Background. This document was requested by the European Parliament’s Committee on Industry, Research and Energy (ITRE) and prepared by Policy Department A: Economic and Scientific Policy of the European Parliament.

Industry 4.0 implementations organize production processes based on technology and devices autonomously communicating with each other along the value chain. Industry 4.0 is the progenitor of the future smart factory in which computer-driven systems monitor physical processes, create a virtual copy of the physical world and make decentralized decisions based on self-organisation mechanisms.

The increased digitalization of manufacturing industries seamlessly integrates physical objects into the information network, allowing for decentralized production and real-time adaptation in the future.

Industry 4.0 was initially developed by the German government to create a coherent policy framework to maintain Germany’s industrial competitiveness. Related terms used internationally include Internet of Things, Internet of Services, Industrial Internet, Advanced Manufacturing and Smart Factory.

The implementation horizon is to have pilots running in 2016 and full implementation as of about 2025.

Successful implementation of Industry 4.0 will require:

• Standardization of systems, platforms, protocols;

• Changes in work organisation reflecting new business models;

• Digital security and protection of know-how;

• Availability of appropriately skilled workers;

• Research and investment; and

• A common EU legal framework to support the dissemination of Industry 4.0 in the Internal Market.

The study. The study considers three dimensions of change that are of relevance in relation to Industry 4.0:

• Technological change. Digitalization has been a major driver of changes throughout the value chain; many businesses recognize the need to adjust, but far fewer, especially among SMEs, are prepared for it, the report notes. There are significant challenges (costs and risks) for firms as regards digital security in: intellectual property protection, personal data and privacy; design and operability of systems; environmental protection and health and safety.

• Social change. Few are aware of Industry 4.0 outside the group of key stakeholders, the report concludes. Larger firms tend to be more positively disposed whereas unions remain cautious and have reservations. A skills gap—and a willingness gap—to adjust to the Digital Single Market exists; however, the skill requirements to adjust to Industry 4.0 are much greater.

• Change in the business paradigm. There are challenges for SMEs in participating in Industry 4.0 supply chains (costs, risks, reduced flexibility and reduced strategic independence). Although the public sector can play a role in creating an ecosystem that will help SMEs transition to Industry 4.0, little research has been carried out in this area. Standardization remains a major challenge as regards large scale implementation of Industry 4.0.

At a high level, the study recommends:

• A review of existing measures targeting Industry 4.0 (and related initiatives) to ensure that they consider the most important aspects: skills, migration, business model change, clusters, cross-border collaboration programmes for enterprises, cybersecurity and standards, and implications for SMEs and European competitiveness.

• Adopting new measures where gaps are identified at EU and Member State level to monitor latest developments, fund research and support SMEs, raise awareness of challenges and opportunities, support development of a framework including standards and play a coordinating role.