How Virtualization Decentralization and Network Building Change The Manufacturing Landscape An Industry 40 Perspective

World Academy of Science, Engineering and Technology
International Journal of Mechanical, Aerospace, Industrial, Mechatronic and Manufacturing Engineering Vol:8, No:1, 2014
How Virtualization, Decentralization and Network

Building Change the Manufacturing Landscape:
An Industry 4.0 Perspective
Malte Brettel, Niklas Friederichsen, Michael Keller, Marius Rosenberg
I. INTRODUCTION
International Science Index, Industrial and Manufacturing Engineering Vol:8, No:1, 2014 waset.org/Publication/9997144
AbstractThe German manufacturing industry has to withstand

an increasing global competition on product quality and production
costs. As labor costs are high, several industries have suffered
severely under the relocation of production facilities towards aspiring
countries, which have managed to close the productivity and quality
gap substantially. Established manufacturing companies have
recognized that customers are not willing to pay large price premiums
for incremental quality improvements. As a consequence, many
companies from the German manufacturing industry adjust their
production focusing on customized products and fast time to market.
Leveraging the advantages of novel production strategies such as
Agile Manufacturing and Mass Customization, manufacturing
companies transform into integrated networks, in which companies
unite their core competencies. Hereby, virtualization of the processand supply-chain ensures smooth inter-company operations providing
real-time access to relevant product and production information for
all participating entities. Boundaries of companies deteriorate, as
autonomous systems exchange data, gained by embedded systems
throughout the entire value chain. By including Cyber-PhysicalSystems, advanced communication between machines is tantamount
to their dialogue with humans. The increasing utilization of
information and communication technology allows digital
engineering of products and production processes alike. Modular
simulation and modeling techniques allow decentralized units to
flexibly alter products and thereby enable rapid product innovation.
The present article describes the developments of Industry 4.0 within
the literature and reviews the associated research streams. Hereby, we
analyze eight scientific journals with regards to the following
research fields: Individualized production, end-to-end engineering in
a virtual process chain and production networks. We employ cluster
analysis to assign sub-topics into the respective research field. To
assess the practical implications, we conducted face-to-face
interviews with managers from the industry as well as from the
consulting business using a structured interview guideline. The
results reveal reasons for the adaption and refusal of Industry 4.0
practices from a managerial point of view. Our findings contribute to
the upcoming research stream of Industry 4.0 and support decisionmakers to assess their need for transformation towards Industry 4.0
practices.
KeywordsIndustry 4.0., Mass Customization, Production

networks, Virtual Process-Chain.
Malte Brettel, chairholder, is with the Aachen University (RWTH),

Kackertstrae 7, 52072 Aachen (e-mail: [email protected]).
Niklas Friederichsen is with the Aachen University (RWTH),
Kackertstrae 7, 52072 Aachen, (corresponding author; phone: +49/(0)241 80
99397; e-mail: [email protected]).
Michael Keller and Marius Rosenberg are with the Aachen University
(RWTH), Kackertstrae 7, 52072 Aachen (e-mail: [email protected], [email protected]).
International Scholarly and Scientific Research & Innovation 8(1) 2014
HE three industrial revolutions of the past were all

triggered by technical innovations: the introduction of
water- and steam-powered mechanical manufacturing at the
end of the 18th century, the division of labor at the beginning
of the 20th century and introduction of programmable logic
controllers (PLC) for automation purposes in manufacturing in
the 1970s [1]. According to experts from industry and
research, the upcoming industrial revolution will be triggered
by the Internet, which allows communication between humans
as well as machines in Cyber-Physical-Systems (CPS)
throughout large networks. For Germany, a successful
transformation of the manufacturing industry is of very high
importance as it contributes over 25% of the GDP and
provides over 7 million jobs [2], [3]. As relocation of
production towards low-wage countries particularly affects
mass production of standardized mass-products, high-wage
countries have to focus on resolving the tension between
economies of scale and scope as well as a planning and value
orientation. The Cluster of Excellence Integrative Production
Technology for High-Wage Countries of RWTH University
focuses on the resolution of the Polylemma of Production in
the following research areas: Individualization, virtualization,
hybridization and self-optimization [4]. All four research areas
have a strong link to the topics associated with industry 4.0.
Alongside to technological innovation, the organization
structure of industrial production has undergone several major
shifts in the past to face changing markets. Industrial
production started with the transformation from craft
production to mass production with strict division of labor and
standardization. On a seller market with production as the
major bottleneck, the organization structure was focused on
increasing outputs and productivity disregarding variations in
customer needs. As market saturation increased, markets
transformed into buyers markets and forced manufacturing
companies towards product differentiation. In order to raise
effectiveness at growing product varieties, lean production has
become very popular as it allows eliminating waste along the
value chain [5]. The growing demand of customized products
in combination with decreasing product lifecycles asks for
further transformation towards organization structures, which
cope with increased complexity. Distributed Systems can
handle high complexity and form the starting point for the socalled cybernetic management, which incorporates selfcontrolling systems [6]. The Internet has been identified as a
powerful instrument to manage distributed systems and
37
scholar.waset.org/1999.8/9997144

technologies like Radio Frequency Identification Devices

(RFID) and can be used to track individual products
throughout the process chain. In this article we have analyzed
several research streams in the context of industry 4.0, which
promise to have a considerable impact on the global industry
landscape and the value added particular in Germany.
II. THEORY
A. The Research Fields Associated with Industry 4.0
Industry 4.0 focuses on the establishment of intelligent
products and production processes. In future manufacturing,
factories have to cope with the need of rapid product
development, flexible production as well as complex
environments [7]. Within the factory of the future, also
considered as a smart factory, CPS will enable the
communication between humans, machines and products alike
[8], [9]. As they are able to acquisition and process data, they
can self-control certain tasks and interact with humans via
interfaces Fig. 1. In the smart manufacturing environment,
intelligent and customized products comprise the knowledge
of their manufacturing process and consumer application and
independently lead their way through the supply-chain [1].
The resolution of the automation pyramid towards self
controlling systems leads to an extreme amount of data, which
can be extracted, visualized and used for end-to-end
engineering [10].
Fig. 1 Interaction between humans and machines via Cyber-PhysicalSystems [11]
1. Individualized Production
The industrial production of high-tech products has to be
leveraged between the satisfaction of heterogeneous customer
needs through individualization and the realization of scale
effects along the value chain. The dilemma between the
economies of scale and scope can be addressed by the concept
of Mass Customization (MC), which has been extensively
discussed in theory [12], [13] and successful application [14],
[15]. MC in the context of manufacturing is a production
strategy that focuses on the production of personalized mass

products, mostly through flexible processes, modularized
product design and integration between supply chain members
along the value chain [16]. At high volumes of standardized
products, Germany cannot compensate the inferior cost
structure due to high labor costs compared to low wage
countries with a superior quality and productiveness alone.
The increased importance of MC leads to fundamental
changes in the product and production architecture.
Modularization is already an accepted mean to increase the
variety of products, which are produced by tool-based
technologies. For successful Modularization, the product
architecture has to be decoupled into subsystems with very
little interdependencies in order to achieve appropriate
economies of scale. By flexibly adjusting the combination of
standardized modules the speed of new product development
drastically increases and time-to-market can be shortened
significantly [17]. Although first introduced by modular
products, the concept of modularity is applied to many
different areas of the production system [18], [19] and the
production planning and simulation [20], [21].
Within a smart factory, products can communicate with
their environment and influence the arrangement of
Reconfigurable Manufacturing Systems (RMS). Concrete
structures and specifications of production processes are
replaced by configuration rules, from which case-specific
topologies can be derived automatically [1]. RMS enables
manufacturing companies to adapt to changing production
requirements in a cost-efficient way. Machine components can
be added, removed or rearranged depending on their
mechanical module interface [22].
Complexity of coordination can be reduced while
increasing flexibility by dividing the production process into
small value oriented units, which only share information
regarding the consecutive process step [23], Fig. 3. However,
distributed planning activities hold the risk of neglecting
global optimization potentials as employees lose sight of the
overall picture. To combine the advantages of planning and
value oriented production, overarching modeling of the value
chain can supply distributed units with indicators to align their
actions with high-level goals.
As standardization is decreased, control needs to be
redirected towards the shop-floor level for fast reaction and
utilization of product-specific knowledge. To take advantage
of synergy effects, data needs to be centralized and processes
need to be globally modeled. This can mean, that suboptimal
solutions in one unit are allowed to resolve a bottleneck in
another. Nowadays decisions of process adaptions are
predominately made by humans on the basis of experience. In
the future, the decision process will be increasingly assisted by
self-optimizing and knowledgeable manufacturing systems
[24]. Distributed systems are capable of producing much
smaller batch sizes and help particularly SMEs to dynamically
follow market opportunities [10], [25].
38

Fig. 2 Reduction of communication in distributed systems
For a further increase of product flexibility, rapid

manufacturing (RM) techniques can be used, in which
products are fabricated on the basis of 3D CAD models [26].
RM techniques, also known as solid free form fabrication, can
be used to unlock design options and have great potential to
be used for small lot sizes [27]. Currently RM-technologies
cannot compete with conventional manufacturing methods in
terms of price and productivity and are only used for
customized parts in very small batches for prototyping [28]
and applications like biomedical parts [29].
2. Horizontal Integration in Collaborative Networks
As the depth of added-value within one factory and
company generally decreases while the complexity of products
and processes increase, Collaborative Manufacturing [30] and
Collaborative Development Environments [31] gain
importance especially for Small and Medium Enterprises
(SME) with limited resources. Within a collaborative network,
risks can be balanced and combined resources can expand the
range of perceivable market opportunities [32], [33]. The
organization in networks multiplies the available capacities
without the need of further investments. Hence, companies in
collaborative networks can adapt to volatile markets and
shortened product lifecycles with high agility. In contrast to
the many benefits, the decoupling and spatial separation of
production processes whilst integrating comprehensive
production data from multiple production-sites has drastically
increased the need for coordination [34]. For increased
productivity compared to traditional organizations, companies
and their employees have to communicate with various
departments across company boundaries very efficiently [35].
The availability of product-data throughout the entire network
is a prerequisite for a global optimization of the production
processes across factory and even company boundaries. To
maintain a global competitive advantage, companies will have
to focus on their core competencies while outsourcing other
activities to collaborators in the network [36]. This potentially
changes business models of manufacturing companies from
offering superior products towards offering a superior
manufacturing capability as manufacturing is moved from a
necessity to a unique selling point [37]. In the scientific
literature, networks of legally independent organizations that
share competencies in order to exploit a business opportunity
are referred to as virtual corporations [38]. According to
Christopher, being able to leverage competencies of network

partners in order to respond to market needs can lead to
sustainable advantages [36]. Although these organizations
have been proposed to increase flexibility and performance,
they are not ubiquitous in the industry to this day [39]. Among
other challenges, one obstacle to the establishment of close
collaborations between companies is the absence of trust, as
Managers are not used to share critical information with
companies; they compete with on the market [40]. Findings
have shown, that information sharing between SMEs can
trigger innovation but can also lead to asymmetric learning
caused by opportunistic behavior also referred to as learning
races [41], [42]. Especially in global networks, different
mentalities towards information and cost-sharing can result in
high coordination costs, that have brought many
collaborations to an end.
To exploit the flexibility potential of collaborations, the
supply chain has to be designed to allow adaptation of routes
and schedules. For high agility, the inventory levels and lead
times within the value chain have to be decreased. To ensure,
that customer needs can still be reliably satisfied, there needs
to be a high level of synchronization between the
organizations, wherefore information sharing is paramount. In
the context of supply-chain management, agility goes hand in
hand with the ability to track commodity flows but also data
concerning delivery reliability and customer satisfaction [43].
Advancements of ICTs allow to monitor large amounts of
product data in real-time. RFID can be used not only to track
the status and position of goods but can hold entire work
instructions to control and log the production process of a high
resolution supply chain [44].
Fig. 3 Resolution of the classical automation pyramid with enhanced

communication, compare [23]
39

Fig. 4 Mass- vs. item-level production [48]
As prices of sensors have dropped significantly over the last

years, there is an abundance of data that can be acquisitioned
on the shop-floor level. This data can be made accessible
throughout networks via the Internet and can thereby help to
enhance communication between different hierarchy levels
Fig. 3. As communication costs can be disregarded as a result
of central data pools and automated information generation,
different hierarchy-levels can access information at the desired
level of detail [45].
3. End-to-End Digital Integration
Integrated engineering along the entire value chain using
advanced methods of communication and virtualization
promises significant optimization potential. Along this value
chain it will be increasingly less important, which process is
executed in which particular factory or company, as all
participating entities can be supplied with access to real-time
information and control is distributed to the shop-floor level.
A central issue of Industry 4.0 is how business processes
including engineering workflows and services can be
integrated end-to-end using CPSs [1]. OEMs of the
automotive industry already orchestrate large supply networks
with various factories and companies in just-in-sequence
supply chains [46] and integrate key-supplies into the product
development. Automotive supply-chains are characterized by
high complexity as automobiles are typically composed of
more than 20,000 components and often involve over 80
companies in the development and production of a single
model [47]. However, automobile manufacturers deal with
relatively long product lifecycles and large batches of parts, so
that they have little need for agile reorganizing of their supplychain and flexible adaptations of manufacturing processes.
Within the context of item-level production, information is
used to constantly optimize the database and improve the basis
of further development Fig. 4 [48]. Within collaborative
networks, simulation and modeling the impact of processsteps on products need to be carried out across company
borders. However, the collective setup of simulation chains
requires an infrastructure, which enables the entities to
integrate their data between heterogeneous simulations [49].
To ensure the exchange of information, uniform standards
for data-transfer and utilization yet have to be applied

throughout the industry [50]. The need for common grounds
becomes apparent particularly in the context of simultaneous
development of product families and their related supplychains [51] and manufacturing capabilities [52]. Advanced
visualization techniques of context-sensitive data via virtual
reality (VR) can be used to illustrate information for effective
collaboration. The local availability and understanding of
global production data is paramount for a real-time
intervention in case of a changing environment.
For many manufacturing companies, value added services
provide an appropriate opportunity to differentiate themselves
in addition to high product quality in order to ensure a strong
competitive position. On top, long term service contracts can
help to leverage risks of high demand volatility, as the actual
product serves as a platform for further service sales over the
time of utilization [53]. Embedded Systems of smart products
and machines will enable entirely new remote maintenance
concepts [54]. A wealth of data acquisitioned by smart
products and machines during operation can be extracted and
used for the development of new services and updates and will
help to increase the perceived product quality.
B. Methodology of Cluster Analysis
In order to investigate the relevance of industry 4.0 and its
associated research streams we have analyzed eight scientific
journals in the fields of production research and business
administration within the times pan of 2007 to 2012 with
regards to the following research fields: Individualized
production, production networks, and end-to-end engineering
in a virtual process chain. We have employed cluster analysis
to assign sub-topics into the respective research field on the
basis of an extensive literature research Fig. 5. We have
selected the Journals on the basis of their scientific focus,
considering the impact on the research community evaluated
of the Thompson Reuters Impact Factor and the HandelsblattRanking Betriebswirtschaftslehre 2012. Taking into account
that the term Industry 4.0 is mainly used in popular science
and has not been established in the scientific literature to this
point, we have included journals like productivity
management and production engineering into our analysis,
which are directed to executive leaders rather that the research
community. Altogether we have analyzed 5911 articles of
which 548 were found to be relevant with regards to one or
more of the associated research fields. In addition to the
literature review we have conducted face-to-face interviews
with R&D managers from the manufacturing industry and
consultants with experience in SCM to analyze potential
challenges of implementation.
40

Fig. 5 Industry 4.0 related research streams; the numbers underneath the topics illustrate the assigned articles
III. RESULTS
A. Cluster Analysis
In the context of individualization of production we
assigned 330 articles to the sub-topics of 1.1. Mass
Customization; 1.2. Modularization; 1.3. Flexible and
Reconfigurable Manufacturing Systems; 1.4. Distributed
control; 1.5. Self-optimization; 1.6. Rapid Manufacturing; 1.7.
Cloud Computing. With 146 counts, the field of flexible FMS
and RMS plays a dominant role, because the improvement and
integration of those systems is paramount to an individual
production on an industrial level but still impose profound
challenges. The research field horizontal integration in
collaborative networks consists of the sub-topics: 2.1.
Collaborative Networks; 2.2. Distributed Manufacturing; 2.3.
Supply-Chain Flexibility; 2.4. Supply-Chain Visibility; 2.5.
Internet of Things and Services. Of the 268 relevant articles
we assigned 106 articles to the scientific evaluation of
collaborative networks in the contexts of the establishment
and implementation of new organization forms. We assigned
209 articles to the sub-topics of End-to-End digital
integration in the context of engineering and production
systems: 3.1. Virtualization of the process chain; 3.2.
Individualized Traced Data; 3.3. Real-Time Operating
Systems; 3.4. Simulation and Modeling of products and
production processes; 3.5. Simultaneous planning of
production and production processes; 3.6. Value Added
Services. Within this research field, Virtualization and
Simulation and Modeling with 69 and 64 counts, respectively,
play an almost equally dominant role, as they are paramount

for an information-based production.
B. Evaluation of Practical Relevance
According to an extensive survey conducted by the
Laboratory for Machine Tools and Production Engineering in
Aachen, over 90% of Managers from the German
manufacturing industry have high interests in resolving the
dilemma between scale and scope and until today, the
establishment of product families is seen to be the primary
mean to do incorporate flexibility into mass production [55].
One Head of Development of a medium manufacturing
enterprise indicated within our interview process, that product
design and development usually represents only 5-10%, but
determines more that 80% of the costs of a product. Hence, the
desired flexibility of a product family must be determined at a
very early stage. However, as the benefit of flexibility is
difficult to quantify, it is generally not included in a classical
investment analysis of new machinery [56]. According to a
survey of the Institute for Industrial Management in Aachen,
the implementation of RMS is mainly hampered by the
following deficits: lack of powerful IT-systems and their
integration with each other, inadequate employee-knowledge
of production processes and lack of change efforts within the
company [25].
41

Fig. 6 Cluster analysis with total number and fraction of relevant articles
The experts we interviewed agreed that decentralized

autonomous systems have very high potential to cope with a
highly complex environment and customized products.
However, to have a significant impact on mass production,
autonomous systems still need considerable research, which is
supported by the technology program Autonomics of the
Federal Ministry of Economics and Technology in Germany.
One of our interview partners predicts that successful
development will lead to emergent self-organization of
production cells. In the context of rapid manufacturing, the
industry experts see great potential but also considerable
obstacles to overcome in order to replace conventional
production technologies. One expert from a small
manufacturing company stated his concern about the warranty
and certification of customized products produced by SFFmethods, as is it not economical to carry out extensive testing
for individual products. For security-related products,
manufacturers still lack experience in terms of product safety
and component failure. As a complement to the popular belief,
an experienced consultant with experience SCM stated, that
although there is general trend towards customized products,
there will always be a dominant mass production of
standardized products designed to fit the wide majority.
In the future, new forms of cooperation will allow to
flexibly allocate production capacity within a value chain. In
order to do so, information needs to be accessible throughout
collaborative networks, which poses a lot of potential for
conflicts. According to an interviewed purchasing expert,
companies usually refuse to disclose information about their
production processes and cost structures to their partners to
maintain a strong bargaining position. However, 45% of all
German manufacturing enterprises adjust their capacity
through outsourcing of jobs [25]. In order to overcome trust
issues, dominant market forces like major OEMs from the

automotive industry need to structure entire value chains and
urge suppliers to share information. One of our interview
partners pointed out, that institutionalized information sharing
among partners often leads to costs. Unless one party sees a
direct benefit, exchange of information often fails due to a
lack of willingness to bear costs, which others benefit from. In
order to exploit the potential of flexible allocation of
capacities within collaborative networks, supply chains need
to be designed for adaptation. According to one of our
interview partners, Industry 4.0 will only work, if machines
can communicate via CPS and commodity flows are tracked
by RFID or similar technologies throughout large sections of
the industry. Particularly RFID-tags impose technological
challenges. An expert for sensor technology states, that
reliable functionality of RFID transponders is impaired in the
presence of water and large amounts of metal.
The level of process-virtualization strongly depends of the
industry and company size as SMEs often cannot afford to
independent units for simulation and modeling purposes. To
overcome the barrier of integrating virtual processes with
series production of products, training and research facilities
like the Demonstrations fabrik Aachen GmbH and
SmartFactory KL e.V. have been formed. One of our experts
in SCM agrees to the hypothesis, that end-to-end virtual
engineering is suitable to find the optimal operating point and
to shorten the time-to-market of new product developments.
Especially for the major OEMs of the automotive industry he
sees enormous potential in global optimization because of
their complex supply-chains and manual production steps.
According to another expert, advanced simulation-software for
virtual prototyping is the major keystone for Industry 4.0 as it
allows to bring down lot sizes from 1000 and more down to
42

one. However, according to a survey of the VDE Association

for Electrical, Electronic and Information Technologies e.V.,
the utilization of advanced simulation tools for virtual
production especially in SMEs remains in the early stages
[57]. A heterogeneous tool environment and insufficient
standards
cumber
the
further
establishment
and
interoperability of systems in German factories. All our
interview-partners agree, that simultaneous planning of
products and production processes has great potential to
improve product quality and decrease time-to market.
Towards implementation there are split opinions: Some refer
to successful projects as others emphasize the efforts required
to coordinate many different parties from different disciplines
in feedback-loops. However, by integrating the development
processes of OEMs and first-tier suppliers, both can benefit
from superior products and long-term collaboration [25].
IV. DISCUSSION
Currently, Industry 4.0 is a popular term to describe the
imminent changes of the industry landscape, particularly in the
production and manufacturing industry of the developed
world. Yet the term is still used in different contexts and lacks
an explicit definition. In this article, we assessed three
different research topics affiliated with Industry 4.0 and
employed a cluster analysis to assign sup-topics. We
contribute to the emerging field of production research by
illustrating the interlinks between very different research
areas, usually examined individually. We illustrated this using
the example of CPSs, for which collaborative networks are
antecedents and a necessary consequence likewise as data can
be and has to be acquisitioned and shared throughout the
supply-chain for full exploitation. Especially for companies in
the western automotive, machine and plant industry it will be
important to offer customized products that are superior in
quality and competitive in price. This can be achieved by
intelligent automation and reorganization of labor within the
production system. In the near future, labor work will change
in content but will still remain irreplaceable, especially in
view of customization resulting in an increasing need for
coordination. Operators on the shop-floor need to be skilled in
decision making as the separation of dispositive and executive
work voids. Self-controlling systems communicate via the
Internet and human, which alters the role of workers towards
coordinators and problem-solvers in case of unforeseen
events. To implement the changes of the impending industrial
revolution, the German industry can rely on a well-founded
technological basis supported by a wide network of excellent
research facilities as well as established training centers.
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