Productivity Frontiers : Internet of Things – Industrial Revolution 4


Australian manufacturing has lessons to learn from Germany in enhancing its manufacturing excellence to the next level.  This will include giving an ear to the kind of discourse happening in worldclass manufacturing.

Image courtesy of renjith krishnan /
Image courtesy of renjith krishnan /

Global consulting firm, McKinsey’s Markus Löffler and Andreas Tschiesner shared their  conversation with Siegfried Dais, deputy chairman of the board of management at German engineering company Robert Bosch GmbH, and Heinz Derenbach, CEO of Bosch Software Innovations GmbH on the future of manufacturing – the Internet of Things. The convergence of sensors and actuators embedded in physical objects and linked through wired and wireless networks via the Internet Protocol. This will be “process-2-device.”

Heinz Derenbach said, “The next big step (for manufacturing systems) will be to think through the interdependencies among the machine, the production components, the manufacturing environment, and the IT that connects it all, so that the production technology controlling the machines merges with the technical data of the components.”

In manufacturing, the potential for cyber-physical systems to improve productivity in the production process and the supply chain is vast and continuing to extract from a collaborative manufacturing technology. The scope for processes that govern themselves, where smart products can take corrective action to avoid damages and where individual parts are automatically replenished. Such technologies already exist and could drive efficiency further up.


Logistics and the supplier chain network will converge more by wider and deeper collaboration  at the device, plant and parts level,  with embedded collaborative information. This will be enabled by technology, process and people integrating them, thus reducing supply chain inventory, working capital cycle cost. The cost of co-ordination or cross border collaboration or connection will be a growing area for cost management, and the savings will be in working capital and production costs. One strategic skill the people will need more is the skill to collaborate outside your comfort zone, with internal and external service providers,  to push the demand for technology to automate more of the co-ordinations between process-2-device .  The scale economy of logistics and manufacture will drive further the globalisation of production-supply chain to the sustainable least cost producer with respect to the given end consumer point.

Siegfried Dais said, “ To really drive developments, two competencies must come together. First, we need to recognize the change potential, value creation, and cost reductions we can achieve if we apply what’s actually “new” about new technologies. For example, take cyberphysical systems, which can tell us where every single unit is at any given time. Logistics players often use this tool, but with an old mind-set that fails to exploit the advancements the tool was designed to offer. So the first requirement is that logistics players truly use what’s new. The second competency is finding people who are able to design robust algorithms: those who make the system user-friendly so that the people who use it day-to-day can immediately recognize problems and know how to react without getting tangled up in a web of interdependencies”.

As we start implementing and evolving, we can measure and report the cost of collaboration or networking , the capital investment required to enable collaboration and networking from process-2-device. Once this is reported periodically, we will have one cost base to finance automation from process-2-device at the enterprise and economy level. This will also accelerate the evolution of industrial revolution 4.

The productivity commission of Australia lead by Chairman Peter Harris, should consider pursuing this area, to enhance the capital and labour productivity of the economy. The benefits are across the sectors.

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