In the age of absolute digital transformation, not transforming is perhaps the greatest risk of all. Everything else can be managed.

Just getting used to Industry 4.0? Here comes 5.0.

By most accounts we are mid-way through Industry 4.0, the Fourth Industrial Revolution that has brought together data analytics, AI, robots and cobots, interconnected devices, and fast networks to create the “smart” factory known for its increased productivity and reduced waste. By 2020, Industry 4.0 is expected to bring an average cost reduction of 3.6% per year across process industries worldwide, translating to $421 billion.1 But even as we marvel at the speed and efficiencies gained by 4.0, Industry 5.0 is looming large on the horizon.

Most industrial machinery and processes have gradually been shifting from analogue to digital for years now. But Industry 5.0 represents the absolute digitization of manufacturing, a scenario in which a totally interconnected system provides and acts on data in real time, allowing for real-time, completely data-based decision-making. Experts are predicting that Industry 5.0 will be about taking the customer experience to the next level, giving each customer the ability to customize and personalize their individual experience. In fact, 61% of industrial products manufacturing executives are expecting to see a greater focus on customer experiences than on products in the near future.

Transformation is not an option

It’s hard to know the exact point at which 4.0 will become 5.0, but whatever number you give it, the digital revolution has transformed—and is continuing to transform—the face of manufacturing. Transformation is no longer an option. It is the future, and it holds great promise for those who can get on board. Those who don’t adapt will find themselves left behind.

According to KPMG’s latest Global Manufacturing Outlook report, two-thirds of manufacturing CEOs say they are prepared to lead a radical transformation of their organization’s operating model. Transformation involves a ground-up rethinking of all aspects of the business, everything from embracing disruptive technologies, to nurturing a culture of innovation, to developing new employee competencies. Agility is the key to success in this brave new world.

Download “The Skills Gap and Training For The Future of Manufacturing” to find out the implications of the skills gap in the manufacturing industry, and how simulation-based training can help.

A way to differentiate and add value

A 2016 KPMG survey found that nearly 60% of manufacturing executives listed the economy as one of the top five factors affecting their company’s performance. Only about 44% listed disruptive technologies in the top five, and only 34 cited data and analytics.

The economy may in fact be the single biggest factor affecting performance, but you can’t control it. So the question becomes, how can manufacturing executives influence performance? Where can they add value?

The answer is through transformation, with the emphasis on digital technologies. Manufacturers can positively differentiate their organizations by embracing leading-edge technology. “If you’re not pursuing tech,” says Douglas Gates, Global Chair of Industrial Manufacturing at KPMG, “know that others are using robotics, AI, machine learning—even 3D printing or advanced materials—to supplant [you].”

Data analytics, artificial intelligence, advanced robotics, augmented reality and other emerging tech, combined with the connective power of the IoT, represent tremendous opportunities for growth.

Download “The Skills Gap and Training For The Future of Manufacturing” to find out the implications of the skills gap in the manufacturing industry, and how simulation-based training can help.

Transformation can be daunting, so executives need a plan

It’s little wonder that many organizations are intimidated by the idea of total transformation. Some companies have invested huge amounts in new tech but have yet to see results. The timelines can seem long, the ROI elusive, and the whole process overwhelming. Nevertheless, 95% of CEOs report that they see technological disruption as an opportunity rather than a threat. In fact, between 2016 and 2020, investment in digital operations solutions by the industrial manufacturing sector was expected to be $177 billion.

Manufacturing executives must develop a digital transformation strategy. The key is “to identify and follow the value.” Start small and work incrementally, beginning with moves that will create near-term value (“quick wins”) while simultaneously laying the foundation for future opportunities by creating the necessary interconnectivity and access to data. Always, executives must be thinking about how digitization can be applied in new ways to unlock previously hidden value.

Interestingly, KPMG says that those who use digitization to enhance their product or service will be the biggest winners, rather than those who just use it for greater efficiencies. Even so, “executives must strike a difficult balance between traditional cost-efficiency measures…and bold action to change business models and drive long-term revenue growth.”

Risk management is part of the plan

While investment in technology is a major part of transformation, industrial companies must also enable new ways of working in order to ensure the smooth running of operations and see that production output and plant reliability goals are met. In other words, the other side of the transformation coin is looking at new ways of risk management in manufacturing.

Manufacturing executives need to identify their organization’s high-risk areas and plan to mitigate any crises that may arise. Manufacturing Tomorrow magazine identifies that manufacturers will face risk in six main areas: supply chain, operations, digital information, talent, regulatory compliance, and reputation.

Three of these risk areas—specifically operations, supply chain, and talent—can benefit from another newer technology: computer simulation training. Let’s look at how simulation-based training can enhance risk management in manufacturing.

Risk management through simulation training

  1. Supply Chain Risk

According to IBM, the stages in the traditional supply chain most likely to be affected by emerging tech are shipping and receiving, environmental health and safety, maintenance and reliability (including predictive maintenance and overall equipment efficiency), inventory management, order invoicing, and business finance; manufacturing, warehouse management, and quality management.

Simulation-based computer training can be used for risk management in manufacturing settings in many of these areas. In nearly all of these stages, manufacturers are relying increasingly on high-tech machines with complex electrical components that are ever more interconnected with each other. And it’s only going to become more intense as Industry 5.0 arrives. One machine failure can cause ripples all along the supply chain, preventing managers from delivering on commitments to their end users, and hurting plant reliability.

  1. Operations Risk

Operations risk refers to any kind of disruption to normal facilities and operations, ranging from natural disasters to ordinary equipment failures. Managers should plan for these events in order to mitigate their effect on operations. Companies should run drills to ready themselves in case of disruptive events such as disasters.

Equipment failure is far more likely than disasters, and the resulting downtime may be just as costly over the course of time. The double-edged sword of Industry 4.0 is that while machines have become smarter, it also takes maintenance professionals who are much more highly skilled to fix them because of the electrical components. A second reality is that, while efficiencies have resulted in higher production numbers than ever, every minute of downtime is far more costly than it used to be, and eat into the high production goals that managers are now responsible for maintaining,

It’s critical that maintenance staff know exactly what to do when production line equipment goes down. Simulation-based troubleshooting training teaches maintenance professionals a systematic method for finding and repairing electrical faults in a completely safe, hands-on environment. They no longer have to use trial and error (which usually means replacing costly parts that don’t need to be replaced). They can repair the machines quickly, effectively, and accurately, minimizing downtime, saving the organization money, and helping managers meet their production targets.

  1. Talent Risk

The current talent shortage is well known. Experienced maintenance staff are retiring in droves, but new graduates are not being taught the skills necessary for troubleshooting electrical faults effectively. And yet, the smarter factories become, the more skilled the maintenance professionals are required to be. One way around this conundrum is to equip one’s own maintenance professionals with the skills they need to keep operations running smoothly.

Skills training has another benefit as well; upskilling lowers staff turnover because it gives employees a sense of accomplishment and pride, and boosts confidence, thereby improving staff morale.

In order to optimize risk management in manufacturing, executives must anticipate skills shortages, plan for the future, and train employees proactively so that the talent shortage doesn’t leave them high and dry.

Transforming the future of manufacturing

Transformation is a bold move, but a necessary one. Staying ahead in industrial manufacturing means having the vision to exploit disruptive technologies in creative ways, and looking at new ways of working in order to fully benefit from industrial digitization.

At the end of the day, it’s important to remember that employees are just as central to transformation as technology. “Successful transformation is all about people,” says Erich Gampenrieder, Global Head of Operations Advisory for KPMG International. “You need to invest in people and create an innovative mindset, involving training and enablement. These elements are more important than implementing the technologies. If people don’t get excited about transformation, it won’t be successful.”


  1. PWC. (2016). Global Industry 4.0 survey: Industry 4.0: Building the digital enterprise.
  2. Rossi, B. “Manufacturing gets personal in Industry 5.0.” Raconteur, March 7, 2018.
  3.  IBM. (2018). Industrial Products: Incumbents Strike Back. Global C-suite Study, 19th ed.
  4. KPMG International. Global Manufacturing Outlook: Transforming for a digitally connected future.
  5. KPMG. (2016). Manufacturing innovation: Manage where it matters.
  6. Statista. (2018). “How high are your company’s current and future investments in digital operations solutions?”
  7. IBM. (2018). The Six New Competencies Industrial Companies Need on Their Path to Digitization.
  8. “Staying Ahead of the Curve: Mitigating Manufacturing Risks in 2018 and Beyond.” Manufacturing Tomorrow, November 28, 2017.
  9. KPMG. “Machines augment workers.”

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