Quantifying Industry 4.0 value for factories and warehouses

Industry 4.0 is happening and 4G/5G is the world's largest innovation platform that will enable this transformation. But how fast should factories and warehouse owners act to realize ROI and what is the real cost of inaction? A new report from ABI Research, commissioned by Ericsson, describes a potential gross margin boost of 5% to 13% over 5 years for factories and warehouses that move to private cellular networks. The report shows the strong business value of Industry 4.0 with a foundation of reliable, secure connectivity, and describes the cost of inaction for waiting on the sidelines.

A tablet points at a factory machine in an industry 4.0 environment and shows an augmented reality of a digital twin of that machine with additional details like dimensions and components inside the machine.

Head of Advanced Industries

Head of Advanced Industries

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Industry 4.0 Cost of Inaction and ROI report

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Faced with growing competition, industrial companies need to effectively reduce costs in their manufacturing plants and warehouses. Some measures include minimizing downtime, synchronizing inventory management, using labor and machinery assets efficiently, and increasing safety and security.

ABI Research conducted an assessment into the smart manufacturing and smart warehousing sectors within the automotive, electronic goods, retail distribution hub, and third-party logistics industries to quantify the return on investment (ROI) for moving to cellular-enabled Industry 4.0 applications as well as the cost of keeping the status quo: the cost of inaction (COI). Industrial companies need to ask themselves if they can truly afford to remain on the sidelines with business as usual.

Download the new ABI Research report about Industry 4.0 costUnlocking the Value of Industry 4.0: why and how connectivity drives future profitability and growth

By quantifying the costs and business benefits of adopting Industry 4.0 applications, the report describes condition-based monitoring, RTLS/asset tracking, inventory management, AR/smart glasses, wearables, building automation, and robotics. What is the cost of downtime in an industrial facility and what is the impact on operational costs? For instance, an automotive manufacturer reported to ABI Research that one minute of downtime could incur USD 30,000 in operational expenses. For process industries, an hour of uptime could be worth USD 5,000 to USD 12,000 per asset per Computer Numeric Control (CNC) machine.

To optimize the use of these Industry 4.0 applications, the study outlines the importance of reliable, secure wireless connectivity – which can be delivered to industrial customers through private cellular networks.

Advantages of reliable, secure wireless connectivity

Reliability means that connected devices stay connected. If an autonomous forklift needs to connect to the warehouse management system to get its next instruction, losing connectivity will cause a delay, sapping productivity.

Security is a requirement because industrial companies need to protect their intellectual property and customer data. They also need to protect their connected devices from being hacked.

The advantage of wireless is that it eliminates the need for costly wiring and cabling.  This is not only more expensive and time-consuming to implement (USD 1,500 per workstation), but also more complicated and inflexible in the long run. Another benefit of wireless connectivity is it also minimizes downtime during line changeovers and allows companies to get up and to run faster. For example, the time to reconfigure a factory to produce a new car model may take close to a year because of existing cabling, however, a wireless configurable factory can do so in a much shorter time (one to two months).

Wireless digital factory connections are expected to rise stronger than fixed connections.

The rise of wireless. Source: ABI Research

Private cellular networks can meet these requirements and with reliable, secure wireless connectivity, industrial companies can lower costs, increase profitability and put distance between themselves and competitors. Manufacturing and warehousing executives need to understand how the right connectivity strategy can deliver this value. Mobile network service providers have a unique role to play in bringing this technology to the industrial market.

ROI and COI analysis

By calculating investment and inaction costs, the report looks at automotive, electronic goods and components, retail distribution hub and third-party logistics (3PL) industries, analyzing the ROI and COI of moving to cellular-enabled Industry 4.0 applications in two countries per industry.

For instance, ABI Research found that a Tier 1 automotive factory in South Korea can reduce operational costs by about USD 245.5 million in 2021 to 2025 by moving to cellular-based Industry 4.0 applications. A South Korean automotive factory that fails to upgrade could see inefficiencies and downtime impact the production by up to 1 million vehicles over the same five-year period.

Cellular-connected factories are projected to be more profitable than status quo factories.

Profitability of status quo US electronics factory vs. cellular-connected factory. Source: ABI Research

Also, the research found that a Tier 1 electronic goods manufacturing factory in the United States can streamline production to yield USD 1.1 billion over a five-year forecast period by moving to cellular-based Industry 4.0 applications. Over five years, the COI for U.S. electronic goods manufactures that fail to upgrade could see a lost opportunity to produce 1.1 billion electronic products.

Connectivity as a driver for profitability and growth

The report provides concrete recommendations on what it takes to transition to wireless connectivity to drive your business forward. A dedicated 4G/5G network offers a smart, secure, wireless connectivity solution for automating manufacturing and warehouses. It eliminates costly cabling and enables easy reconfiguration of production lines and processes, increasing agility and allowing companies to take new products to market faster.

Visit Industry 4.0 at Ericsson. 

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