1. Advanced Manufacturing
- Trends, Drivers and Opportunities in the UK
Perry Le Dain
Vilhelmiina Vekkeli
Finpro UK

2. FINPRO
Summary
§ It is predicted that the amount of previously outsourced production returning to the UK could be worth £30 billion to the UK's economy.
Offshore manufacturing will cease to offer significant advantages and a substantial number of new jobs will be created by re-shoring
production. Advanced manufacturing IP can be located anywhere. This will be a key driver for re-shoring.
§ The rising costs of manufacturing in China may push manufacturing back to the UK. The costs of China’s currency and shipping rises
5% per annum and wages increase by 30% per annum. This will be a driver for re shoring.
§ At the core of Advanced Manufacturing will be cyber-physical systems made up of software, sensors, processors and communication
technologies. In order to leverage the full potential of advanced manufacturing, the issues concerning management and control,
security, standardization and infrastructure need to be addressed.
§ Technologies will be embedded into materials, parts and machines so they can communicate with one another in real time and
exchange commands in the supply chain thus creating the smart factory.
§ Lean and agile supply and value chains will be a key benefit and driver for investment. This will drive the need for flexible and
dynamic business processes that can react in real time so that decisions will be taken automatically to optimise the production
process.
§ Fewer people will be required in the advanced manufacturing process (lean model). A key benefit will be reduction of low-skilled
labour due to automated processes enabling the employment of highly-skilled knowledge workers. Software will replace labour in
advanced manufacturing environments and synthesise information to improve and accelerate decision making. Entrants with strong
digital expertise and an engineer-friendly cultures will attract the best talent.
§ A challenge to manufacturers will be the recruitment of next-generation advanced manufacturing talent. There will probably be a
scarcity of resource due to their desirability within the manufacturing industry. Without the right talent it will be difficult to develop
software-driven IP business models and an organistation that is fit for purpose in order to develop the Industry 4.0 processes.
§ The UK government has selected robotics and autonomous systems as one of the “eight great technologies” that the government
believes deserves particular support.
§ A key driver for the Internet of Things is the ubiquity of smart devices, falling costs of components such as microchips, network
connectivity, processing power, standardisation of protocols, affordable cloud computing services, underpinned by vast increases in
storage capacity in the cloud. These must be addressed in order to drive adoption. Security and reliability are keys issue that must be
addressed.
§ For IOT to become a reality, energy consumption needs to reduce dramatically in order for batteries and equipment to last longer,
thus avoiding the cost and inconvenience of replacing devices. Battery life for connected devices will need to be extended to years of
uninterrupted use. Without extended battery life the IOT will not be able to reach its full potential. This is a key driver for innovation.

3. FINPRO
Summary (2)
§ IOT will enable value chains to disaggregate e.g in-sourcing third parties such as logistics and e-commerce providers easily and
seamlessly into the value chain.
§ The new found flexibility and agility will lower the barriers to new market entry for manufacturers (by sector and geography).
§ Service design in high value manufacturing will help a manufacturer lower barriers to adoption of their product. This is because
service design creates an excellent service model – not simply a traditional manufacturing process. This will be underpinned by the
new business and organisational models that will vastly improve agility, flexibility and speed to market (velocity).
§ Citi Group has listed 4D printing (as well as robotics) among its 10 disruptive innovations that will change the world.
§ A key driver for 4D printing is in the fast commercialization of products. This will enable shorter production runs, and better services to
manage the life-cycle of products. Industry gains possibilities in the prolonged life-cycle of products, for example in repair and
customization. This will provide individualised and tailored output with speed.
§ Big trends in robotics are drones, cheap and easy to use home robots, and intelligent robots that can learn about their surroundings.
§ SPARC, a funding programme targeted for robotics innovations, has recently been launched by the European Commission. This 2.8
billion euro investment by the EC and the robotics industry is meant to create 240 000 new jobs. According to the ECs estimation, the
robotics industry will be worth around 60 billion euros a year by 2020.
§ The use of robots is especially effective in dangerous, or hand to reach environments. This is a key driver for adoption.
§ Because of the sheer amount of big data, traditional data warehouses may not be able to store and process all of this. Further
complications arise from the unstructured and varied nature of the data sources. Because of this, new technologies are needed to
process the gathered data in tolerable time. There are clear opportunities for organisations that can codify Big Data to ensure relevant
and timely delivery particularly at point of experience, e.g. the connected or driverless car, supply chains and logistics.
§ Insurance is a key driver for development of the connected car Black box technology will be used to monitor the car in real time to
analyse driving behaviour and track incidents. This will reduce insurance fraud and enable insurance companies to react immediately
to claims as the data will be stored in the car (enhanced QoS). Premiums could be weighted in real-time to encourage safe driving.
This is an opportunity for insurance and safe driving apps.
§ Security issues are a concern for the development of the connected car. The more the car is connected to the cloud, the greater the
risk of hostile intrusion. What can be done to improve security?
§ The challenge of embedding technology in cars is fossilisation. How can in-car technology be software defined to ensure forward
compatibility?

4. FINPRO
Manufacturing in the UK
§ Manufacturing contributes £6.7tr to the global economy.
§ UK manufacturing is strong with the UK currently the 11th largest
manufacturing nation in the world (the UK ranks second in aerospace
manufacturing)
§ Manufacturing makes up 11% of UK GVA and 54% of UK exports and
directly employs 2.6 million people.
§ Manufacturing contributed 25% of UK GDP.
§ The UK-based auto industry exported a record-breaking 84% of its
production in 2013 and the chemical and pharmaceutical industries add
£20m per day to the UK balance of trade. On average annual productivity
increases by 3.6%. www.themanufacturer.com/uk-manufacturing-
statistics/#sthash.hnDxSkR5.dpuf

5. Industry 4.0

6. FINPRO
The 4th Industrial Revolution
§ The first industrial revolution commenced at the end of the
18th century with the introduction of mechanical
manufacturing. The second industrial revolution continued
early in the 20th century with the introduction of electrically
powered machinery used for mass production. The third
industrial revolution occurred during the 1970s with the use
of information technologies to automate production
processes. This dramatically reduced the need for manual
tasks and replaced them with intellectual tasks. The fourth
industrial revolution is now emerging.
§ Industry 4.0 basically describes the fourth stage of
industrial development, with increasingly smart systems
being formed in ever more closely integrated value chains.
The Industry 4.0-compliant production facility is thus a
completely integrated smart environment. Industry 4.0 will
encompass not only value creation, but also organisation
and business models. This will be achieved by using IT to
link production, logistics and resources via the integration
of cyber-physical systems and the internet of things and
services in industrial processes.

7. FINPRO
Cyber Physical Systems
§ Industry 4.0 (integrated and advanced manufacturing) will have a significant
impact on industrial capabilities. Automation and agile processes are vital in a
modern, global, competitive environment. Industry 4.0 will enable the integration
of electronics, electrical engineering, mechanical engineering and information
technology. There will be increasing levels of intelligence in devices that are used
in industrial environments. At the core will be cyber-physical systems made up of
software, sensors, processors and communication technologies.
§ Applications of cyber-physical systems
§ - digital manufacturing
§ - smart energy grid systems
§ - smart transportation systems
§ - smart consumer electronics
§ - smart medical monitoring/sensing devices
§ The UK has historically been an industrial heavyweight. A reverse migration of off-
shored manufacturing is occurring. Industry 4.0 is expected to improve the UK’s
competitiveness globally and will address problems related to the shifting supply
of labour. It is predicted that the amount of previously outsourced production
returning to the UK could be worth £30 billion to the UK's economy. Offshore
manufacturing will cease to offer significant advantages and a substantial number
of new jobs will be created by re-shoring production. Industry 4.0 will eliminate
low-cost labour as a prerequisite for a successful manufacturing economy.

8. FINPRO
The Smart Factory
§ Industry 4.0 will integrate Big Data analytics, cloud computing, cyber-physical systems, RFID, Internet of things,
machine-to-machine communications, and service design and delivery using communications technologies to
optimise production and manage a product's end-to-end lifecycle. But in order to leverage the full potential, the
issues concerning management and control, security, standardization and infrastructure need to be addressed.
Many of the individual technologies that lay the foundation for Industry 4.0 have emerged during the last decade.
These pre-existing technologies can be embedded into materials, parts and machines so they can communicate
with one another in real time and exchange commands as products make their way down the production line
thus creating the smart factory. A key focus is on smart products and smart production (efficient processes and
procedures).
McKinsey and Company2014

9. FINPRO
The Smart Factory (2)
§ In the smart factory there will be direct communication between man, machine and resources. Smart products
will know their manufacturing processes and future application and will actively support the production process
and the documentation (“when was I made, which parameters am I to be given, where I am supposed to be
delivered.”). With an interface to smart mobility, smart logistics and smart grids the smart factory is an important
element of future smart infrastructures. Conventional value chains will thereby be refined and totally new
business models will become established. Industry 4.0 will link the isolated elements of production chains. Data
network technology such as RFID will gather data and map the entire production flow from supplier to customer.
Each product will be embedded with unique digital information that it will wirelessly share with machines as it
moves along the production line. Production runs can be tailored to customers' requirements at every step on
the production line. Industry 4.0 technologies will facilitate product strategies that expand into the field,
monitoring the requirements of customers long after a shipment has left the factory.
§ Key beneifts of the Smart Factory:
§ Increased productivity through automation.
§ Reduced capital due to the optimisation of capex and opex
§ Reduced energy costs due to the smart control of facilities.
§ Reduction of low-skilled labour due to automated processes
enabling the employment of highly-skilled knowledge workers.
§ Lean and agile value chains and value teams
(e.g. supplier relationship)
§ Predictive maintenance through improved system monitoring
§ Logistics optimisation and supply chain tracking and tracing

10. FINPRO
Drivers for Innovation
§ Business processes will be flexible and dynamic. Factories will self organise and production processes will react in real time
to fluctuations in demand or failures in the supply chain. Production will be then reorganised autonomously and intelligent
industrial devices will communicate with each other.
§ Seamless data collection will dramatically reduce lead times and enable the rapid use of production-relevant data for near-
term decision-making regardless of the location. This means Industry 4.0 users can reduce market lead times for
innovations. Start-up firms in particular are presented with especially attractive options by Industry 4.0. By using intelligent
control methods and taking input from sensors, other machines and systems, real-time decisions will be taken automatically
to optimise the production process.
§ Industry 4.0 allows the incorporation of individual customer-specific criteria concerning design, configuration, ordering,
planning, production and operation as well as enabling modifications to be made at short notice. Industry 4.0 will enable
rapid and inexpensive low-volume production runs. Smart production will be underpinned by new technologies such as 3D-
printing.
§ There has been a particular increase in customer expectations in the automotive sector when it comes to customising a
vehicle. This is placing demand on the production environment, which means factories will be able to mass customise.
§ In April 2013 the UK government selected robotics and autonomous systems as one of the “eight great technologies” that
the government believes the UK will excel in and deserve particular support. Consequently, the UK government awarded
the research field £15m in a bid to increase research into Industry 4.0.
§ According to a review by McKinsey and Co of major on shoring initiatives in the past two years the vast majority of on
shoring initiatives were in manufacturing. This development is primarily due to a rebound in domestic demand for goods
such as machinery and automobiles that are typically assembled close to final demand. In addition, in the price of natural
gas since 2008 is attracting some manufacturing industries to re shore. (Source Rebalancing your sourcing strategy, McKinsey and Co).

11. Internet of Things

12. FINPRO
§ The Internet of Things describes devices or sensors that are
smart and connected and have the ability to collect and share data.
The data coming from those devices and sensors is combined and
analyzed with other types of data. Other terms used to describe this
market include: Connected Devices; Embedded Connectivity, Embedded
Intelligence; Industrial Internet; Internet of Everything; Remote Asset Management;
Pervasive Computing; Pervasive Internet.
§ The Industrial sector covers industrial asset monitoring and tracking, involving discrete monitoring of assets or devices to
ensure uptime performance, version control, and location analysis for a wide range of factory processes.
§ The costs of components such as microchips, cloud services, GPS devices, connectivity have fallen and, processing power is
becoming more affordable, and cloud computing services are increasingly available. This is a key driver for IOT.
§ In order to support the growing number of connected devices in the UK, a dedicated Internet of Things network rolled out in
the UK during 2015. The connected devices will range from smart energy meters and washing machines that can be
controlled remotely, to wearable devices that monitor health and fitness. This is the first step in the UK of creating smart
cities, smart manufacturing and intelligent buildings.
• The national network will be built by BT subsidiary Arqiva. It will consist of ultra-
narrowband technology which is particularly suited to connecting objects over long
distances where a long battery life and low cost are required. Ultra-narrowband
technology allows the transmission of small amounts of data thus providing capacity for the
considerable number of connected devices throughout the UK. The network will become
part of the SIGFOX global IOT network. SIGFOX networks are already deployed in France,
Germany, the Netherlands, Russia and Spain.
• A challenge for the IOT network rollout in the UK is how to find a way to support all of these
devices in a cost-effective way. In order for the IOT to become a reality, energy
consumption needs to reduce dramatically in order for batteries and equipment to last
longer, thus avoiding the cost and inconvenience of replacing devices. It is expected that
battery life for connected devices will need to be extended to years of uninterrupted use.
Without extended battery life the IOT will not be able to reach its full potential.

13. FINPRO
Applications
§ IOT is starting to become a reality aided by the widespread availability of smartphones
and tablets that provide a suitable user interface.
§ The widespread adoption of IOT will be enabled by advancements in chip technology,
computing power, battery life, wireless technology and the mandatory standardisation
of communication protocols. This will enable the collection of data from devices.
This is underpinned by vast increases in storage capacity in the cloud.
§ IOT networks will connect data from products, assets and the operating environment (e.g.
supply chain). This will facilitate enhanced analysis of the data which in turn will improve
decision making significantly. Common applications for IOT are expected to be:
• Tracking. When products are embedded with sensors, companies can track the movements of these products and even
monitor interactions with them. Business models can be fine-tuned to take advantage of this behavioral data. Some insurance
companies, for example, are offering to install location sensors in customers’ cars and the price of policies are influenced in
real time based on how a car is driven and where it travels. RFID tags placed on products moving through supply chains will
improve inventory management while reducing working capital and logistics costs. Car manufacturers are using networked
sensors to send continuous data on product wear and tear thus enabling proactive fault management and maintenance. The
aerospace industry will use sensors to monitor engine performance in real time.
• Environmental awareness. Sensors deployed in roads and buildings will provide a heightened awareness of real-time events,
particularly when the sensors are used with advanced display or visualization technologies. Logistics managers can get real-
time knowledge of weather conditions, traffic patterns, and vehicle locations. The system can then make automatic routing
adjustments to reduce congestion costs and increase efficiency.

14. FINPRO
Applications (2)
§ Automation. Data collected through IOT can be converted into instructions to automatically
modify processes. Productivity will be increased because the systems will react and adjust
automatically to complex situations and make avoid any human interventions.
§ Process optimization. Sensors will be used to alter the progress of a product during assembly
ensuring that it arrives an optimum position without disrupting or damaging the assembly line.
This will create major reductions in waste, energy costs, and human intervention. This will include
automated temperature adjustments in pulp and paper manufacturing.
§ Autonomous systems. The most demanding use of IOT involves the rapid, real-time sensing of
unpredictable conditions and instantaneous responses guided by automated systems. IOT will
enable immediate and real-time machine decision making and reactions thus empowering
machines to mimics human intervention at enhanced performance levels. The connected car will
avoid collisions and deploy automatic braking systems.
§ Multiple factors are coming together to create the climate for major, worldwide adoption. Consider
the following:

15. FINPRO
Drivers for Adoption
Multiple factors are coming together to create the climate for major, worldwide adoption.
Consider the following:
§ Control. IOT is starting to become a reality, aided by the widespread use of smartphones and
tablets that can act as user control panels for networked devices. There are now many cloud
platforms that can collate and manage the huge volume of data from large numbers of networked
devices and use data analytics to extract useful information for decision making and systems
control.
§ Costs are falling. The costs of the Internet of Things components such as microchips, cloud
services, GPS devices, accelerometers, connectivity, and other technologies have fallen and are
now within reach for most organizations. In addition, processing power is becoming more
affordable, and cloud computing services are increasingly available, vastly expanding the
capability to crunch very large data sets.
§ Connected device demand is accelerating. As more companies and consumers realize the
value of connected things, the market is swelling into the billions and beyond.
§ Device options are expanding. Everything from light bulbs and washing machines to point-of-
sale terminals is becoming connected, and that connectivity is also greatly improved, whether it’s
wired, wireless, Wi-Fi, Bluetooth, cellular, or something else. And components are becoming
more powerful—tiny microchips are now capable not only of connectivity but also of running
much more advanced software than ever before.

16. FINPRO
Drivers for Adoption (2)
§ Business, regulatory and technical issues must be resolved before IOT is widely embraced. Early adopters will
need to prove that the new sensor-driven business models create superior value. Industry groups and
government regulators should study rules on data privacy and data security, particularly for uses that touch on
sensitive consumer information. Legal liability frameworks for the bad decisions of automated systems will have to
be established by governments, companies, and risk analysts, in consort with insurers. The cost of sensors and
actuators must fall to levels that will encourage widespread adoption. Networking technologies and the standards
that support them must enable data to flow uninhibited between devices, sensors, network infrastructure and
computers. Software to aggregate and analyze data, as well as graphic display techniques, must process and
visualise huge volumes of data in order to empower human decision making or guide automated systems
precisely and timely.
§ Within companies, big changes in information patterns will have implications for organizational structures. This will
impact the way decisions are made; operations are managed; and processes are conceived. Product
development, for example, will need to reflect far greater possibilities for capturing and analyzing information.
§ Manufacturers can begin taking steps now to position themselves for these changes by using the new
technologies to optimise business processes in which traditional approaches have not brought satisfactory
returns. Energy consumption efficiency and process optimisation are good early targets. Experiments with the
emerging technologies should be conducted in development labs and in small-scale pilot trials, and established
companies can seek co-creation partnerships with innovative technology suppliers creating IOT capabilities for
target industries.

17. FINPRO
A Driver for Change
§ The rising costs of manufacturing goods in China are pushing off-shored manufacturing back to
developed countries. Currently, the costs of China’s currency and shipping rises 5% per annum
and wages increase by 30% per annum. By 2015 it may cost the same to make goods in the UK
than to manufacture them in China and ship them to the UK.
§ What will determine the location of many future factories will be things such as quality, faster lead
times, proximity to local markets, technical competence, workforce skills, lower shipping costs
and simplified supply chains. Furthermore, IOT technologies are making production a less labor
intensive business.
§ Key technologies are converging. Intelligent software allows products to be designed, tested and
put into production more easily. New materials, like carbon fibre and nanoparticles, are changing
the way things are made, often with less assembly required. More dexterous and cheaper robots
reduce operational and capital costs. A host of online manufacturing services now allow anyone
with a computer to become a manufacturer. Additive manufacturing (commonly referred to as 3D
printing) will enable bespoke manufacturing on a large-scale basis. 3D printing pays little heed to
economies of scale.

18. FINPRO
Industry Transformation
§ IOT will enable value chains to disaggregate e.g in-sourcing
third parties such as logistics and e-commerce providers
easily and seamlessly into the value chain. This will create
openings for focused, fast-moving competitors and new
entrants. Digitisation of the manufacturing process will lower
entry barriers and new entrants will be able scale up rapidly
at lower cost than legacy players, and returns will grow
rapidly. This may be key driver for re-shoring.
§ Software will replace labour in advanced manufacturing
environments. IOT will encroach on a growing number of
knowledge roles within companies as algorithms crunch big
data and automate many middle management jobs and
synthesise information to improve and accelerate decision
making. Faster and efficient decision making will improve
performance throughout the supply chain. Operational risks
will be reduced by sensing wear and tear on equipment.
New operating models will facilitate peer-to-peer product
innovation and co-creation, crowdsourcing could replace
expensive R&D, 3-D printers will make JIT manufacture of
products on demand a reality.
§ Entrants with strong digital expertise and an engineer-
friendly cultures will attract the best talent. This will
challenge capital- and labor-intensive operating models. But
manufacturers may struggle to find the right talent in areas
that cannot be automated such as artificial-intelligence
programmers or data scientists, digital strategists and
developers of digital business designs. A key challenge will
be reallocating the savings from automation to the talent
needed to implement IOT strategies.
Strategicprinciplesfor competingin the digital age.
McKinsey and Company2014

19. FINPRO
Internet of Things UK Infrastructure Investment
§ BT has