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Digital factories: Industry 4.0 to unleash new highly efficient automotive manufacturing in the U.S.

Munich, March 3, 2016

  • Up to $32 bn in annual automotive manufacturing productivity savings is up for grabs (up to 20% of addressable production costs) through introducing digital factories in U.S. domestic automotive manufacturing
  • The current timing is right for investment due to increasing cost pressure, >90% factory utilization rates and cash rich balance sheets
  • The United States is the ideal playground: Stable infrastructure, close proximity along the value chain, access to educated workforce, IT knowhow, and engineering expertise

The impact of digitization on the automotive industry is usually discussed in a consumer-related context. But the next digital revolution is not about the consumer, it's about productivity. "There are annual savings of $16-32 bn waiting to be realized for domestic automotive production in the U.S. This equals 10-20% of the addressable production costs and is realized by following a trend which is also known as the fourth industrial revolution, or simply Industry 4.0", says Stephan Keese, a Senior Partner with Roland Berger. A new study by Roland Berger analyzes the prerequisites for these developments, compared it with the U.S. location factors, and came to a clear conclusion: The U.S. ticks all the right boxes to be the ideal playground for Digitization of manufacturing.

Digitization of manufacturing promises to offer abundant opportunities to increase efficiency and reduce cost. Relative to traditional auto manufacturing plants digital factories can produce a higher number of derivatives and variants on the same assembly line without major changeover costs, with a faster time-to-market, and a higher quality. This results in a better utilization of capacities and balanced plant and staff deployment.

U.S. automotive manufacturing plants are expected to maintain utilization rates above 90% for the next 5 years. This means that relatively soon the U.S. auto industry will reach full capacity. As Roland Berger Senior Project Manager Christian Boehler puts it, "Since OEMs will need to invest in new plants and technologies, choosing a digital factory will ensure these plants are the best able to meet the demands of the future."

Compelling cost savings to be expected
The savings potential spans over the full value chain. In the long run, the benefits of digital factories have been analyzed for the following specific functions:

  • Manufacturing costs can be reduced e.g. by advanced robotics, cobotics, better OEE and staff flexibility
  • Logistics cost can be reduced e.g. through the introduction of more highly automated intra-plant logistics
  • Inventories will decline e.g. through lower safety stock and lower bullwhip effect
  • Quality costs may decline e.g. through real-time testing
  • Complexity costs might be reduced e.g. through smart products and smart modularization
  • Maintenance profits, through optimized spare parts inventories and dynamic prioritization, may result in gains

The time is right
There are several factors behind the need for digital factories such as market pressures for cost reduction, increased production capacity and cheap energy. When coupled with cash-rich automotive balance sheets and easy access to capital, the current environment creates perfect conditions for manufacturing investments in digitization. The U.S. is the ideal place for digital factory investments for these four reasons:

  1. Established technology hubs like Silicon Valley: The United States is home to eight of the top ten information technology companies. They operate in close proximity to one another creating tech clusters that the auto sector can tap into.
  2. Modern infrastructure and the proximity effect: To achieve "just-in-sequence" coordination between OEMs and suppliers, close physical proximity will be required, which exists e.g. in automotive hubs like Michigan or South Carolina.
  3. Educated labor force: Operating a digital factory requires an educated workforce able to adapt to increased reliance on information technologies. The U.S. has over 3,200 institutions that graduate over 570,000 STEM students each year. However, the "war for talents" is strong presently and needs to be managed closely.
  4. Strong government support: The U.S. is an attractive place to invest in digital factories due to the amount of federal and local incentives (e.g. Advanced Technology Vehicle Manufacturing Loan Program) being offered to create the manufacturing foundation of the future.

Digital factories are the next logical step for U.S. based OEMs and suppliers
Through 2020, pilot programs and retrofitting can be expected for existing factories. A broader adaptation of standard solutions and a gradual replacement of most machinery are most likely to take place around the year 2025. The final "full" transition to digital factories is projected for approximately 2030.

To kick off digital factories, companies need to proactively develop their own digital factory ecosystem. Study co-author Stephan Keese says, "The battle for digital factories has already started" and he advises three steps as immediate actions for any company that wants to benefit from the Digitization of manufacturing: Identify accessible digital factory know-how in their own organization, assess these capabilities, and develop a tailor-made roadmap to Industry 4.0. "With stronger domestic production based on digital factories, 'Made in USA' can once again become a true competitive advantage."

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