Manufacturing the Future: Industry 4.0

A new wave of technological changes is reshaping the manufacturing sector in its entirety. Autonomous robotics, additive manufacturing, cloud computing and sensor technology are only few of the new technologies that are driving a paradigm shift in manufacturing. This sector is at the verge of a fourth industrial revolution which promises all range of opportunities for innovation in terms of smarter industrial processes, new business models and customised products.

The concept of Industry 4.0 goes well beyond the implementation of electronics and IT on the manufacturing floor, which is rather referred to as third industrial revolution (see figure below). The new technological wave builds on the concept of cyber-physical systems, that is a profound interaction of the real and virtual worlds which becomes the core of the manufacturing process. Both production equipment and manufactured products are now able to gather, process and analyse data of the physical world and interact with each other autonomously.

Figure 1: From Industry 1.0 to Industry 4.0

Source: DFKI (2011)

This is the case, for instance, of driverless cars which use a combination of sensors and software to locate themselves in the real world and can recognise (and sometime interact with) objects, people, other cars, road marking, signs and traffic lights. Another example is machine-to-machine communication in the factory floor that enables them to auto-configure, adjust to changes and predict failure, without human assistance.

The European manufacturing sector is particularly well positioned in this new arena and several Member States have already implemented national strategies to be at the forefront of the fourth industrial revolution. However, despite the European Commission call for industrial renaissance, there is no yet a comprehensive and clear strategy on Industry 4.0 at the European level.

The Digital Single Market (DSM) strategy of the European Commission has failed to give to the fourth industrial revolution the weight it deserves. It missed a golden opportunity to show that Europe can deal successfully with the digitisation of the manufacturing sector and can provide a forward-looking regulatory framework to unleash the innovative potential of the Industry 4.0.

The newly launched European digital strategy focuses on ensuring data privacy and security and solving interoperability issues, but fails to recognize cogent legal issues that might be triggered by the transformation of the industry. In this regard, two foundational technology advances behind the rise of the Industry 4.0 are especially interesting to analyse: the Internet of Things (IoT) and additive manufacturing. Building on the concept of servicification of manufactured products, these advancements have the potential to change the fundamental nature of the manufactured products. They offer tremendous potential for product, process and business model innovation, while also raising a range of policy concerns and sensitive issues which go well beyond the technical aspects identified in the DSM strategy.

The Internet of Things is a comprehensive structure of physical objects connected to the internet that are able of identifying themselves and communicating between each other. Cars, traffic lights, fridges, thermostats, solar panels, smoke detectors and medical devices are only few examples. The data resulting from the interaction between these objects through the Internet is being processed and smartly employed to prevent traffic jams, doctor visits and re-hospitalization, energy waste or even burning a toast! There is already a higher number of smart objects being connected than the number of people in the world, and this is just the beginning. Currently, only 0.6% of the digital universe is actually being tagged, analysed and leveraged, while more than 50 billion smart objects are expected to be connected by 2020. Cisco estimates that the overall market of the IoT will be worth 14 trillion dollars in 2022.

Beyond those identified in the DSM strategy, there are several barriers to the uptake of these solutions which should be tackled. They concern the scope of the consent granted to IoT devices, the ownership of the data retrieved and processed by the connected devices and the legal liability in case of accidents. Circumstances such as a crash between driverless cars, for instance, require rethinking the traditional notion of liability, while relying on a fridge to make an order in the behalf of its owner requires reframing the concept of consent.

Additive manufacturing is another major technological advancement that is changing the face of manufacturing. Often referred to as 3D printing, this process enables the creation of three-dimensional objects from a digital model by deposition or fusion of material, layer by layer. The production process goes directly from a digital file to a finished part or product, skipping therefore several traditional manufacturing steps. As a result, there are barely any economies of scale in additive manufacturing. This makes it particularly well positioned for customization of products to fit the specific characteristics or preferences of an individual.

Additive manufacturing enables the individual to become an integral part of the manufacturing process, taking manufacturing into a whole new era of customisation. This goes from online customization of basic products such as lamps or shoes (as Amazon is doing with its recently launched online portal) to printing of human organs using the patient’s stem cells, to personalisation of drugs based on the genetic data of the individual or the creation of smoothfood for people with impaired mastication or swallowing ability.

Additive manufacturing enables to redesign the supply chain around the customer offering a big window of opportunities for innovative business models. The specific nature of this process enables the relocation of production next to the customers, offering the possibility to manufacture on-demand and to engage more closely with the clients. McKinsey estimates that the potential economic impact of additive manufacturing based on reduced cost (compared with buying items through retailers) and the value of customization could range from 100 billion to 300 billion dollars per year by 2025.

The mushrooming of additive manufacturing products in the last years raises a series of pressing regulatory issues, which go well beyond those identified in the text of the DSM strategy. On one hand, it is not clear whether tariffs should be paid if only a digital file is actually crossing the border or whether taxes should be paid if the consumer is printing an object at home or in an ad-hoc laboratory. Other concerns regard product liability and conformity standards – an issue especially critical for applications in the healthcare sector. Today, there is no clear framework that allows identifying who should be responsible in case of accidents or malfunctioning of 3D printed devices. Moreover, it should be debated in what circumstances 3D printing might entail a violation of intellectual property rights and identify the boundaries of fair use in this area.

The manufacturing industry is undergoing a process of serious transformation that promises wide scope for innovation in terms of production processes, business models and final products. We are on the eve of the fourth stage of the industrial revolution, which is unveiling a window of opportunities that the EU cannot fail to seize. However, today there is strong legal uncertainty surrounding these technologies and a legislative intervention is necessary to reduce the risk of fragmentation of the market and pave the way to the Industry 4.0. Legal and social implications should be thought through to shape a convincing narrative for embracing systemic innovation in the manufacturing sector.