrade said: "He is passionate about Australia’s need to find its place in the global supply chain by embracing topics such as the critical role of technology in creating sustainable business, the future of manufacturing … and opportunities resulting from the fourth industrial revolution – ‘Industry 4.0’."

Hopefully some of this passion can be picked up by the Australian Government, and industry as a whole, before it is too late.