"Industrie 4.0" slow to catch on among Germany's smaller manufacturers

[DARMSTADT] Many of Germany's small-and medium-sized manufacturers are moving slowly to achieve the marriage of technology and industry that policymakers and business leaders believe is essential to maintaining the country's industrial preeminence.

Giants like Siemens or leading software maker SAP have made the digitisation of industry, also known as the fourth industrial revolution or the industrial Internet, a core part of their strategy for the future.

But the 99 per cent of companies with up to 500 employees that form the backbone of Germany's export-led economy, known as the Mittelstand, are still working out how to get with the programme, dubbed by German politicians as "Industrie 4.0".

Smaller companies say they don't have enough money or lack in-house IT departments. Others are reluctant to invest in new technologies until industry standards are established.

If they continue to drag their feet, Germany could lose a 425 billion-euro (S$653 billion) opportunity, consultancy Roland Berger said last year in a study based on interviews with 300 German decision makers and 30 industry leaders.

Industry leaders warn of a future in which giant software companies rival manufacturers because they control the technology that makes the machines smart while manufacturers risk being reduced to mere hardware suppliers.

Economy minister Sigmar Gabriel told a recent gathering of 500 Mittelstand executives they needed to face this challenge if they didn't want to be pushed out of their industries.

"All of a sudden new platforms to add value are squeezing in between the product and the customer," Mr Gabriel said, citing the example of his daughter who uses online car-sharing instead of owning a car.

"Who knows the most about my daughter's mobility needs? It's not Volkswagen, BMW or Daimler, but Google."

Berlin is doing what it can to nudge firms into action, setting up digital showrooms where managers can test out new technologies on mock-up production lines, for example.

But at least four out of 10 German companies say they have made no or only limited progress in adopting a strategy for Industrie 4.0, according to a McKinsey survey conducted in January and published last week.

"We are dealing with new technologies that exist but are not yet full-blown. The resistance is: 'Do I really want to invest into a new technology when I know it is not yet mature?" says Munich-based Boston Consulting Group partner Markus Lorenz.

"In some parts of the world, people will say: 'Yes, go for it.' In Germany people are more conservative and will ask: 'Is it licensed, is it certified?'"

Others fret that connecting everything could breach data protection laws - which are far stricter in Europe than in most other regions - compromise company secrets or expose equipment to cyber attacks.

"It's clear in the entire industry that data protection triggers costs and compliance, and it's a burden that you don't have to such an extent in other countries like the United States, but so far the German manufacturing business has held its own," said Markus Muhs, a Munich-based partner at law firm Clifford Chance.

With a third of Mittelstand owners aged 55 or older, compared with the 20- or 30-somethings starting up potential rival companies in Silicon Valley, some bosses are also happy to push digitisation onto the "to do" lists of their successors, says Michael Rameken, a senior IT consultant at Axxessio.

Chancellor Angela Merkel, asked at her weekly podcast on Saturday whether Germany's digital agenda had come too late, answered: "I wouldn't say that, but time is pressing on."

WORKING TOGETHER

Some of the bigger Mittelstand companies who need their smaller peers to get fit for the digital age are taking matters into their own hands.

Family-owned machine-tool maker Trumpf, a multi-billion-euro bulwark of the Mittelstand, will next month launch a software platform for customers and partners, promising to help smaller companies to make the transition to the industrial Internet at their own pace, step by step.

"One important reason for building the platform was our customers, who are asking us to help because their world is changing very fast," Trumpf's head of development and purchasing Heinz-Juergen Prokop told Reuters.

"I think the term 'Industrie 4.0' has had great resonance here. Many people still ask what's the point of it, but everyone knows something is coming down the line and so there's enormous interest and also the motivation not to lose the lead."

Auto parts supplier Robert Bosch has launched its own cloud computing network to connect everyday objects to the Internet.

Applications include using radio frequency identification tags on plastic crates to track parts as they move through the factory floor and are shipped on to the customer. Bosch has helped the Mittelstand logistics firm that it works with at its Homburg plant to adopt this technology.

"We have a lot of suppliers in Germany and we rely on them to be innovative and successful otherwise we cannot operate," said Stefan Ferber, vice president of engineering at Bosch Software Innovations.

Firms that work closely or compete with bigger companies are more likely to have taken steps towards Industrie 4.0.

Sensitec GmbH, which makes magnetoresistive sensors including those used in the Mars rover Curiosity, introduced a paperless factory to make production more flexible.

The measure has slashed delivery times from months to weeks, increased turnover by 35-40 per cent and helped the firm cut its electricity bill by switching off parts of the factory when they are not in use.

Chief executive Rolf Slatter, describes the data generated by its machines as a "torch beam" that is pointing the company towards new business models.

The chief executive of steel distributor Kloeckner & CO, Gisbert Ruehl, said recently his company was building a platform to connect the machines of its customers and suppliers because if it didn't, someone else would.

"We will never be able to build another Facebook, another Google, another Amazon in Germany," he told reporters.

"But we have a great chance in the business-to-business area: human to machine, machine to machine, machine to customers."

REUTERS