What is Industry 4.0: benefits and challenges

The Industry 4.0 concept comes with challenges and benefits. In this article, you’ll find everything you need to know about I4.

Industry 4.0 blog cover

Manufacturers work in a high-paced and competitive environment. The need to produce more products in less time is a desire every manufacturing company craves. The implementation of technology puts them closer to this goal. However, manufacturers need to hold on to a clear plan. They need to articulate their desired future, understand their most pressing challenges, and what technology would help them to achieve their goals quicker and more efficient. This is where Industry 4.0 comes in.

Industry 4.0 is an industrial revolution. As the term already anticipates: it is the fourth. The Industry 4.0 concept originated in 2011. The German government set up a project promoting the automation of manufacturing. Since then, it has gained more momentum in a variety of industries. Ninety-four per cent of respondents, who took part in a survey, conducted by McKinsey in 2021 indicated that the Industry 4.0 approach helped them keep their operations running during the global pandemic. 

However, the Industry 4.0 concept also has its downside. Let’s take a look at it this way. Digital transformation can be like quicksand. The more technology you randomly add, the more you get stuck. When you try to break out of it, you can’t because your manufacturing process already depends on technology. 

It’s not just about adding technology to your business but an approach on how to leverage this technology and get a hold of the data your manufacturing processes create daily. This data enables you to make smart decisions based on your manufacturing infrastructure’s processed big data. For example, you can plan ahead and allocate your budget strategically instead of draining it by reacting to mechanical or logistical problems.

Let’s take a closer look at the concept of Industry 4.0.

Industry 4.0 in a nutshell

The term Industry 4.0 derives from previous Industrial Revolutions. In the First Industrial Revolution, manufacturers used water and steam power to mechanise mass production, followed by the Second Industrial Revolution, in which they used electricity to run assembly lines smoothly. With the introduction of computers and robotics, the Third Industrial Revolution took its place in history.

Industry 4.0, sometimes also referred to as I4, is the Fourth Industrial Revolution. It introduced automation, machine learning and data exchange to the manufacturing industry. With Industry 4.0 technologies, manufacturers create a connected ecosystem of big data, cloud computing, and IoT-enabled technologies to establish a data-based decision process. 

Industry 4.0 revolutionised the way how companies manufacture products. It summarises the changes that happened throughout the years and that continue to happen: Manufacturers create smart factories fuelled by data and machine learning. 

Industry 4.0 benefits and challenges

Since we know what Industry 4.0 stands for, we will take a look at its benefits and challenges.

Let’s dive in.

Industry 4.0 and its challenges

There are a variety of technologies available that introduce the Industry 4.0 concept into your business. But this also means that you have to deal with certain challenges that come with I4. 

Let’s have a look at the most common ones.

Getting stuck with Industry 4.0

Manufacturing companies strive to optimise their production productivity as fast as possible. The first thought that comes to mind is using technology to produce more products in a short time. However, the process of acquiring technology and implementing it into the production process can take years until the whole production is set up to work as desired. 

Over time manufacturers find themselves integrating legacy systems and new technology. They start to depend on their machines and software but find it challenging to grow due to the lack of communication between the technology. The result is the creation of a complex structure without the possibility of fully leveraging the data.

One of the reasons for getting stuck is the approach of figuring everything out along the way. The low-hanging fruit of productivity enhancement with machinery and AI seems easy to implement. In most cases, this is also true. But without a plan and expertise, you might find yourself in the so-called pilot trap. Going forwards is difficult and going backwards is difficult.

Seventy-four per cent of companies seem to lose track of their digital transition and lack proof of concept to yield benefits from their investment. It is often a deficiency of expertise and workforce to undertake a large-scale project such as digital transformation. 

This makes growing as a company difficult. You end up spending money on maintenance and repairs instead of optimising the processes. In some cases, companies turn to ready-made platforms as a remedy. Still, adding random technology is how they ended up where they are

A different approach might be the solution to get out of the so-called pilot trap. Some companies then start thinking out of the box. They create a custom process with the help of experts in the field of Industry 4.0. They leverage new technology and stable machine-to-machine communication to create a unified production line. This means they can leverage the data immediately and grow as a company with the technology they already have.

Machine-to-machine communication and legacy systems

The number of products manufacturers have to produce to satisfy their customers’ needs are immense. So manufacturers turn to machines to speed up the production process. However, these machines need to be maintained and controlled. Ideally, we want to automate these processes as well. The exchange of information between software and hardware within milliseconds reduces maintenance costs and speeds up the processes

Yet some technologies fall under the term legacy system. This is an old or outdated system, technology, or software that still operates within the company. Since it is expensive to update the whole system and some of the old machines still do what they were intended to do, you need a way to adapt legacy systems. This means the company requires stable machine-to-machine communication between legacy systems and new technology to efficiently leverage the data they inhabit.

Limited resources to implement Industry 4.0 technology

A lot of companies ask themselves if they have the resources to implement new technology and maintain it in the future. One company may have the resources, and the other may not. If you fall into the latter category, you have two possibilities:

  • Recruit a workforce and gain knowledge in the field over time.
  • Work with a software partner that has the experience and knowledge in the implementation of Industry 4.0.

Ultimately, it comes down to how fast you want to leverage the data and technology created within your manufacturing process.

How to leverage the data to make more informed decisions

Many companies already know that collecting data is the key to success. Data-based decisions increase the chances of finding bottlenecks and growing as a company. What if the first bottleneck is legacy systems and outdated mechanisms?

Say you have a production line that uses machines to produce your product. Your machines are well cared for and well maintained. Still, you face several problems:

  • Maintenance of multiple machines at the same time might cause disharmony
  • Your maintenance costs rise due to missed opportunities or overheating
  • The machines lack the possibility to connect to a smart system

So how do we integrate these legacy systems into our smart factory?

One way to go is to use IoT strategically. We can set up cameras in front of the displays. But that would still not be enough. We would have to set up multiple monitors to watch the numbers, but automation is nowhere near. 

Let’s add an AI model to the equation. This AI model reads the data from the displays in real-time and processes it to send it off to software that cumulates, structures and analyses it.

You get these numbers filtered by a preset that tells you when the machines are overheating, need maintenance or simply work in their regular spectrum. Because of the connection to the internet, you are able to control this process from anywhere in the world.

By connecting legacy systems with new technology, we gain data that we would have never gotten in real-time.

Industry 4.0 and its benefits

If there are so many challenges, why should anybody care to implement Industry 4.0 in the production process? McKinsey shows vital numbers on how far Industry 4.0 can unlock value across multiple areas of a factory network:

  1. Reduce costs in inventory and holding: 15% – 20%
  2. Increase labor productivity: 15% – 30%
  3. Reduce machine downtime: 30% – 50%
  4. Increase throughput: 10% – 30%
  5. Improve forecasting: 85%
  6. Improve cost-of-quality: 10% – 20%

These numbers alone should suffice to make you consider turning to Industry 4.0. 

But let’s take a closer look at the benefits of I4.

Industry 4.0 improves productivity and efficiency

Simply put, by implementing Industry 4.0 technologies, your company produces more products in less time. You plan your production more efficiently, allocate your resources cost-effectively and minimise your scrap rate. 

Optimise your machine-to-machine communication with stable integration of legacy systems. The interconnectivity of all your machines enables you to leverage the data they deliver and create a data-based decision-making process. Improve your production processes with the data one or several sensors collect and share with your peers or superiors anywhere in the world.

Industry 4.0 even allows you to lower machine downtime. You know exactly when to maintain and stop your machines by looking at their digital twin. Sensors monitor the state of the machines and portray them in a digital counterpart. Since the digital twin of a machine is its exact digital replica, manufacturers can spot problems and respond much quicker to failure, overheating or regular maintenance.

Industry 4.0 increases communication and collaboration

Industry 4.0 enables you to create solid processes that save time and effort to achieve your production goals. Communicate with stakeholders and suppliers regardless of timezone, platform or location. This way, your production stays on track and omits unnecessary delays.

The data you collect from your whole production process can be used for forecasting and planning purposes. This makes your estimates more accurate and satisfies your clients, who often depend on your estimation. 

Industry 4.0 enables flexibility and agility

The concept of Industry 4.0 leverages various technologies to serve a particular purpose within your production process. This is the way to adopt IT to increase productivity and become a more competitive manufacturer in a fast-changing and highly complex environment.

You will be able to act on data that already exists within your organization. This way you make the right decisions at the right moment in time based on big data. You will become more flexible and agile once you predict your needs from processed data out of thousands of data points.

Industry 4.0 reduces costs and enables higher revenues

Reduce costs by lowering maintenance, supply hold-ups, and logistical bottlenecks with Industry 4.0 technology. All data combined allows you to predict essential needs ahead of time. This means that your production is elevated in the most tangible way from a business perspective. You find yourself producing more products in the same amount of time, as well as lowering production costs. This translates into higher revenues and quality of the product.

What technologies does Industry 4.0 use?

Industry 4.0 covers various technologies that often enlace with one another. Let’s go through the most important:

Internet of Things

Internet of Things, or IoT for short, exchanges data between devices (things) over the internet that are embedded with sensors, software, cloud technology, and more. IoT ranges from ordinary household appliances to complex industrial tools. Over the years, Internet of Things has become one of the most important technologies of the 21st century and became possible because of:

  • Access to low-cost, low-power sensor technology
  • Connectivity
  • Cloud computing platforms
  • Machine learning and analytics
  • Artificial intelligence

Industrial Internet of Things

Industrial Internet of Things, or IIoT, builds on the same technology as Internet of Things but specialises in industrial applications. IIoT mainly uses smart sensors and actuators to operate machines. The sensors collect data that a computer leverages to take actions according to its programming. 

This way, manufacturers spot inefficiencies and problems sooner and save money in the process. They drive business decisions faster and more accurately than without IIoT. On top of that, they support green practices and help the environment.

Smart manufacturing

Smart manufacturing utilises computer-integrated manufacturing to streamline processes. It orchestrates the physical and digital processes of manufacturing companies. Smart factories use big data analytics to make complicated processes and manage supply chains easier.

One of these possibilities is the digital twin, a digital representation of a physical object or a process. The advantage of digital twins is that they favour a two-way information flow. The sensors collect data about the physical object or objects. A system processor processes that data, which is then used to update the performance of the physical object or process.

Cloud computing

Cloud computing delivers services such as servers, databases, storage, software, analytics, and intelligence over the internet. We can determine several cloud deployment types: public, private, and hybrid. Cloud computing gives us the possibilities to:

  • Create cloud-native applications
  • Test and build applications
  • Store, back up and recover data
  • Embed intelligence
  • Deliver software on demand

Cloud computing enables manufacturers to become agile and flexible. The on-demand availability of data gives your organization the possibility to act in real-time. This way, you identify issues immediately and can even prevent problems from happening.

Cognitive computing

Cognitive computing combines reasoning, language processing, machine learning, and human capabilities to overcome challenges and analyse data. Basically, a computer learns patterns and behaviours to become more intelligent and provide possible solutions within a complex decision-making process.

A domain-driven design (DDD) focuses on the business model and therefore supports the company in achieving its goals. VirtusLab for example applies DDD to every aspect of custom development of software solutions.

Artificial intelligence

Artificial intelligence enables computers to perform tasks normally requiring human beings, such as visual perception, speech recognition, decision-making and more. This means AI simulates human intelligence processes. 

Software engineers create a model that shall perform a certain task. Fuelled with data and a learning curve. The model begins to understand the spectrum in which to operate. This creates the possibility of efficient processes within a company. 

A sneak peek into the future: Industry 5.0

The Fourth Industrial Revolution focuses on digital transformation and AI-driven technologies to increase efficiency and flexibility of production. Manufacturers wanted to automate all processes to strive toward efficiency as quickly as possible. As we already know, this approach helped them to overcome the pandemic. However, the human mind still needs to play a vital role in automation.

There is an advancing need for another industrial revolution: Industry 5.0. Certain manufacturers seek a symbiosis between smart technologies and humans. But it does open up several questions among scientists.

  • Where do I4 end and I5 start? 
  • Can I4 technologies also realise the goals of I5 or do manufacturers need specific technologies?
  • Are we living amongst two Industrial revolutions right now?

ScienceDirect opened up a discussion about the two industrial revolutions. If you want to know more about this discussion we encourage you to read this article.


Industry 4.0 is about leveraging data that is collected and processed by technologies. The interconnectivity of systems and departments allows you to plan for perfect production and lower costs in the long run

Although it comes with certain challenges, the benefits of the Industry 4.0 approach outweigh the disadvantages. This is why so many companies already created an autonomously functioning manufacturing process. Technology that was acquired over time, can hold us back. The same happens, if the company started out during the Third Industrial Revolution. The good thing is that Industry 4.0 as a concept is so adjustable that you can leverage new technologies to implement old and outdated ones.

If you ask yourself: “Will my company benefit from implementing the Industry 4.0 paradigm?” the answer is yes. A solid partner in software development and engineering helps you to regain control of technology or build a new process along the way. Custom software omits problems with legacy systems, focuses on main challenges, and helps the manufacturers grow within an Industry 4.0 environment.

As an official member of the SAP PartnerEdge open ecosystem, we have the expertise to help you on your journey through the Fourth Industrial Revolution. Do you want to grow further with legacy systems or become a smart factory?

Written by

Krzysztof Sobota Aug 4, 2022