What challenges German mechanical engineers need to address now - GERMAN ENGINEERING 2025
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GERMAN ENGINEERING 2025 What challenges German mechanical engineers need to address now
CENTRAL CHALLENGES
The COVID-19 pandemic hit the German mechanical engineering sector and key customer indus-
tries hard – nevertheless, it was already struggling with structural change and declining exports
in 2019. Financial reserves and human capital are dwindling, making it difficult to invest in future
technologies and the digitalization of products and production.
In order to leverage previously unused export potential in young growth markets, German ma-
nufacturers need to expand their portfolio as well as their production set-up in order to supply
unit-cost-optimized machines priced in line with the market and to increase their competitiveness
vis-à-vis international competitors.
A differentiated strategy is required when dealing with „frenemies“: China is both the most import-
ant customer and the most important competitor for German mechanical engineering, while the
tech giants from Silicon Valley are developing into important partners in terms of software, but are
claiming the high-margin business with user data for themselves.
Long-term market success requires a forward-looking understanding of (changing) customer
requirements that goes beyond the technical features of the machines and equipment: on the one
hand, changing political framework conditions and regional shifts in demand must be considered in
strategy development, and on the other hand, the sales potential of new business models must be
explored.
NUMBERS & FACTS CURRENT MARKET TRENDS
The international competition with low-cost and, in particular,
digitally better positioned suppliers is intensifying; Chinese
investment activity is often aimed at exerting political influ-
ence and acquiring key technologies.
World‘s leading
Digitalization pressure requires the development of specific
machinery exporter
know-how and high-performance IT structures, including
cloud applications, remote maintenance, etc. Strategic
alliances enable the joint development of data standards and
products.
Climate policy measures such as the European CO2 price are
increasing the pressure to act across all sectors; manufactu-
rers of energy-efficient machines stand to benefit from this
trend.
Liquidity-preserving contract models: Increasing implemen-
tation of EaaS and leasing models in addition to the classic
€bn 1.5% -12% machine business, intensified by COVID-19-related liquidity
179.8 bottlenecks of many customers.
Export turnover 2019 Annual market growth before Decrease in imports
(ratio: 80.3%) COVID-19 (CAGR 2012-19) 2020 (% yoy)
© 2021 FTI-Andersch 2
OVERVIEW
Foreword: Mechanical engineering in transition 4
Germany - a world export champion? 5
Chinese influence 6
New foreign markets 7
Digital competencies 8
Global production networks in transition 9
The road to Industry 4.0 10
Further development of business models 11
European framework conditions 12
An eye for the essentials - And financing 13
© 2021 FTI-Andersch 3FOREWORD: MECHANICAL ENGINEERING IN TRANSITION
WHAT WAS EARLIER hampered the development of German machine output, not least due to the slump in the auto-
builders. All this took place against the back- motive industry and its suppliers, above all the
In 2014, the fourth industrial revolution was still ground of solid overall market growth. German mechanical engineering industry. New
in its infancy in many places. As part of the first competitors and network partners are no longer
big data supported study, we evaluated the posi- found only in Europe, but increasingly in Asia and
tioning of the German mechanical engineering WHAT HAS HAPPENED SINCE Silicon Valley. This makes it all the more import-
industry, the potentials of digitalization and the ant to raise the necessary funds for the strategic
acute needs for action to restore competitiveness In the meantime, digitization projects are pro-
development of a digital infrastructure and new
in the changed global structure. gressing across all industries - albeit at different
business fields in order not to lose touch in the
Study available at: speeds. The opportunities of the ongoing trend
global innovation competition - especially in a
http://bit.ly/Andersch-Maschinenbau have been recognized in many places. However,
„new reality“ shaped by COVID-19. Particularly
the need for investment is now coming up against
now, it requires appropriate foresight to make
In addition to the increased investment costs, the an economically challenging phase, against
innovation investments with a medium- to long-
main challenges identified were increasing price industry-wide slumps in orders and liquidity
term return on investment.
pressure due to one-sided growth strategies bottlenecks. The German economy grew by 0.6%
and the emergence of international competitors. in 2019, before the COVID-19 pandemic - the
Location-related disadvantages such as the weakest in six years. Industrial production in
shortage of skilled labor, inadequate digital in- the „industrial nation“ Germany, meanwhile
frastructure and a lack of digitalization standards accounts for only one fifth of total economic
Trends in mechanical engineering
short-term (5 years)
technical
Digital disruption New disciplines Artificial intelligence
• Big data and the Internet of Things enable new • Know-how in computer-controlled production, digital • Expansion of vertical integration and development of
process methods, increased efficiency and digitally product development and digital twins; integration digital products/services
supported products of 3D printing • Data-driven enterprise
• Deep & machine learning
Change in demand Range of services Advanced analytics
• Far-reaching structural change in the automotive • Establishment of service as an independent product
• Geo-engineering
industry and as-a-service infrastructure are changing • Machine optimization and predictive maintenance
• Quantum technology
the demand of important customers; development of
• Human-machine interfaces
new markets requires adaptation of supply
• Bio-tech
Circular economy
• Industry makes large new purchases with high
Green Tech
requirement profile
Platform economy
• Regulation drives sustainability (resources, energy)
and costs
Consumer trends • Software-side cooperation with tech giants mainly
from USA (data generation, integration)
• Individualization and batch size 1 require flexible and • Equipment-as-a-service
connected machines
Political uncertainty
• Digitization of all areas of life
• Brexit, debt of EU member states, trade disputes • Micro mobility
jeopardize growth due to increased reluctance • Share economy
to invest New markets
Framework conditions • Young growth markets in Asia/Latin America with
different requirements
General conditions • Demographic change
non-technical
• Silk road initiative links European and Asian markets -
• European competitive conditions (CO2/energy prices;
• shortage of skilled labor new sales potentials and greater competitive pressure
data protection; wage levels)
• Digital infrastructure • Green-tech in China
• Access to venture capital
• Tax level • China‘s growing influence
MECHANICAL ENGINEERING IN TRANSITION
The dynamic environment will continue to challenge the German mecha- This brief study focuses on short- and medium-term trends depending on
nical engineering industry in global competition in the future. Disruptive their relevance to sales as well as any need for action that may arise.
trends are shaping the industry at ever shorter intervals.
© 2021 FTI-Andersch 4THE WORLD EXPORT CHAMPION - A TITLE DEFENDER?
HIGH EXPORT DEPENDENCY engineering: German manufacturers of indus-
trial furnaces, printing and paper technology,
Germany is the world‘s leading exporter of machi-
packaging and textile machinery in particular
nery - every sixth machine exported comes from
have suffered losses in international competition;
Germany. Foreign trade is the most important
over the past ten years they have lost on average
source of revenue for the German mechanical
8%-points of their world trade share. By contrast,
engineering industry, accounting for three quarters
companies in the measuring/testing technology
(79%) of the sector‘s turnover.
sector in particular were able to gain market share
However, the export strength is not only the
(+1.1%-points); in this sector, German machine-
driver of the German success model, it also has
ry accounts for just under one-third (31.9%) of
its downsides: the high dependency on global
world trade.
trade is directly reflected in the results when, as
in 2019, trade conflicts, Brexit and a weakening of
the economy reduce global demand. Even before
COOLING OF THE GLOBAL ECONOMY MOMENTUM ALREADY SLOWING BEFORE
COVID-19, the German Engineering Federation Geopolitical conflicts, China‘s declining economic COVID-19:
(VDMA) expected production to fall by 2% in 2020, growth, UK‘s exit from the EU and the high debt le-
mainly due to declining order volumes from abro- vels of European member states increased the un-
ad. German mechanical engineering companies certainty of many decision-makers already in 2019,
already recorded a decline of around 2% in 2019. before the outbreak of the COVID 19 pandemic. EXPORT OF GERMAN MACHINERY TO CHI-
Capital-intensive investments in particular in fixed NA 2012-19 EXPORT VALUE (€BN),
NEW PLAYERS ON THE FIELD assets such as machinery were delayed or even
avoided. There were increasing prophecies of doom
The dangers of a high dependency on exports are CAGR
that the German mechanical engineering industry
exacerbated by the increasing success of foreign would find itself as one of the big losers between +2.8% -8.1% -3.6%
manufacturers: German mechanical engineering the new US and Chinese fronts in the coming years.
has been losing market share in international The consequences of the COVID-19 pandemic 17.3 18.6 20.4 18.8 18.1
competition for years. The competitive pressure and temporary lockdowns turned medium-term
is largely driven by Chinese manufacturers - who concerns into acute challenges: While orders could
recorded 16% growth in machinery exports in not be processed initially due to disruptions in the
2016-2017 alone. Still, the Chinese market is value chains, warehouses filled up with finished 2012 2017 2018 2019 2020
growing faster than domestic companies could machines in part due to lack of incoming orders.
meet the demand for high-quality machines. But Thus, the VDMA recently reported noticeable losses
DECREASING MOMENTUM
in the foreseeable future, local market growth will for half of its members, and even severe losses for
only be realized through aggressive innovation and around one third of the companies. In many of the
price competition. Chinese and US machinery ma- VDMA‘s specialist sectors, recovery will take seve-
nufacturers already account for more than 50% of ral years (see chart below). Despite the solid capital
global industry sales, with Germany in third place. base of the traditionally medium-sized, often con- EXPORT OF GERMAN MACHINERY TO
servative German mechanical engineering sector, UK 2019 EXPORT VALUE, CHANGE
WINNERS AND LOSERS a reduction in personnel is now no longer ruled out TO PREVIOUS YEAR’S MONTH (%)
in many places. More than half of the companies
The share of German mechanical engineering in
have imposed a hard hiring freeze, despite an acute
world trade has fallen by around 3%-points over
shortage of skilled workers. The melting of financial -8 -8 -8
the last 10 years. Due to the extraordinarily high -10
reserves and human capital will weaken the posi- -16 -15 -14
export quota, Germany was nevertheless recently
tion of German mechanical engineering in global -25
in the lead in 15 of 31 specialist sectors of me-
competition in the medium term - because it is Apr May Jun Jul Aug Sep Oct Nov
chanical engineering (measured in terms of world
precisely now that investments in future technolo-
trade share). However, not all special sectors
gies and skilled workers with specific digitalization
are affected to the same extent by the economic
know-how are urgently needed.
developments. Structural upheavals in the BREXIT CONTRACTION
target sectors also have an impact on mechanical
INCOMING ORDERS IN THE GERMAN MECHANICAL ENGINEE- COVID-19 IMPACT: FORECAST VALUE ADDED MACHINERY/PLANT
RING SECTOR (% YOY) ENGINEERING GERMANY (INDEX)(1)
106.7
Index 105.5
104.3
2017=100
7 103.5
2 5 7 101.1 101.6
102.7 101.9
100.0
-5 -3 -4 -4 96.3
-7 -11 -15 -7 -9 -10
-17 -19 95.2
-28 CAGR 19-23
-31 -31 86.1 93.3
Base: 0.2% 92,7
May Jul Sep Nov Jan Mar Jun Nov Risk: -1.3%
2019 2020 86,1
2017 2018 2019 2020 2021P 2022P 2023P
Before COVID-19 (2) Base scenario (3) Risk scenario (4)
Sources: Oxford Economics; German Federal Statistical Office; VDMA; Financial Times; Stifterverband for die Deutsche Wissenschaft; FAZ; IFO Institute; Handelsblatt; FTI-Andersch analysis
(1) Value-added output of the industry; (2) As of 03.12.2019; (3) Assumption: sustained Physical distancing further restricts production, but a new wave is avoided [As of 03.09.2020] (4) Assump-
tion: further pandemic wave incl. return to lockdown in Q1 2021 leads to economic collapse with far-reaching consequences [As of 04.12.2020].
© 2021 FTI-Andersch 5DOES „GERMAN“ MECHANICAL ENGINEERING STILL EXIST?
CHINA: CUSTOMER OR blocked. Also noteworthy: After the entry of the
Chinese major shareholder Geely at Daimler FOREIGN ACQUISITIONS OF GERMAN INDUS-
COMPETITOR? TRIAL COMPANIES (NUMBER OF TRANSAC-
future production of the electric Smart has been
In the past decade, China has become the second transferred to China. TIONS JAN-NOV 2019)
most important customer for German machinery
and equipment. However, the years of unlimi- ACQUISITION WAVE ABATES
ted growth in the flourishing Chinese market The Nether-
Acquisitions and investments by Chinese inves- lands
seem to be over for German manufacturers. On Switzerland
tors increased from 6 to 33 transactions between
the one hand, the Chinese growth dynamic is
2010 and 2018. The number even doubled in 20 15 Great-Britain
slowing down considerably (also independent-
2015/16 (increase from 24 to 44). The main
ly of COVID-19). On the other hand, domestic 13
drivers were China‘s Silk Road initiative and the
manufacturers are accounting for the lion‘s share France
„Made in China 2025“ strategic plan adopted in China 21 7
of growth - partly supported by government
2015, which aims to achieve leadership in ten
economic subsidies, for example as part of the 152
key industries by 2025. China cannot achieve
„Made in China 2025“ agenda. However, even
these goals through organic growth, which is
though the growth rate of the Chinese economy
why it is buying up companies with key techno-
was at its lowest level in 29 years at the end of 29
logies on a massive scale. The US trade dispute is 47
2019, the Chinese economy is today growing twi- USA Other
shifting the focus to Europe, as Chinese investors
ce as fast in absolute terms. In addition, Chinese
in the USA are holding back or - as in the case of
manufacturers have been able to significantly
Huawei - are being strategically thwarted by the
reduce the quality lead of German machinery
USA.
through rapid development speed. German
In 2018, the acquisition wave temporarily slowed „German companies are not only in competition
industrial companies should therefore follow
down as a result of changes in the framework
China‘s further development closely. for the best products, but increasingly in competi-
conditions: the Chinese economy grew more
tion with economic systems which heavily rely on
slowly and a tightening of regulations in Germany
CHINESE ON SHOPPING TOUR governmental interventions and protectionist mar-
dampened activity. In addition, the Chinese go-
Chinese suppliers no longer limit themselves to vernment is attempting to limit excessive capital ket foreclosure put. This is an unequal battle that
success at home: At the latest after the contro- outflows through strict controls, which has led to more and more of our companies are losing.“
versially discussed takeover of the German ma- a general shortage of available liquidity. Economics Minister Peter Altmaier, quoted in Die Zeit,
chine manufacturer Kuka by the Chinese Midea available online at: https://bit.ly/2rh3Hco
Group in 2016, the focus on respective advances
STRICTER RULES IN EUROPE
has been sharpened. The last few years have
been marked by a number of takeovers by Chi- The German federal government, along with other
nese companies, including the special machine European governments, has tightened the rules on REGIONAL SHARE OF GERMAN MACHINE EX-
manufacturer Krauss Maffei, waste incineration takeovers by foreign companies. An amendment PORT ((%, BASIS: EXPORT VALUE (€) JAN-NOV
plants EEW or the cleaning division of Dürr. to the Foreign Trade and Payments Ordinance 2019)
passed at the end of 2018 lowers the threshold for
USA 18.2
PLATFORM FOR EXERTING the federal government to examine the acquisition
China 18.1
of shares in security-related industries to 10%.
INFLUENCE In the case of mechanical engineering company France 10.6
It is striking that many Chinese investors are Italy 6.8
Leifeld, for example, a takeover was averted.
indirectly subordinate to state authorities or When, in the wake of the COVID-19 pandemic, the Poland 6.8 EU: 42.5%
receive subsidies from them. On the one hand, market capitalization of many companies fell, in
these acquisitions entail the risk of losing future some cases considerably, (political) voices were
technologies to countries that subsequently take once again raised calling for stronger safeguards „China can roll over us. China’s strategic industrial
the lead in the development of high technology - against takeovers. The Federal Minister of Econo- policy requires to take a closer look. (...) One must
and thus weaken domestic competitiveness. On mics and Technology, Altmaier, had already sought
set a narrower framework under which conditions
the other hand, there is the risk that local com- an extension of the Foreign Trade and Payments
panies and locations will be used as a means of Ordinance in order to protect further sectors we want to allow takeovers of German companies
exerting pressure to influence political decisions from unwanted foreign takeovers. Meanwhile, by Chinese.“
- as was suspected, for example, in 2017 in the the VDMA warns against placing foreign investors Mikko Huotari, Deputy Director Mercator Institute
context of the joint declaration by EU states on under general suspicion and calls for factually for China Studies, in the WirtschaftsWoche inter-
the human rights situation in China, which Greece oriented individual examinations. view, online available at: https://bit.ly/35GIs2x
DEVELOPMENT OF CHINESE TAKEOVERS/INVESTMENTS
CHINESE TAKEOVERS AND INVESTMENTS IN GERMAN (INDUSTRIAL) COMPANIES
Chinese investors have acquired (NUMBER OF TRANSACTIONS INCL. PRIVATE EQUITY)
shares in around 180 German com-
70
panies since 2014; according to the
47
33 40 40
Bertelsmann Foundation, one third of 21
32
them can be assigned to the ten most
important key technologies. 2013 2014 2015 2016 2017 2018 2019P
Industry Other sectors
Sources: Federal Statistical Office; IMF; Mergermarket; Handelsblatt; Capital; WirtschaftsWoche; Die Zeit; Bertelsmann Founda-
tion; VDMA; FTI-Andersch analysis
© 2021 FTI-Andersch 6NEW PATHS FOR GERMAN MECHANICAL ENGINEERING
OPPORTUNITIES IN YOUNG their offer for third countries: According to an ana-
lysis by the VDMA global demand for machinery SHARE OF MACHINERY EXPORTS BY RE-
MARKETS GION (SHARE OF MAIN REGIONS, BASIS:
will largely shift to non-European countries over
In addition to the USA and China as the main the next two decades. It is important to actively EXPORT VALUE IN USD)
customers for German machinery, manufacturers avoid ostensibly price-related order losses, which
generate around 57% of their foreign sales in are based on the demand for simpler, unit-cost- 50%
52% EU
Europe - the already strongly developed markets optimized machines. 46%
40%
continue to drive most of the sector‘s growth.
Exports to younger regions such as the MIST WAY FORWARD 30%
countries are stagnating and lagging behind local
Asian, especially Chinese, machine builders are on 20%
economic growth. In the course of the global
a race to catch up and are increasingly self-con- 19% 14% BRIC
economic crisis, this had temporarily changed, 10% USA &
fident in the international market. However, their 9% 12% Japan
emerging countries were of high importance for 6% 5%
quality standards do not yet reach the German 0% MIST
German exports. Since 2015/16, however, the
level - the value of the „Made in Germany“ brand 2011 2012 2013 2014 2015 2016 2017 2018 2019
development has returned to the pre-crisis level -
is regarded as a promise of quality and stands
while the young markets would be more receptive
internationally for precision and reliability. In order
to German machinery in economic terms (see
to increase export opportunities in the new - very GERMAN MACHINERY EXPORTS VS. INDUS-
charts).
price sensitive - markets, it is important to be able TRIAL PRODUCTION BRI COUNTRIES (SHARE
to offer machines at prices in line with the market BRI-COUNTRIES IN GERMAN EXPORTS (%);
ROOM FOR IMPROVEMENT
without diluting one‘s own quality standards too PRODUCTION BRI INDEXED, 2015 = 100)
Current export quotas prove that the marketing much.
of German machines in emerging markets is not a 120 15%
sure-fire success. In addition to the time- and ca- THE RIGHT TIME 110 13%
pital-intensive establishment of a local presence,
So-called design-to-cost or fit-for-purpose 100
the cause lies in a different requirement profile 11%
approaches are a first step towards increasing 90
of the local customers: instead of highly flexible, 9%
price competitiveness. They steer traditional 80
high-precision systems, they primarily demand
engineering thinking in research/development 7%
cost-effective machines that deliver high batch 70
(what machines are possible?) towards a market- 5%
sizes at low unit costs. 60
driven approach (what prices are possible?). The
At present, however, the technically mature 50 3%
question of when customers should be involved in
machines from Germany are primarily geared to 2008 2010 2012 2014 2016 2019
the R&D process, for example, plays a central role
globally producing companies with a highly diffe- Brazil India
here. At the same time, there is the question of Russia Share of machinery ex-
rentiated product range and cater to trends such
the production location, which in the case of local ports in BRI countries
as increasing individualization.
production, for example, could enable offers that
are less distorted by wage costs, energy prices or
COSTS DECIDE
the strong Euro. GERMAN MACHINERY EXPORTS VS. INDUSTRY
For a less differentiated program, machines with And last but not least, the advancing degree of PRODUCTION MIST COUNTRIES (SHARE OF
high output are needed that require little or no local development could increase the prospects MIST COUNTRIES IN GERMAN EXPORTS (%);
retooling. It is true that customers from emerging of success for German mechanical engineering PRODUCTION MIST INDEXED, 2015 = 100)
markets are also increasingly demanding low companies: At present, with their „hardware“
maintenance intensity and the lowest possible alone, they are still in direct price competition with 120 15%
downtime. But these requirements are increa- other suppliers in developing countries. In the 110 13%
singly being met by low-cost machines from third course of time, however, topics such as system 100
countries. And while in the West, based on many integration, consulting and service - areas in which 11%
90
years of learning curves, an increasing considerati- the German mechanical engineering industry is 9%
80
on of the lifetime costs for the acquisition of a new well positioned - will become more relevant and 7%
machine has become established, in which repair 70
enable a price premium. At the same time, it is
and failure costs are taken into account (total cost 60 5%
important not to lose touch with competitors in
of ownership), in emerging countries the original these markets, especially now. 50 3%
acquisition costs are often still considered. 2008 2010 2012 2014 2016 2019
In this context, German mechanical engineering Sources: Quest Trendmagazin; VDMA; Federal Statistical Indonesia South Korea Share of machinery
companies should focus on the attractiveness of Office; OECD; FTI-Andersch analysis Turkey Mexico exports to MIST countries
© 2021 FTI-Andersch 7DIGITAL SKILLS TRAINING
SALES AND SAVINGS POTENTIALS by digitalization, investments in young talents are
indispensable. The VDMA and leading members „[When] Chinese people visited the production
The networking of machines/systems and the
such as Siemens therefore also see an acute need halls of German companies like Siemens ten
Internet of Things, the so-called machine-to-ma-
for modernization on the part of universities. Their years ago, they couldn‘t get out of their ama-
chine communication, generate data volumes that
demand: computer science and data analytics
exceed the volume of almost any other industry. zement. Now many German factories look old
should become compulsory components of
The data that can be used in industry have new compared to Chinese ones.“
engineering basic studies, graduates should also
potential for increasing sales and efficiency. Ex-
be equipped for the future beyond pure techno-
perts expect increases in production efficiency of Fang Weizhong, Managing Director Easitech,
logy. Basic knowledge of relevant programming
up to 10% through big data analysis, a reduction in a DW interview. Online available at:
languages or the targeted protection of data is
in operating costs of up to 20%, and savings in https://bit.ly/2v6TpwN
indispensable. In the next five years, skills in the
maintenance of up to 50%. The latter are primarily
„new disciplines“ (digital product development,
driven by core com-ponents of Industry 4.0,
production control, working with „digital twins“)
including, for example, predictive maintenance,
will also become essential as a basis for increasing
a forward-looking approach to machine/plant REALISING THE POTENTIAL FOR DATA MO-
competition. Similarly, in addition to the develop-
maintenance that essentially serves to minimize NETIZATION REQUIRES TARGETED ACQUISI-
ment of new specialists, existing skilled workers
downtime. However, the implementation of these TION OF DIGITAL SKILLS
must also be sufficiently qualified for Industry
concepts requires a high-performance digital in-
4.0 in order to actively counteract the shortage of
frastructure, which is still lacking in many places,
skilled workers.
especially in rural areas. External Internal
MID-SIZE COMPANIES AT A Data as Know- Products Sales Cost
CHANGING REQUIREMENTS commo- ledge as supported increase reduction
CROSSROADS dity commo- by data
In principle, the German mechanical engineering dity analysis
sector is well positioned in terms of products and In recent years, however, SMEs in particular have
often been faced with the problem that, in addition • Raw data • Analysis • Better or • Increase • Increase
know-how in global competition, which is illustra- • Processed results new pro- sales produc-
ted not least by the positioning of many mid-size to a lack of skilled workers and an inadequate data • Forecasts ducts and success tivity
companies among the global hidden champions digital infrastructure, there was often too little • Consulting services • Improve • Reduce
time to deal with the issue alongside day-to-day customer scrap and
or the number and quality of German patents. In loyalty consump-
order to be able to maintain this position in the business. This was not least due to the time ad- tion
medium to long term, software competence of vantage that innovation drivers such as Bosch had
employees is playing an increasingly important already gained in this area. In addition, managers
in SMEs lacked digital skills, which is why neces- Direct Indirect
role in the course of Industry 4.0, in addition
to hardware competence. In recent years, the sary investments in digitization fell by the wayside
requirements profile for employees has changed due to low prioritization. And finally, despite the
current low interest rates, many SMEs, which used Sources: Handelsblatt; VDMA; Deutsche Welle (DW); Tableau;
massively - this is reflected not least by the recent mi-connect; Produktion; Bitkom
mass redundancies (e.g. Heidelberger Druck- to be frequent drivers of innovation, are asking
maschinen is planning to cut 5,000 of the total of themselves whether and how they can afford com-
20,000 jobs, along with others such as Gildemeis- prehensive networking projects at all. Even larger
ter, Gea, Demag Cranes and Schuler) - while at the SMEs shy away from such capital expenditure
same time an acute shortage of skilled workers is and generally do not have sufficient IT specialists
being complained about throughout the industry. or structures at their disposal. This is also one of
This current mismatch between the number of the reasons why not even one in ten mechanical
employees already available and the number engineering companies has so far systematically
needed represents an obstacle to growth. recorded, analysed and used the data it collects.
But they need to make these investments now in
order not to lose out. In complex areas that com-
GROUNDWORK
bine several disciplines and in which they cannot
In addition to the question of data security and do this alone, cooperation and mergers will be
responsibility, a central challenge lies in the increasingly observed.
visualization and presentation of results of large
heterogeneous data volumes, especially since not
every data user is also a data scientist/data spe-
cialist. In order to cope with the change brought
USE OF BIG DATA BY INDUSTRY (% OF COMPANIES USING ADVANCED DATA ANALYTICS)
21% 21% 20% 19% 16% 14% 13% 12% 11% 11%
Automotive Insurance Chemicals/ Energy Telecom. Trade Banks IT/Electronics Mechanical/ Health
Pharmaceuticals Plant engineering
Although high potentials could be achieved especially in mechanical engineering,
the degree of penetration of big data is currently still very low in a cross-industry comparison.
© 2021 FTI-Andersch 8GUEST CONTRIBUTION
KARLSRUHER INSTITUTE OF TECHNOLOGY (KIT),
WBK INSTITUTE OF PRODUCTION SCIENCE
GLOBAL PRODUCTION NETWORKS IN DIGITIZATION AS AN OPPORTUNITY more effectively while expanding digital features for
customers. The focus of future network developments
TRANSITION The effective use of digital applications is a decisive must be much more strongly linked to strategic goals.
Global production networks for machine tools have building block for mastering the current challenges. The For example, site role concepts can be aligned with the
changed in many ways due to international outsourcing continuous collection of product-related data is consi- product portfolio and order fulfilment organization to
as well as digitalization and flexibilization of supply dered a decisive enabler for the digital transformation of create a more productive and flexible network. In ad-
chains. In the past, German machine manufacturers many machine builders. A far-reaching database serves dition to the classic cost calculation, softer factors such
were able to adorn themselves with the ‚Made in to control production processes more effectively and as the local level of education, culture fit and political
Germany‘ seal - an international recognition of the to develop forward-looking applications and intelligent factors are increasingly being taken into account in net-
outstanding quality of their products. With an increa- service offerings. This is made possible by established work design and site selection. The location of Tesla‘s
sing focus on delivery time and price sensitivity, driven technologies and standards such as RFID, UBW or the Gigafactory in Germany is a clear sign of the significance
by Asian and American competitors, German machine GS-1 standard. Disruptive technologies such as 5G of local know-how.
builders were forced to decentralize. The opening up for improving connectivity and blockchain for securing
of new markets and the regionalization of products and verifying process and product data form the basis FOCUS ON RESILIENT PRODUCTION
as lever for the top line and later the use of labor cost for continuous changes in the market. A best practice
advantages to optimize the bottom line have led to the for the successful use of blockchain technology within
NETWORKS
international competitiveness of German mechani- production networks for quality-related process In increasingly volatile times, production networks must
cal engineers. The structure of production networks tracking is the IOTA Tangle-based tracing system from become more adaptable so that network disruptions
changed from German global factories to a hub-and- Pickert. IOTA Tangle - a platform for the international can be resolved more quickly. Especially the current
spoke model in which the core technologies continue exchange and documentation of information as well as COVID-19 crisis, which is dramatically affecting both
to be manufactured in Germany, but the assembly digital assets - enables industrial companies to create markets and supply chains, highlights the need for
and production of simple, non-knowledge-intensive tamper-proof ‚digital twins’. However, the cross-industry resilient production networks. Such resilient networks
components take place in the local markets. digitization of production networks is currently hampe- are characterized by the anchoring of strategic redun-
red by the lack of standardization of data protocols. A dancies and the rapid, demand-related shifting of com-
GLOBAL MARKETS OPEN UP NEW standardized digital basis structure would accelerate petencies. Agile location concepts, which enable the
the establishment of new business models, such as rapid establishment of standardized factories, promote
CHALLENGES „Production-as-a-Service“, even if a timely introduction the transformation from historically grown production
While German mechanical engineering companies is unlikely due to the high implementation costs and the networks to strategically adapted, fluid networks. For
had to react primarily to changing market requi- lack of consensus among companies. Production-as-a- example, VW‘s new factory concepts - so-called slim-
rements and new competitors around the turn of Service is currently being promoted by the machine tool flex movers - have a high degree of standardization, so
the millennium, they are now facing a new group manufacturer Trumpf in partnership with Munich Re. that they can be set up within a very short time to offer
of challenges. The increasing complexity, both in With this business model, capital-intensive production local products. The change towards adaptable networks
terms of products and production networks, as well technologies can be used by smaller, less solvent custo- is supported by the further modularization of the machi-
as the fast pace and volatility of globally distributed mers. This change is crucial for German mechanical en- ne tools, some of which are highly complex, in order to
sales markets, political conditions and technologi- gineering companies, as they differentiate themselves combine economies of scale, a high number of variants
cal developments require agility and adaptability of from competitors primarily through product individua- and fast delivery times. By means of agile management
production networks. At the same time, a focus on lization and a high level of service. In addition, new concepts and strategic diversification, companies can
sustainable products and production is becoming tools for their own agile production management can better protect themselves against extreme events such
increasingly important for machine manufacturers, be built on the continuous data basis. These include live as the COVID-19 crisis, market fluctuations and trade
so that new, environmentally friendly manufactu- reporting and monitoring platforms, but also decision barriers. This resilience can be further strengthened by
ring processes, circular value chains to increase support tools such as simulation, optimization and arti- intelligently integrating different partners and promo-
resource efficiency and transparency with regard to ficial intelligence. By means of increased use of digital ting digital collaboration.
environmental impacts are coming more into focus. tools complex networks can be designed and managed
Production strategy
Insig • Production as a Franchise • Decentralized decisions
h
and r t into loca
• Product modularity • Production technology
esea
rch fa l ecosyste
• Diversification flexibility
nt
e tale
dwid cilitie ms
Worl ition s
is
acqu Redu Network design
c
f supp tion of • „Local for Local“ – Network • Flexible product routing
ent o ly ris structure • „Lean on Capital“ production
m provem rvice ks
I se • Short supply chains • Scalable automation
mer
custo Avoid
• Scalable degree of value • Agile factory concepts
added • Digital twin of production
a
of trade nce of ta • Strategic interim storage networks
ation sks barri x bur
pens i ers dens
Com ge rate r and
xch an Network Management
e Redu
c
pital costs tion of pr • Predictive analytics • Lean management
tion of ca s oduc
tion
• Critical supplier path • Supply chain coordination
c st
Redu istics co • Supply chain collaboration • Closed loop manufacturing
lo g • Traceability • Proactive disruptionma-
and • Multimode transport nagement
• Predictive maintenance • Emergency plans
Figure 2: Opportunities for increasing the resilience of
Figure 1: Objectives for global production - increasing focus on „soft“ factors production networks at three levels
© 2021 FTI-Andersch 9GUEST CONTRIBUTION
KARLSRUHER INSTITUTE OF TECHNOLOGY (KIT),
WBK INSTITUTE OF PRODUCTION SCIENCE
THE PATH TO INDUSTRY 4.0 IN Methods can be derived from the formulated sales markets and building new business models.
strategy and transferred to an operational roadmap. The strategic question for management at this point
MECHANICAL AND PLANT
A selection of the most important fields of action must be to what extent digitization should expand
ENGINEERING: of the Industry 4.0 toolbox is shown in Figure 1. In the product range and to what extent new business
The German mechanical and plant engineering the case of a Swiss plant manufacturer offering pre- models should be developed. On the product side,
industry is characterized by complex production mium precision equipment, Industry 4.0 potential the VDMA‘s Industry 4.0 toolbox clearly shows
processes, driven by high levels of individualization methods were prioritized that ensure high product that the integration of sensor technology, commu-
and the resulting production times. In recent years, quality (e.g. digital twin, digital poka yoke) and high nication interfaces and data storage systems are
German manufacturers have experienced more flexibility (intelligent workforce scheduling, worker a basic prerequisite, as these form the basis for
fluctuating and individualized customer demand. assistance system) in production. For a supplier the implementation of decentralized and self-or-
Industry 4.0 therefore represents a promising of modular, standardized production systems with ganized production systems. The integration of
opportunity to control the complexity of production medium quantities, the target factors of time and these Industry 4.0 technologies in production
systems and to remain competitive with internatio- cost were optimized. For customers with production plants additionally offers the mechanical and plant
nal competitors. As user and supplier of Industry systems that have a large proportion of automated engineering industry the possibility of new visionary
4.0, mechanical and plant engineering can benefit process steps, methods of self-organization and business models. Another example besides the
from the potential in two ways. decentralization come to the fore. above-mentioned approach of Trumpf shows how
a new leasing model for production plants can be
METHOD AND STRATEGY AS DECENTRALIZED IMPLEMENTATION realized with the help of Industry 4.0 technology:
Here, the leasing rate is determined according
SUCCESS FACTORS AND CONCRETE DESIGN OF
to the availability and quality of the equipment.
Industry 4.0 enables manufacturers to respond to METHODS The systems are equipped with the latest sensor
changing product requirements, optimize price and Once the methods to be implemented have been technology and therefore enable in-process quality
quality, and increase resource efficiency through determined, Industry 4.0 teams can be formed, assurance with decentralized control for adjusting
the digi-talization of production processes. The im- similar to the CIP teams of lean management, the tool parameters. The customer of the produc-
plementation of an Industry 4.0 strategy is mostly which jointly develop and implement new Industry tion plant is therefore guaranteed a high quality rate
capital and time intensive, which is why the use of a 4.0 tools and technologies in the company. Due to and plant availability by the plant manufacturer,
toolbox for operational implementation is indispen- their process knowledge, these teams represent an which is taken into account in the calculation of the
sable. The INTRO 4.0 research project has identified important source of ideas for further possible appli- leasing rate to be paid. In return, the manufacturer
so-called basic methods: enablers for the transfor- cations of Industry 4.0 in the production process. receives all machine tool and production environ-
mation of production, and potential methods, levers The Industry 4.0 teams combine process knowled- ment data, which he can then use to sustainably
for financial effects in production. The design of ge and digital competencies in order to implement optimize his production euqipment. At the same
the methods must be individual for each company the measures operationally and are in constant time, field data from the production plant offers the
and depends on the digital maturity of the company exchange with the project management. By actively possibility for manufacturer services such as remote
(https://digitalisierung.andersch-ag.de/de). involving employees in the implementation, accep- diagnostics and predictive maintenance services to
Based on the maturity level, an individualized tance problems can be prevented and Industry 4.0 ensure the highest possible plant availability. Since
Industry 4.0 strategy can be defined by means becomes a success in the company. plant availability is a limiting factor for the efficiency
of a workshop concept with process experts and of production systems in many production facilities
production managers. Special consideration is given
NEW BUSINESS MODELS AND SER- today, many plant engineering customers are
to the established production system as well as the also willing to pay for such services and business
development of the market and customer needs. VICES AS SUPPLIER-SIDE INDUSTRY models. Interesting use cases arise in particular in
Combined with an analysis of the company‘s goals, 4.0 POTENTIALS globally distributed production networks.
product-oriented target factors are weighted: A
As a supplier of machinery and production equip-
premium manufacturer with poka yoke strategy (ze-
ment, Industry 4.0 gives mechanical and plant
ro-defect production) prioritizes other target factors
engineering a top-line lever by expanding existing
than a supplier in the low-price segment.
Industry 4.0 - methods collection
Industry 4.0 potentials (promise concrete improvement possibilities)
Assistance systems and visualization Networking and transparency Self-organization and decentralization
• Order visualization • Demand-oriented supply of production plants • Automatic planning and optimization of production
• Digital maintenance information via AR • Digital remote diagnosis of production plants • Autonomous transport vehicles
• Leading through the process • Digital communication between employees • Flexibilization of production systems
• Integrated change process • Digital layout planning and digital factory model • Intelligent workforce management
Industry 4.0 basics (create conditions for implementation of potentials)
Enabler Data Human
• Unique and secure proof of identity for products, • Requirements-based information through filtering • Education and training
processes and machines • Cybersecurity of stored data respectively organizatio- • Change management
• Use of cyber-physical systems nal and communicative IT security • Digital skill matrix and digital employee assignment
• Acquisition of process data (among others) • Data security of equipment/systems • Development of competence profiles
by machines and tools
Figure 1 Excerpt from the method toolbox of the INTRO 4.0 project
© 2021 FTI-Andersch 10FURTHER DEVELOPMENT OF BUSINESS MODELS
EXPAND INNOVATION increasing price pressure worldwide, predictive
maintenance solutions in particular are becoming „Tomorrow, we will master batch size 1 with data
Shorter innovation cycles and increasing price
more relevant: Not only in original equipment, but and thus be able to implement customer wishes
and competitive pressure on international mar-
also in the classic spare parts business, machine flexibly, economically and at short notice.“
kets have led to an increasing convergence of
builders are increasingly confronted with price-
hardware in mechanical engineering. Innovative
driving third-party suppliers. Since it simulta-
strength has become the most important core Patrick Hantschel, Head of Digitalization Center
neously minimizes unplanned downtimes on the
discipline alongside efficiency in value creation. Wittenstein SE. Interview available online at:
customer side and counteracts the company‘s
At ever shorter intervals, the question arises as https://bit.ly/2va5VeZ
own erosion of the spare parts business as a reve-
to where new customer benefits and competitive
nue driver, predictive maintenance is considered a
advantages over price breakers can lie. However,
new growth segment: networked machines report
innovative strength should not end with the hard-
ideal maintenance times and replacement require- FROM PROCESS DATA TO DATA PRODUCT
ware: product-related services such as consulting
ments early on, and automated spare parts orders USABILITY OF BIG DATA (LIFE-CYCLE VIEW)
(e.g. conceptual design of fully networked plant
can be triggered via platform and direct interface
layouts) and maintenance offer an opportunity to
to the machine supplier.
differentiate. They are therefore already offered
integrated as part of a complete package in many
PRODUCT INNOVATION
Value creation
cases.
Offering additional digital services requires a high
degree of digitization on the part of the custo- Data as a
SERVICE AS A PRODUCT product
mer and technical know-how on the part of the
Service in particular offers an average margin machine manufacturer. Strict data protection Data as
potential that is twice as high as the pure hard- requirements and customer reservations about product enabler
ware business. However, the view of services as cross-company data exchange are often cited as
Data as process enabler
stand-alone products, which benefits could be further hurdles to the widespread use of technolo-
gy. However, beyond these reservations, technical
marketed separately and reimbursed adequately, Data as process result Time
possibilities and marketing potential are growing
is often still underdeveloped in the German me-
steadily: General Electric, for example, offers a Graphic: Fraunhofer-Institute for Production Technology IPT
chanical engineering industry. The goal: customers standardized possibility to develop industrial ap-
should not take value-added services for granted. plications in the cloud with its IoT platform Predix.
To ensure that their use is not uncompensated in The classic product life cycle begins with the idea
Users can transform real-time data into relevant
the context of active customer loyalty, the services insights and decision-making bases by connecting and construction of a product – also data pass
must be positioned as stand-alone products: machines and data with the entire company. At through a life cycle, which starts in the selection
the same time, the machines networked via the and targeted collection of data. Potentials of data
• C
lear definition of the range of services, stan- Internet of Things can be directly controlled by usage can be found in all areas along the life cycle:
the machine manufacturer - for example, when big data client as basis for make-or-buy decisi-
dardization of the services and quality standards
setting up or adjusting an entire production line - ons, customer demand analyses and -prognoses,
(in particular for (external) service technicians
which enables stronger customer penetration and predictive maintenance of machines, enrichment
for later scaling). loyalty, while the customer can focus on its actual
• Management of customer expectations of products – until they can finally be marketed on
value creation. In purchasing and materials ma-
• Increase in willingness to pay their stand-alone.
nagement, which account for a significant portion
• Successive addition of digital services such as of working capital, comprehensive networking
online real-time maintenance also offers significant potential for optimization,
which can be controlled with even greater preci-
sion in the future using smart data analyses. Both
ENRICHED CORE BUSINESS
customers and machine builders themselves can
The offer of turnkey, customized complete benefit from this. Overall, mechanical engineering
solutions, comprehensive control technology and in particular is considered one of the main benefi-
system integration is already part of the basic pa- ciaries of comprehensive digitalization.
ckage for many machine builders in sales discus-
sions. Increasingly, new business models such as
equipment-as-a-service are also gaining ground.
The operator model offers customers potential for
cost savings in the short term; machine builders
can generate higher revenues in the long term, but Sources: Handelsblatt; VDMA; Bitkom; Tableau; mi-connect;
also bear a higher economic risk. In the course of Produktion; Commerzbank; own analysis
DATA USE AND MONETIZATION
Industrial leadership
Physical Virtual
Industry
Smart factory 4.0 Smart operations
Sensors create increased transparency and a Networked production enables flexible production
enhanced planning capability planning and control
Augmented Reality, RFID & AUtolID, CPS CPPS, Concurrent Engineering, M2M,
Cybernetic Production
Big Data
Smart products Smart service
The product thinks along and is in contact with the The networking of product and manufacturer opens
manufacturer even after sale up new markets for services
digital product life cycle (RFID), communication Product service systems, hybrid products,
and interface standards service engineering, service platform
Expansion of the range of services
© 2021 FTI-Andersch 11NEAR FUTURE
DIFFICULT HOME GAME promoted through modular design and standard-
ization. While on the one hand this trend reduces MECHANICAL ENGINEERING AS PLAYER IN
Framework conditions for the German mechani- CLIMATE POLICY
the potential for new business, it also opens up
cal engineering industry will be determined in the
new market opportunities in times of increased
coming years by climate protection regulations,
investment restraint.
structural changes in key customer industries Push Pull
and politically driven location promotion. In many
cases, these are primarily European challenges
SILICON VALLEY & BEYOND • Customer expectations • Increased willingness to
The formation of a monopoly by the tech giants driven in particular by invest in efficient machines
that make competitiveness in the global market
rising electricity prices or retrofit services despite
more difficult. For these reasons, the VDMA is Google, Amazon, Facebook and Apple (GAFA) from
(energy efficiency partly economical and political
calling for, among other things, simpler and less Silicon Valley is perceived with concern by German specified in specification situation
bureaucratic tax legislation, internationally com- SMEs, but according to recent surveys only 15% of sheets) • Growth prospects in the
petitive tax rates and faster depreciation options. machine builders see GAFA as direct competition. • Restrained investment environmental technology
Greater leeway would boost private investment Although they are attacking the entire industry behaviour market (up to 7% CAGR)
head-on with their platform solutions, they clearly • Low service sales over • Pole position vs. inter-natio-
and strengthen the competitive position, accor-
lifecycle nal competitors in the field
ding to the VDMA. lack the necessary hardware expertise.
• Competitive pressure of GreenTec through exper-
Nevertheless, machine builders can learn a lot from international com- tise and relationships with
CLIMATE CONSEQUENCES from the tech giants when it comes to product and petitors with less efficient relevant stakeholders
process innovation: from an expert‘s point of view, but cheaper machines
Awareness of climate protection is increasing
partnerships rather than competitive situations
worldwide - the World Economic Forum recently
between machine building and tech companies
described climate change as an „overshadowing
will arise in the future; GAFA is not currently
global risk“. The effects of climate policy mea-
thought to be planning its own production of
sures are also having an impact on the machine
machines. The high capital commitment combined „The Annual Economic Report 2020 generally
engineering industry. On the one hand, the Euro-
with significant risk does not fit GAFA‘s business does not give a all-clear singal. Business location
pean CO2 price is leading to rising energy costs,
model, as past sales activities of Google also
which are hitting German mechanical engineering Germany remains under pressure, not just becau-
show. The machine builders will continue to be
companies (in the wake of the EEG realloca- se of global trade conflicts. Many problems are
positioned at the interface to the customer and
tion) harder than foreign competitors. Many homemade. These include, above all, the fiscal
therefore have the necessary detailed know-
customer industries would also feel setbacks
ledge and customer confidence. A partnership framework conditions, which have long since
due to considerable cost increases for steel and
that involves the tech giants as software service ceased to be internationally competitive.“
chemical products. Some even fear a migration
providers and data owners in machine sales to
of energy-intensive industries to countries with
complement industrial production with modern
lower energy costs and rising emissions in these Dr. Ralph Wiechers, Chief Economist of the VDMA,
information and communication technology is a
countries. Frans Timmermans, Vice-President online available at: https://bit.ly/2ShXlmE
likely future scenario.
of the EU Commission, is therefore calling for a
Machine builders should therefore examine the
CO2 border tax to minimize the economic dis-
benefits of cross-industry cooperation with soft-
advantages of the EU‘s „Green Deal“ for domestic
ware and data houses as early as possible. Sources: VDMA; Handelsblatt; FAZ; FTI-Andersch analysis
suppliers in the European market. The German
Minister of Economics, Peter Altmaier, also hints
at possible measures to offset rising energy
supply costs. On the other hand, the domestic
mechanical engineering sector will benefit from
strict EU climate policy, as the tight regulatory
framework will force industrial companies to
purchase more efficient machines. In addition,
German mechanical engineering companies are
in a „pole position“ with regard to these new re-
quire-ments in comparison with their internatio-
nal competitors, as they not only have sufficient
relationships with all stakeholders involved, but
also a technological edge.
FIT FOR THE FUTURE
A trend that is gaining in relevance - also from
a sustainability perspective - is the increasing
retrofit. It aims at the technical upgrade of a
technologically backward machine/systems. The
trend originated in large-scale plant construction,
where amortisation times and capital commit-
ment are correspondingly higher. In the course
of the increased need to make machines fit for
Industry 4.0 via sensors and software updates,
among other things, the trend is gaining further
relevance. The integration of technology leaps
(e.g. an upgrade of outdated photovoltaic lines to
the new PERC technology) is also possible.
In the case of particularly durable machines/sys-
tems, retrofitting can also be carried out several
times. Flexibility in the use of components and
materials is an essential prerequisite. It can be
© 2021 FTI-Andersch 12You can also read
