On Your Mark, Get Set, Go - To Industry 4.0

July 2017

The arrival of Industry 4.0, or the fourth industrial revolution, signifies the next era in manufacturing in which plants, processes, products and people come together in an entirely new way and blur the line between the digital and physical. 

Borne out of a confluence of technology disruptions—including Big Data, analytics, the Internet of Things, and artificial intelligence—Industry 4.0 ultimately hinges on the ability to integrate data with physical processes. The growth of smart factories has the power to transform the entire manufacturing landscape in many ways. But two of the most important transformations to watch are the changing roles of human operators as a result of automating and decentralizing monitoring and decision-making in factories, as well as the emergence of new security risks on factory floors and in products.
 

“Just as a contractor wouldn’t build over a cracked foundation, manufacturers must be certain they have the right building blocks in place to implement advanced technology in their operations and products. Moving too quickly without establishing the right infrastructure and business intelligence systems could put companies on shaky footing later.”

2017-Manufacturing-RFR-headshots_Yavar.jpgEskander Yavar
National Leader of BDO’s Management Advisory Services Practice

 


 

Brick by Brick: Building A Next-Gen Strategy

Implementing and maintaining systems that preserve the integrity of production processes without the same level of human oversight remains one of the main challenges to Industry 4.0 implementation. If the underlying data or analysis has errors, the automated decision-making based on that data will also be error-prone. More than ever, it will be imperative to ensure data is clean, accurate and accessible as part of an overall information governance strategy. 

Industry 4.0 is already enabling an evolution in product design and speed to market. Additive manufacturing and rapid prototyping techniques are fueling a “fail fast” mentality, more complex designs, smaller parts and less waste. These changes coincide with a shift in demand from standardization to customized products and modular manufacturing. And manufacturers seem to be feeling the pressure to keep up. This year, more than 9 in 10 (93 percent) manufacturers worry about slowing demand for their products, up from 88 percent last year. 

BDO’s recently released 2017 Global Risk Landscape study shows U.S. manufacturers aren’t alone in their challenges keeping up with rapidly shifting customer demands, but they do feel outsized pressure. Compared with 82 percent of the U.S. manufacturers we analyzed, 72 percent of global companies surveyed across industries ranked failure to innovate and meet customer needs as one of the top risks for which their business is unprepared.

More than 9 in 10 (94 percent) companies cite risks related to executing corporate strategies, like growth, cost reduction or the improvement of efficiencies. The number of manufacturers mentioning strategic challenges has increased 27 percent over the last four years, suggesting companies could be facing challenges while building long-term strategies that address disruptions to their business models, products and processes.  

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Byte by Byte: Strengthening Cyber Defenses

Arguably, the biggest challenge to implementing Industry 4.0 is cybersecurity. The integration of new cyber-physical systems creates more potential access points for bad actors, leading to an entirely new set of security risks on factory floors and in products themselves. 

Cybersecurity broke into U.S. manufacturers’ top five risks this year with 96 percent citing potential security breaches in their filings. That represents a 50 percent jump from just four years ago, when 64 percent of manufacturers mentioned them. For manufacturers, data breaches don’t always target customer data; intellectual property theft is often a top motivator for hackers. Our analysis found 69 percent of manufacturers cite copyright or intellectual property risk in their disclosures. 

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It’s no surprise that cybersecurity is now fully on manufacturers’ radars. According to IBM Security, ransomware attacks, which target critical data and information systems for the purposes of extortion, rose by 6,000 percent in 2016. Not only are attacks growing more frequent, but they’re also reaching unprecedented magnitudes. In mid-May, news broke of a massive global cyberattack, dubbed “WannaCry,” with more than 75,000 ransomware attacks in 153 countries, and an estimated 3,300 infections in the U.S. Manufacturers often have complex networks and a vast array of Internet-connected devices and machinery, which put them at risk for these types of attacks. And there’s also the human element: spear-phishing attacks rely on users to open fraudulent emails and attachments, and the WannaCry attack succeeded because many users failed to install a months-old Microsoft patch. 

The average cost of a data breach in 2016 was $4 million, according to IBM and Panemon. And beyond the financial fallout, companies can experience significant reputational costs in the aftermath of a breach if trust in their brand falters as a result. The number of companies citing threats to their brand reputation and image has tripled since 2013, with almost three-quarters (72 percent) mentioning the risk this year. 

On the bright side, the prevalence of cyberattacks has shifted the dialogue around how companies approach cybersecurity protections. It’s no longer about if your company will experience a breach, but when. As companies become more reliant on information systems and operational technology, the focus of cyber strategy is shifting from prevention to defense. 

Data from our 2017 MPI Internet of Things Study suggests manufacturers still have room for improvement in their cybersecurity protections, and some could even be overconfident. The majority (81 percent) of manufacturers surveyed globally say they’re confident in their current cyber risk management program’s ability to address security concerns in the increasingly connected manufacturing environment. Yet more than a quarter (27 percent) said they don’t have or are not sure if they have a security policy in place for their supply chain partners and other vendors. 

As manufacturers shift to more connected manufacturing operations, security must be considered and embedded into products from design to distribution and everywhere in between. Manufacturers need to build a forward-looking cybersecurity framework that considers the evolving threat environment and cyber risk throughout the entire supply chain. To achieve that, investments should prioritize proactive threat intelligence, detection and rapid response. 
 


“With the nation’s eyes on the manufacturing industry, companies can’t afford to take chances with their cybersecurity measures. It’s safe to assume a breach is always a possibility, so to avoid manufacturing interruptions, losing valuable intellectual property and taking a reputational beating in the event of a cyberattack, manufacturers should regularly test their incident response plan to ensure it’s ready to deploy at a moment’s notice.” 

2017-Manufacturing-RFR-headshots_Riggi.jpgJohn Riggi
Head of BDO’s Cybersecurity and Financial Crimes Practices