The factory floor is getting upgraded with new sensors, connectivity and big data that are designed to revolutionize automation. We look at what it may mean for manufacturers, workers, investors and consumers.
A factory-floor robot tasked with filling peanut butter jars is on the fritz. The manufacturer dispatches a technician by plane to figure out what's wrong. But until she is on hand to identify the problem and prescribe a fix, the peanut butter idles on the assembly line, delayed on its way to market. What if that same technician could diagnose and repair the robot without ever leaving her office? And what if, a week earlier, the robot had let the technician know that it needed maintenance?
That opportunity exists right now, thanks to the Industrial Internet of Things, which refers to robots and machinery networked with sensors and software. The idea is this: “Smart" factory and assembly-line machines transmitting real-time data to technicians, executives and salespeople aren’t only more efficient, but also require less maintenance downtime and may reduce product-manufacturing costs—all of which could translate to lower prices at point-of-sale.
While the IIoT is by no means a fixture of today's assembly lines, interest is high among manufacturers surveyed by Morgan Stanley. Many expressed plans to increase spending on the technology, and the potential for growth in the coming years is strong.
Efficiency and Speed to Market
The IIoT is a subset of the Internet of Things, whereby sensors, computers and networks interact with their environments to generate data to improve processes. Where consumer product developers have focused on smart-home and other always-on gadgets, such as thermostats, security systems, or wearable tech, industrialists envision entire ecosystems that connect machines to other machines to people managing complex processes attuned to the smallest details on assembly-lines and how they affect large-scale logistics of sourcing and supply chains, distribution and market demand.
In fact, "the industrial sector is broadly expected to be the largest beneficiary of the broader Internet of Things development," says Nigel Coe, who heads U.S. research on the capital goods sector.
Big Data promises to play an outsized role in this shift. Using analytics platforms, managers can evaluate data transmitted wirelessly by connected robots to improve manufacturing processes. Sensors can transmit data that not only alerts technicians to initiate preventative maintenance, but also could help managers speed up or slow down production based on the needs of the market. "This is in our view the first step in the Industrial Internet of Things," says Coe, "capturing data to monitor and ensure the integrity of the production."
According to a 2015 survey of about 200 automation executives conducted by Morgan Stanley and Automation World magazine, improving operational efficiency and productivity are the most critical business drivers among manufacturers adopting the IIoT.
Through mobile connectivity, the IIoT could radically transform work processes for manufacturing employees. Technicians could avoid traveling to examine machinery, for example, and managers could have a broader view of the production process through a mobile dashboard. "With IIoT, a sales representative can use a mobile device to check on plant production schedules instead of having to return to headquarters from the field to firm up a shipping and delivery date of a customer order," says Coe.
Challenges and Opportunities
Data security is a growing concern for just about every business, but even more so for those that rely on universal connectivity. Manufacturers worry about the IIoT’s potential vulnerabilities, according to the Morgan Stanley/Automation World survey, which cited cybersecurity as respondents' top concern. IIoT-related cybersecurity is an extensive endeavor, entailing custom solutions beyond firewalls to protect data.
Coe cites "stringent account management and a layered approach from device-level authentication and application security to system-wide assurance, resiliency and incidence-response models" as key to ensuring that an IIoT process is secure.
Meanwhile, retrofitting existing robots with sensors and data-transmission capabilities is a complex process that requires upfront investment. Some manufacturers may choose to wait until the financial benefits of the IIoT are more clearly quantifiable.
Morgan Stanley estimates that the IIoT current comprises a $42 billion market, with the potential to grow at a 15% to 18% compound annual growth rate through 2020—by which time the market would have expanded to $90 billion to $110 billion. More than 70% of respondents to the Morgan Stanley/Automation World survey consider it important for their companies to develop strategies related to IIoT adoption during that time frame, and respondents on average expect their firms' IIoT-related expenditure to rise from 8% of a capital budget to 18%.
As such, Morgan Stanley sees some investment potential in firms that manufacture industrial automation. Coe notes that the "IIoT is likely to be a key driver of market outgrowth, although it is still too early to be comfortable with the degree and timing of adoption."
For more Morgan Stanley Research on the Industrial Internet of Things, ask your Morgan Stanley representative or a Financial Advisor for the full report, “Insight: Cloud Control - The Future of Industrial Automation" (Mar 15, 2016). Plus, more Ideas.
