Industrial Internet:

Putting the vision into practice

Industrial Internet business models

for machine and component manufacturers

What Industrial Internet & Industry 4.0

mean
The benefits of connecting
Industrial Internet projects in practice
New business models for the specific
example of maintenance

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 Contents

3 Introduction

4 The Industrial Internet – The Internet of Things in

production and logistics

5 Potential for machine and component manufacturers

5 The Industrial Internet and the opportunities it offers
6 The Industrial Internet starts today

7 Practical implementation of the Industrial Internet

7 Industry 4.0 innovation cycle
9 Industry 4.0 product features
9 Gaining knowledge through data analytics

12 New business models for maintenance

12 The magic triangle

14 Summary

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 Introduction

The terms Industry 4.0 Industry 4.0 or the Industrial Internet is more than just a vision of the future.
and Industrial Internet
Using current technologies to connect physical objects to the virtual world
are used as synonyms in
this white paper. is already yielding new business models. Machine and component
manufacturers have an opportunity to drive forward their service business
and secure their own personal competitive edge.

One potential first step is to expand and optimize services that already
exist. By equipping machines and components with Industry 4.0 features
and connecting them, companies can lay the foundation for collecting
whatever field data they wish and aggregating it in a central location. Near
real-time processing of this data enables rapid detection of faults and
deviations, which means corrective action can be taken immediately. In
addition, the accumulated data serves as a basis for new services – by
applying data analytics, new insights can be acquired and subsequently
transformed into new services. The example of predictive maintenance
offers a particularly potent illustration of the principles and benefits of the
Industrial Internet.

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 The Industrial Internet – The
Internet of Things in production
and logistics

Fifteen years have passed since Kevin Ashton, co-founder of the Auto-ID
Center at the Massachusetts Institute of Technology, first coined the term
Internet of Things (IoT). Today, this concept is acknowledged worldwide as
one of the key innovation drivers in the business world. The new
generation of the internet connects physical objects with the virtual world.
The result is a global network of sensors, machines, and products that
gives companies access to an unprecedented range of internet-based
services offering extraordinary potential.

Exchange of up-to-date The Internet of Things offers tremendous potential for the manufacturing industry.
information in near real time Machines, systems, products, ICT systems, and people can be progressively connected
helps boost efficiency over the internet, creating a production network in which information carriers communicate
throughout the value creation with each other and exchange data and information in near real time. In terms of the value
process. chain, this means value creation partners – from suppliers to customers – are more tightly
connected and capable of entering into closer cooperation with each other. The exchange of
up-to-date information offers an opportunity to improve the quality and timeliness of
decision-making processes, optimize the coordination of activities, and boost efficiency
throughout the entire value creation process. This, in turn, provides machine and
component manufacturers with the chance to offer their customers new services.

Experts refer to this penetration of the internet into the manufacturing sector as the fourth
industrial revolution, or simply Industry 4.0 (in the German speaking countries) or the
Industrial Internet in the English speaking world. There is broad consensus that the
incorporation and application of Industrial Internet technologies will lead to significant
productivity gains and spur on growth. The future will see a shift away from separately
demarcated product lines and factories to a situation in which machines, storage systems,
and resources are interconnected worldwide as cyber-physical systems that can
communicate with each other.

The term Industry 4.0 or Industrial Internet refers to, the fourth paradigm shift in
production, in which intelligent manufacturing technology is interconnected. The
first three were mechanization (steam engine), electrification (conveyor belt), and
computerization (programmable logic controller / PLC).

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 Potential for machine and
component manufacturers

The increasing interconnection of production and the internet offers a

wealth of potential economic benefits, particularly for machine and
component manufacturers. By connecting their products and expanding
their range of services to include novel software solutions, they have an
opportunity to leverage new market potential, compete effectively, and – in
the best case scenario – gain a measurable edge over their competitors.

The Industrial Internet and the opportunities it offers

It is possible to achieve The service business plays a key role in the context of the Industrial Internet. To combat
margins in the service dwindling service revenues – primarily attributable to increasing standardization in the spare
business that are five to ten parts business – machinery manufacturers need to develop new business models. One fact
times higher than those is clear: the services offered by traditional machinery manufacturers are typically the most
obtained from simply selling a lucrative side of their business. According to the study "Service Business Development:
machine. Strategies for Value Creation in Manufacturing Firms" prepared by the University of St.
Gallen in 2012, the service business can generate margins that are five to ten times higher
than those obtained from simply selling a machine.

New technologies such as remote access and data analytics are prompting the required
focus on the service business. By connecting their machines in the field, companies can
access machine data during real-time operation. Intelligent evaluation of this data can offer
new insights into issues such as what works in the field? And what functions might lead to
faults in the field? These insights can provide a basis for developing needs-based services
and applications and optimizing product functions for real-life use, which, in turn, has a
positive impact on the product price.

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 The Industrial Internet starts today

In practice it is often difficult to know where to start when it comes to implementing the
Industrial Internet. Will new, innovative applications and services genuinely provide
significant added value? And when does it become worth investing in an Industry 4.0
project? Typically there are a multitude of different ideas within a company on what
approach to take – and no defined strategy on how to proceed. One of the key challenges
is to recognize that the implementation of the Industrial Internet is not a linear process. In
many cases, new business potential will not become apparent until an Industry 4.0 project
is well underway, or even after it has finished. Numerous opportunities may arise, and the
consequences of each of these are difficult to assess. It is therefore sometimes necessary
to make a major investment in an Industry 4.0 project without having a clear initial estimate
of profitability because the component or machine manufacturer is entering unexplored
territory with their innovation.

Equipping machines with One practical and feasible first step into the world of the Industrial Internet for component
sensors and software is a and machine manufacturers is to expand and optimize their existing services. Equipping
practical first step into the components and machines with sensors and software makes it possible to automatically
world of the Industrial collect a diverse range of field data. By connecting components and machines, data can be
Internet. retrieved in near real time and gathered in a central location. In most cases, the knowledge
required to interpret this data is already available within the company. This know-how can
be modeled as rules and applied to the data automatically. Information previously obtained
directly from the respective components and machines on the shop floor can now be
visualized and monitored on a single platform using software.

This creates a tremendous degree of transparency. All the data is made available in an
application-oriented format, making it much easier to identify faults or deviations and
determine their exact nature. The result is a significant reduction in response times.
The ability to read the status of machines and production processes at any point in time
and take targeted action when something goes wrong already constitutes a major
improvement to a company’s service business and a boost in its market position. But
manufacturers can go one step further by applying data analytics, allowing them to prepare
and analyze the accumulated data in order to transform new insights into concrete
services. To reach this stage, it is necessary to equip products with sensors or software to
generate the data required in the first place. This stock of data serves as a basis for making
decisions on which services will be profitable and should therefore be provided by the
company concerned.

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 Practical implementation of the
Industrial Internet

Machine and component manufacturers have no time to waste because

they are already in a position to implement value-adding services based on
their existing service business. The Industry 4.0 innovation cycle shows
how companies can make the best start and what concrete development
process they should pursue in order to introduce new, useful services and
continuously improve them.

The Industry 4.0 innovation cycle illustrates the concrete

development process

. The continuous process of developing an existing business toward new services in the
Industrial Internet is illustrated by the Industry 4.0 innovation cycle. The innovation cycle
comprises three phases that a company passes through in one continuous process. It is
also possible to carry out the phases in parallel.

The Industry 4.0 innovation

cycle helps promote ongoing Product
business development. Features

New Data
services analytics

Figure 1: Industry 4.0 innovation cycle

Product features phase: The purpose of this phase is to equip the products (machines
and components) with Industry 4.0 product features. These include sensors, actuators, an
information processing system and machine-level software applications. In addition, the
product must be connected in the field so that it can be accessed. The goal of this phase is
for the product itself to generate data relating to its status and operation, to process this
data on a product level, and to take any necessary action.

Data analytics phase: Equipping products with Industry 4.0 features makes it possible to
collect many different types of data that can be generated and recorded by the products
themselves. The purpose of this phase is to glean new insights from the accumulated data
by applying data analytics. This provides a useful basis to assist in developing new
services.

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 New services phase: The goal of this phase is to introduce new, useful services. The
knowledge acquired in the previous phase can be used to derive new services for
customers.

Modern process quality management without Industry 4.0

A manufacturing environment features a multitude of processes that take place in parallel.

The quality of each process – such as a welding stage – has a direct impact on the quality
of the final product. If a process is not carried out in compliance with the quality
requirements, parts have to be reworked or scrapped. The later a quality issue is identified
in the manufacturing process chain, the higher the costs incurred.
Process quality management aims to improve this situation by monitoring all processes to
ensure that they meet the stipulated criteria in each case. If a process deviates from the
specifications, immediate action needs to be taken in order to minimize – and ideally
prevent – any lapses in quality. Many components and machines in modern manufacturing
facilities already come with localized process quality monitoring systems. The results are
viewed directly on the display provided on each individual component or machine. If a
problem occurs, the operator sees the information on the screen (assuming he or she is
physically present at the machine) and initiates the appropriate steps required to correct it.

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 Industry 4.0 product features

Sensors, actuators, and In order to use a product – generally speaking, a machine – in an Industry 4.0 environment, it
tailored software enable has to be equipped with certain features. These include sensors, actuators, an information
machines to be used in an processing system, and customized application software. The product also requires a
Industry 4.0 environment. network interface to provide it with a wireless or wired network connection in the field.
As well as ensuring these product features are in place, it is also necessary to set up a
secure remote access to enable secure communication between the machine or component
in the field and the supplier’s system.

Machine manufacturers that offer this kind of product must clearly define the corresponding
access rights. Any remote access must be approved by the machine operator or user, who
has the ability to explicitly allow or refuse access in regard to both timing and duration. In
some cases it may also be necessary to control components or machines using actuators. In
principle, it is also possible to use remote access to install software updates, configure
machine parameters, and even put machines into operation. That’s why it is so important to
clarify and clearly define control-level access rights. Once the required system of access
rights is in place and the product is generating the required data, the task of optimizing
existing services can begin.

Example: Innovative process quality management with Industry 4.0

Process quality management is a good example of how existing services can be optimized:
Equipping products with the required Industry 4.0 features enables companies to take a
centralized view of quality data drawn from a production process. An automated data
analysis system can identify deviations in the production process and immediately inform the
service operator, so the problem can be remedied without delay.

The next step: gaining knowledge through data analytics

As well as enabling the optimization of existing services, access to machines also opens up
the possibility of collecting large quantities of data. It is important to clearly stipulate that data
should be collected in order to meet the objectives in each case. Goals may include reducing
maintenance costs by slashing the number of call-outs or reducing the cost of deviations in
the manufacturing process, to name just two examples. The accumulated data consists of
both historical and current data and forms the basis for the next step – data analytics.

It is important not to underestimate the quantity and complexity of the data acquired in the
first stage. A multitude of sensors, components, and machines will typically produce
enormous quantities of data, a phenomenon often referred to as big data.

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Volume, velocity, variety – the Big data is a term for data sets so large, dynamic, or complex that they cannot be
three Vs that define big data. handled by traditional data processing applications. The definition provided by
industry expert Doug Laney – which states that big data is characterized by the
three Vs of volume, velocity, and variety – has become widely accepted by experts. The
three Vs refer to the steady increases in data volumes, the high speeds at which data is
transmitted (and, above all, generated), and the diverse formats in which data presents itself.
Often, however, the term big data is also used as shorthand for the compilation of
technologies that are required to analyze these large volumes of data, such as data
analytics. It is important to remember, however, that good results in the Industrial Internet do
not necessarily depend on the quantity of data involved, so it is important to check whether
big data technologies are actually required in each individual case.

Data analytics is essentially a means of modeling and acquiring knowledge. The goal is to
recognize patterns in data and develop predictive models on that basis. A pattern is a
representation of an event in the form of data or a series of events in the physical world. In
the context of data analytics, a distinction is made between descriptive and predictive
analytics. The aim of descriptive analytics is to condense data and identify patterns. These
patterns then form the basis for predictive analytics. By drawing on a number of different
techniques – statistical methods, modeling, and machine learning, for instance – it is
possible to predict what may happen in the future, such as forecasting the probability that a
certain event or situation will occur. In order to predict events, the current flow of data is
analyzed to detect known patterns. If part of a pattern is identified, then it is possible to
predict how likely it is that the rest of the pattern will occur, and thus a certain event in the
physical world. In an ideal scenario, the newly acquired information can be used to help
automate decision-making processes.

Example 1: Improving process quality

Process data analysis Analyzing process data makes it possible to identify deviations in quality within a
provides transparency and manufacturing process by identifying previously unknown patterns. Instead of a binary view
minimizes the cost of faults of process quality as either good or bad, this technique enables quality trends to be depicted
and scrap. in a much more subtle and differentiated way. The user obtains comprehensive insights into
the quality of production processes and is able to identify trends in quality over time and
react to problems before a fault actually occurs.
This detailed form of data analysis has an additional benefit: in cases where no process data
analysis is performed, some faults and deviations pass through the entire process without
being detected and are only discovered at a later point in time. Greater transparency
therefore helps manufacturing companies to reduce the cost of both faults and scrap. In
addition, trends can be analyzed to pinpoint the best ways of optimizing how the machine or
component is used.

Example 2: Analyzing machine data to detect wear at an early stage

Data analytics can be used to Another example of how data analytics can be used is in the management of wear parts – an
obtain accurate predictions of application that shows how connecting objects to the virtual world can offer extraordinary
when a wear part will need to benefits in the context of maintenance. The goal of any manufacturing company is to keep
be replaced. wear parts in operation for as long as possible in order to get the most out of their service life
and reduce the use of materials. Two main types of maintenance are currently established in
industry – reactive and preventive. In reactive maintenance, machines and components are
only repaired when technical problems arise, with the resulting downtimes typically racking
up significant costs. In contrast, costly wear parts are normally replaced at predefined
intervals. This is a form of preventive maintenance in which parts are typically replaced more
frequently than necessary, with the consequent waste of manpower and material resources.

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 By developing a suitable predictive model using data analytics, it is possible to determine the
best time to replace a wear part based on machine or process data. As well as saving time
on service and maintenance by reducing the frequency with which wear parts are handled
and replaced, this strategy also reduces the use of materials. The more of these critical parts
there are on a production line, the greater the savings that can be achieved in the
maintenance arena. At the same time, this approach reduces unplanned downtimes to a
minimum by identifying wear part failure at a sufficiently early stage.

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 New business models for
maintenance

One example of an intelligent In the future, machinery and component manufacturers will once again be able to generate
connection between a product bigger margins in their service business. The connection of a product and a service opens up
and service is optimized new business models that can be continuously adapted to changing customer requirements
condition monitoring with a and user expectations. One example is optimized condition monitoring with a corresponding
corresponding service service agreement. This involves monitoring components and machines via remote access
agreement. and automatically triggering servicing and maintenance work where required. The recorded
data is analyzed by the service provider in order to identify patterns that could indicate that a
part is about to wear out or a machine is at risk of imminent failure.
This type of service paves the way for predictive maintenance. Machine condition data
provides insights into deterioration and potential failure, while process data allows
conclusions to be drawn on a machine’s condition and the service or maintenance required.
For example, deviations from the stipulated cycle time could indicate that the machine
settings are suboptimal.

Connecting products and equipping them with suitable sensors, actuators, and software is an
essential prerequisite for this kind of business model. Once access to the machines has
been facilitated, traditional services such as reactive maintenance management can be
offered in an optimized format. This kind of service provides detailed information on faults
and deviations and comprehensive documentation of action taken. The manufacturers
themselves benefit from these new business models because predictive maintenance
enables them to order spare parts just in time, avoiding unnecessary storage costs.

The magic triangle illustrates a predictive maintenance business

model

Who, what, how, revenue: a There is no doubt that companies will be able to generate revenue in the future with new
tangible business model business models based on existing Industry 4.0 technologies. But what form could this kind
based on predictive of integrated business model take in the field of predictive maintenance? The magic triangle
maintenance. developed by St. Gallen University gives a vivid illustration of how this kind of project could
be developed in practice. The model defines four dimensions of predictive maintenance –
who, what, how, and revenue – to take into account both in-house and external factors and
create a comprehensive picture of all the issues involved.

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 Source: University of St. Gallen / ITEM-HSG (2012)

Figure 2: Magic triangle

The first question – Who? – is easy to answer. Machinery and component manufacturers
and component developers would direct this kind of business model at their existing
customer base and new customers. Typically these customers would be industrial
manufacturing companies, in other words users of machines, systems, and components.

What exactly is offered to the customer? Predictive maintenance enables the machine
manufacturer to determine at an early stage when maintenance should be performed at the
customer site in response to an imminent machine malfunction. That enables machine
manufacturers to offer their customers new services, such as guaranteed machine
availabilities, while simultaneously reducing their own resource consumption. As well as
assigning fewer employees to preventative maintenance tasks, the machine manufacturer
also benefits from the fact that they only have to replace spare parts when there is a high
likelihood of imminent problems. At the same time, users benefit from minimized downtime
and a correspondingly higher production output.

The answer to the next question – How? – is that the current machine condition is recorded
using sensor technology and automatically checked for patterns. This allows possible
malfunctions to be detected at an early stage and machine failure to be averted.

Predictive maintenance All of these factors put together provide the added value or revenue for the machine
services can help manufacturer – they are able to add new services to their existing portfolio in order to create
manufacturers improve an additional ongoing source of income. In addition, manufacturing companies save money
customer satisfaction. thanks to the optimization measures. This provides another direct benefit to the machine
manufacturer because the boost in customer satisfaction safeguards their business and
helps the machine manufacturer stand out from the competition. A further advantage is that
predictive maintenance requires remote access to machines and systems. This enables
maintenance work to be carried out from a distance, which has a positive impact on the
manufacturer’s margins in the service business.

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 Summary

When it comes to the Industrial Internet, many manufacturing companies

are waiting for a game-changing key technology to emerge – yet the
increasing interconnection of production and the internet offers plenty of
tremendously promising potential right now. Optimization of existing
services is already yielding new business models, especially for machine
and component manufacturers. The only step required to apply these
models is to make products and systems Industry 4.0-ready by
incorporating sensors, actuators, and information processing software.
Once these foundations are in place, machine and process data can be
analyzed and optimization measures implemented on the basis of this
analysis. Predictive maintenance is just one example of the numerous
possible applications of Industry 4.0.

In the long term, machine and component manufacturers will benefit from
increasing customer satisfaction and higher turnover thanks to the
continuous development of their service models. This will provide them with
a means of distinguishing themselves from the competition and securing
their long-term future.

Produced with the kind support of Deutsche Messe Interactive.

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