THE FOURTH INDUSTRIAL REVOLUTION AND THE INDUSTRY 4.0

1. INTRODUCTION: INDUSTRIAL REVOLUTIONS

A careful look at History will show us that the moments of crisis have always driven changes, innovations and inventions. We are going through one of these moments, when a global pandemic made us question processes, the way we work, the tools we use, in order to break paradigms and seek a new productivity level. We have even innovated the way in which we organize ourselves, with the purpose of breaking the technological barriers that dictated the rules in force since the third industrial revolution.

The first industrial revolution (Industry 1.0) took place in the 17th century and it was led by Great Britain, provoking economic development through industrial production and establishing the capitalist system. This change milestone was the steam usage to move industrial machines, replacing part of the human labor in the production activities.

The second industrial revolution (Industry 2.0) took place in the 19th century, characterized by new mass-production techniques and, above all, by the invention and usage of electric energy and the combustion engine.

The third industrial revolution (Industry 3.0) occurred in the middle of the 20th century and we still live under its effects. There was a great advance in electronics, nanotechnology, information technology and robotics (“Silicon Revolution”), generating automobile production lines, the development of genetic engineering and biotechnology and, still, the search for the usage of new energy sources, with greater interest in those renewable and more sustainable. Consequently, the globalization took place and with it, the massification of products.

Although not everyone has noticed, we are in the middle of the fourth industrial revolution. The industry has appropriated the available means and the State of the Art, in terms of innovation and technology, applying them throughout its value, logistics and production chains, in continuity with what has been happening over the last centuries, since the first industrial revolution. This technological arsenal includes the Internet of Things (IoT), cloud computing, automation, robotics, big data, data capture and exchange, drones, artificial intelligence, machine learning, virtual and augmented reality, additive manufacturing, concepts of cyber-physical systems, among many other technologies and innovations that are generating increasingly intelligent machines, robots and equipment. These machines are capable of being programmed to learn, performing more complex functions that, until recently, we believed could only be made by the human brain.

It consists of a new “quantum leap”, establishing a new standard and allowing us to reach complex levels of automation and artificial intelligence, generating the “smart factories”. The objectives of this massive movement include substantial gains in productivity and significant cost savings along the value chains.

At the center of that, there is an increasing interest in satisfaction and experience or, to use a more current and comprehensive term, “Customer Journey”.

It is enough to look at the most successful companies, whose shares have shot up in the past five years, as well as the “unicorn” companies. The customer centering has been a strong characteristic of these organizations, covering their products’ entire life cycle or the provision of services to customers — pre-sale, sale and post-sale stages — the latter being the one in which the loyalty has been notably this commitment culmination.

2. WHAT IS INDUSTRY 4.0?

According to Wikipedia, Industry 4.0 is a term used to describe the fourth industrial revolution. Industry 4.0 “facilitates the vision and execution of ‘Smart Factories’, with their flexible and modular structures, which allow the modules to be coupled or decoupled, according to the expected demand. Cyberphysical systems monitor physical processes, create a virtual copy of the physical world and make decentralized decisions. Finally, it is possible to state that Industry 4.0 is the reality in which the industrial technology is increasingly efficient: smarter, faster and more accurate”.

The term “Industry 4.0” originated in a high-tech strategic project, conducted by the German Government, which promotes the manufacturing computerization, and it was used for the first time at the Hannover Messe Fair in October 2012.

As it could not fail to be, Industry 4.0 created a cultural break and promoted a change in the companies’ mindset, bringing the Supply Chain 4.0 in this context. This is a substantial impact on logistics and supply of inputs — including transport, storage and inventories — in addition to greater speed, flexibility, efficiency and accuracy of operations.

McKinsey's article “Supply Chain 4.0 — the next-generation digital supply chain”, from June 2016, already highlighted the model of its “Digital supply chain compass”, mapping the improvements in the Supply Chain 4.0, considering the six main value-boosting levers:

• Planning;
• Physical flow;
• Performance management;
• Management of requests;
• Collaboration;
• Supply chain strategy.

Figure 1 - Digital supply chain compass - McKinsey

Source: McKinsey (2016)

With the application of these levers, what is impressive is the cost reduction expectation that Supply Chain 4.0 provided, in the basic, advanced and visionary (more aggressive) scenarios, as shown in the following figure.

Figure 2 - Potential gains from the implementation of Supply Chain 4.0 levers

Source: McKinsey (2016)

3. INDUSTRY 4.0 IN THE WORLD AND IN BRAZIL

Many structured modular construction operations are experiencing strong activity and growth worldwide, notably the United States, Canada, the United Kingdom, Germany, France, Australia, China and Japan. Many of them are already influenced by or on their way to Industry 4.0.

As a primary example, it is worth mentioning Katerra, the largest construtech in the world, based in the USA and operating through Japanese financing. It is a giant operation, founded in 2015 by Michael Marks, along with Jim Davidson — also founder of Silver Lake — and Fritz Wolff, a real estate specialist and the only one with experience in the construction industry. Marks was the operation CEO until May 2020 and, before that, he served as CEO at Flextronics for 13 years, having also been CEO at Tesla.

In January 2018, the company received an investment of US$ 835 million from Softbank. Katerra also raised US$ 1.2 billion in venture capital investments and today it has more than US$ 3 billion in its project portfolio, mainly composed of multifamily constructions. In May 2020, the company announced an additional capital increase of US$ 200 million and, as part of this action, Paal Kibsgaard assumed the CEO position, having previously been the company's COO. He also served as CEO at Schlumberger.

Katerra is revolutionizing the construction sector and the modular construction industry, and its focus is currently on North America, the Middle East and Asia. It is a vertical operation, whose vision is to transform the construction industry through the latest in technology, in a massive way and at all levels, from design to construction of buildings.

In Brazil, Industry 4.0 is still reduced. The National Confederation of Industry (CNI) conducted a national survey on the adoption of digital technologies in advanced manufacturing, and found that the Brazilian industry is still discreetly exploring digitalization, not benefiting from the inherent productivity gains. Another conclusion is that Brazil is not well prepared for the large-scale adoption of Industry 4.0, mainly due to educational, cultural and structural issues.

According to ABDI studies, it is possible to estimate that, with Industry 4.0, there will be a minimum annual reduction in industrial costs of BRL 73 billion, with 48% of this total coming from efficiency gains, 42% from cost reduction maintenance of machines and 10% from reduction in energy consumption. The impact of this increase in efficiency will be very relevant to the country's position in the global competitiveness ranking. However, it is not just about improving productivity and competitiveness, but about stopping losing positions on the global scenario.

According to the World Economic Forum report, released in October 2019, Brazil holds the 71st position, in 141 countries assessed. Another alarming data is the Global Manufacturing Competitiveness Index, according to which the country dropped from the fifth to the 29th position between 2010 and 2016. Also between 2010 and 2016, the Brazilian industry productivity dropped by more than 7% and started to represent less than 10% of the national GDP, according to a National Confederation of Industry (CNI) survey.

Obviously, these data are not something to be proud of and show the Brazilian fragility, in the perspective of the global competitiveness, creating an impact similar to that of a “neutron bomb” for those who aspire to be one of the greatest world powers in the industry through exports, going far beyond the agricultural inputs, high quality proteins and commodities, with less added value.

However, the Federal Government recognizes this topic relevance for the national productivity and competitiveness, and launched the Brazilian Agenda for Industry 4.0, an action plan with the objective of promoting the development of Industry 4.0, conducted by the Ministry of Development, Industry and Export (MDIC) — now the Ministry of Economy — and by the Brazilian Association of Industrial Development (ABDI).

4. THE IMPACT OF INDUSTRY 4.0 ON THE BRAZILIAN CONSTRUCTION SECTOR

According to the World Economic Forum 2016 report, “Shaping the Future of Construction. A Breakthrough in Mindset and Technology”, every day, worldwide, more than 200,000 people migrate to urban areas. This entire human contingent has needs to be met, with regard to housing, social infrastructure, transport, public services, health and education. The truth is that the engineering and construction sector has shown a low speed of response to the productivity gains necessary to meet this demand.

If we observe the Brazilian situation, we certainly have serious deficiencies in all these areas. Particularly in the housing area — today we have a deficit of just under 8 million units. According to economist Robson Gon?alves’ study, professor at Funda??o Getúlio Vargas (FGV), at the request of the Brazilian Association of Real Estate Developers (ABRAINC) and published by the newspaper “O Estado de Sao Paulo”, on 09/29/2020, the population growth and the formation of new families should generate a demand of more than 30.7 million new households by 2030.

This survey makes projections based on data from the National Sample Survey of Households (PNAD), from the Brazilian Institute of Geography and Statistics (IBGE). The effort that has been made in recent decades to reduce the housing deficit has not been small. It is scary to imagine it increasing almost four times in the next ten years.

This issue requires an intelligent and rapid response and it is situated in the sphere of public and private interest. The insertion of the Brazilian construction sector in Industry 4.0 and a structured movement to advance in the development of off-site construction — industrialized construction and modular construction — is an absolute necessity towards solving problems of this complexity level, and must follow the same guidelines as what has happened in the most advanced countries and in those with the greatest human contingent in the world. In addition to putting Brazil on the path of modernity in the construction sector and having ways to face and solve problems of this nature — which requires exceptional productivity gains —, there are several other benefits involved, such as:

• Production in a controlled environment, in a factory (off-site), with standardized processes;
• Significantly higher quality and performance, with less rework and lower costs for operating and maintaining buildings, throughout their life cycle;
• More sustainable products, with less waste (up to 80% less rubble), less consumption of water and energy in production, in addition to less impact, noise and dust, during the assembly stage (on-site);
• Predictability of costs and deadlines, which does not happen in traditional construction, with the shortening of deadlines of up to 50%[1] and the reduction of costs by up to 20%[2];
• Greater security for the professionals involved in the manufacturing and assembly operation, as well as for people and buildings, around the construction site.

[1] McKinsey (2017), “Reinventing Construction: a Route to Higher Productivity”

[2] McKinsey (2017), “Reinventing Construction: a Route to Higher Productivity”

5. CONCLUSIONS

After the first three industrial revolutions, respectively driven by steam, electricity and the computer, the digital age and its entire technological framework installed and promoted the fourth industrial revolution. Industry 4.0 — the name adopted for the fourth industrial revolution — is installed in the most developed sectors and countries, exploring the benefits provided by digitalization, applied to innovation in products and processes, and to generate more significant gains in productivity.

It is not enough to look only inside the companies. In the set of attributes brought by Industry 4.0, the Supply Chain 4.0 explores a collaborative and integrated view of value chains, aiming at the maximum effectiveness of each one of its links, for the benefit of the whole, making use of the driving levers of value, which promise to generate impressive cost cuts through the reduction of lost orders — in the stages of transportation and storage of inputs, in the supply chain management and in the inventory reduction. The intelligence and automation level inserted in these activities uses the state of the art of the existing technology and promises new gains, with the innovations that are yet to come.

All this effort has been carried out with a clear focus on the experience, or Customer Journey, throughout the life cycle of the products and services consumed, in all stages of the process (pre-sale, sale and post-sale), culminating in with the consumer’s loyalty. Value companies around the world and “unicorn” companies have their processes designed for customer centrality and maximum satisfaction throughout their journey. This logic is generating the gains traction of Industry 4.0 and remunerating its installation and rapid expansion.

In Brazil, the fourth industrial revolution is still incipient, but it promises to react through the program launched by the Federal Government, the Brazilian Agenda for Industry 4.0, since our insertion in this context is a matter of absolute priority for the Brazilian industry productivity and competitiveness at international level.

Particularly in the construction industry, the low productivity is very uncomfortable. In the United States, for example, all industrial sectors recorded an average productivity growth of 1,500% in the last decades, while construction grew less than 1%, standing above very few sectors, such as fishing (McKinsey, 2017).

However, in the construction sector there is another revolution in progress in the world, taking advantage of the Industry 4.0 development, in favor of off-site construction and modular construction. According to Markets & Markets (2019), the modular construction has doubled in size in the last five years and it is expected to have an average growth of 6.9% per year, until 2023.

Katerra is the main agent in the world and an example of this change, being a construtech with a portfolio of more than US$ 3 billion in projects, acting as Industry 4.0 and applying the most advanced technologies in a fully vertical operation.

In Brazil, we have some modular construction companies in operation and in the financial structuring stage, which have a huge challenge, especially in the housing market, aiming to deliver an expressive volume of units to solve a very serious problem: a projected demand of over 30.7 million new homes by 2030, against a current deficit of around 8 million units. Problems of this magnitude and level of complexity require a very quick and effective response. The solution has no other way than off-site construction and modular construction.

In order for us to make progress more quickly, the main barriers to be broken are the approval of the Tax Reform and tax isonomy. Traditional construction only collects between 3% and 5% of Service Tax (ISS), in contrast to 10% of Tax over Industrialized Products (IPI) plus a percentage of 12% to 18% of Value-added Tax on Sales and Services (ICMS), paid by off-site construction, in a disproportionate dispute, penalizing the best quality, performance and efficiency of industrialized construction, which is also much more sustainable, with a burden of more than 20%.

Housing programs also need to understand the scale relevance so that off-site construction — industrialized and modular — delivers massive volumes, quickly and at attractive costs, collaborating forcefully to reduce the housing deficit and to improve the quality of investments in the construction environment.

REFERENCES

Indústria 4.0: o que é, consequências, impactos positivos e negativos. Guia Completo. FIA-USP. Available in: < https://fia.com.br/blog/industria-4-0/>. Accessed on: Oct 10, 2020.

MCKINSEY. Reinventing Construction: a Route to Higher Productivity. 2017. Available in: < https://www.mckinsey.com/~/media/McKinsey/Industries/Capital%20Projects%20and%20Infrastructure/Our%20Insights/Reinventing%20construction%20through%20a%20productivity%20revolution/MGI-Reinventing-Construction-Executive-summary.pdf>. Accessed on: Sep 12, 2020.

MCKINSEY. Supply Chain 4.0 – the next-generation digital supply chain. 2016. Available in: <https://www.mckinsey.com/business-functions/operations/our-insights/supply-chain-40--the-next-generation-digital-supply-chain>. Accessed on: Oct 17, 2020.

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About the author:

Paulo Oliveira

Civil engineer, PMP, consultant, advisor, mentor, executive director and strategic leader. CEO of ARATAU Constru??o Modular. He writes articles on technology, innovation, construction industrialization and modular construction for Buildin, Construliga, C3 - Clube da Constru??o Civil and LinkedIn.

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