April 27, 2016

Presentation for 10th German-Japanese Economic Forum in Hannover Messe

Building Digital Enterprise Insights from PwC 2016 Global Industry 4.0 Survey

Contents 1. Introduction: Review of Industry 4.0 – Key implication for Japanese Manufacturers

2. Key findings from PwC 2016 Global Industry 4.0 Survey – Hypothetical Issues in Japanese Companies

3. Recommendation to Japanese companies – Suggested Approach to Overcome Challenges

Strategy& | PwC

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1. Introduction: Review of Industry 4.0 – Key implication for Japanese Manufacturers

2. Key findings from PwC 2016 Global Industry 4.0 Survey – Hypothetical Issues in Japanese Companies

3. Recommendation to Japanese companies – Suggested Approach to Overcome Challenges

Strategy& | PwC

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What is Industry 4.0?

Industry 4.0 will change our clients’ value chains, their future products as well as the way they serve the market

Note: This presentation will focus on “1. Digitization and integration of vertical and horizontal value chains” Strategy& | PwC

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What is Industry 4.0?

Industry 4.0 is fourth industry revolution in the history 2015+

End of 18th century

Industry 1.0 Steam engine manufacturing

Beginning of 20th century

Industry 4.0

Industry 2.0 Mass production and assembly lines

Industry 3.0

Digitization and Integration of Value Chains and Products/ Services (Internet of Things/Services) New Digital Business models

Automation and robotic

Integrated Data Analytics as core capability

Digital Enterprise

Key question: Why/how Industry 4.0 is different form 3.0? Strategy& | PwC

Flexibility and complexity

1970s

Key implication of Industry 4.0

It is not just ultimate digitalization of manufacturing/SCM, but manufacturing paradigm change by leveraging digital Industry 4.0 is targeting ecosystem level total optimization, while conventional robotics/automation (Industry 3.0) focused more on equipment/line-level local optimization… Ultimate Transparency • Fine (Machine, Product, Worker) • Real-time • Broad (End-to-end) Ultimate Control and Optimization • Flexible • Real-time • Harmonization as a whole

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Orchestration & Total Optimization

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Key implication of Industry 4.0

Manufacturing operation/system should transform from “Closed” to “Open” Cross-enterprise collaboration could significantly enhance operation productivity • Track and trace throughout value chain is core capability, which require close crossenterprise collaboration • High productivity should be achieved by maintaining high utilization of factory /equipment through inter-company collaboration (Industry 4.0 could be viewed as implementation of “Shared Economy” in manufacturing ecosystem )

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Key implication of Industry 4.0

Big Data / Analytics is a key value-adding factor in Industry 4.0 Next level intelligence/Smartness should be achieved in manufacturing operation

Data & Analytics is a core capability for Industry 4.0. Strategy& | PwC

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Key implication of Industry 4.0

Commoditization of “manufacturing” should be anther driver of Industry 4.0 movement Industrious/diligent labors and unparalleled mastery can rarely be Competitive Advantage anymore

Factory level digitalization/automation cannot be differentiation factor, but just a ticket to the competitive arena

Industry 4.0 should be the way by which manufacturing sector in developed/matured countries maintain competitive edge

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1. Introduction: Review of Industry 4.0 – Key implication for Japanese Manufacturers

2. Key findings from PwC 2016 Global Industry 4.0 Survey – Hypothetical Issues in Japanese Companies

3. Recommendation to Japanese companies – Suggested Approach to Overcome Challenges

Strategy& | PwC

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2016 PwC Global Industry 4.0 Survey

Over 2,000 companies in 26 countries participated in PwC’s Global Industry 4.0 Digital Operations Survey Industry split

Participating countries

Methodology: Based on research conducted between November 2015 and January 2016 with over 2,000 senior executives from industrial products companies in 26 countries. The majority of participants were Chief Digital Officers or other senior executives with top-level responsibility in their company for Industry 4.0 strategy and activity. Results were weighted by country GDP to provide a balanced view in global. Strategy& | PwC

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2016 PwC Global Industry 4.0 Survey

Several important insights are gotten from the survey

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Big investments with big impact: Its time to commit

Industry 4.0 - From talk to action and implementation

Industry 4.0 is accelerating globalization, but with distinctively regional flavor

6 5

Robust, enterprise-wide data analytics capabilities require significant change

Data analytics & digital trust are the foundation of transformation

1

Digitization drives quantum leaps in performance

I4.0

2

3 4

Deepen digital relationships with more empowered customers

Focus on people and culture to drive transformation

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Finding for Japanese companies – Digital Operation

In general, Japanese companies are confident about overall digitalization level… Question: How would you classify the current level of digitization and integration in the following areas in your company? // What levels of digitization and integration are you expecting in the next five years? 33% Today

Global Total

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DACH DK E/PT FR IT NL S UK CN IN

DK E/PT FR IT NL S UK CN IN

19 38 27 31 35 9 40 27 41 27 9 31 40 35

In 5 years

Global Total

82

DACH

26

JA ME SA BR CA MX US

72%

+39%

47

71

Low

60 76 59 69 77 74 64 65 82

JA ME SA BR CA MX US

62 64 72 57 77 76

Note: Figures in percent Strategy& | PwC

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Finding for Japanese companies – Digital Operation

… while many Japanese companies are concerning about unclear future vision and next investment target Question: Where are the biggest challenges or inhibitors for building digital operations capabilities in your company? Japanese companies’ challenge 59

Lack of a clear digital operations vision and support / leadership from top management

20 59

Lack of digital culture and training

26 61

Unclear economic benefit of digital investments

34 21

Concerns around loss of control over your company's intellectual property

10 27 27

Lack of digital standards, norms and certification

33 13

Slow expansion of basic infrastructure technologies

German companies’ challenge

21 16

High financial investment requirements

Insufficient talent

Japan Germany

29

Unresolved questions around data security and data privacy with external data

Business partners are not able to collaborate around digital solutions

High-level strategic issues

41 1 29 10 43

Concrete practical issues

Note: Up to three mentions possible; figures in percent

Japanese manufacturers might not have a clear Industry 4.0 / digital operation vision and strategy… Strategy& | PwC

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Finding for Japanese companies – Analytics

Japanese companies tend to struggle with “what to do”, while German’s are concerning more about “how to do” Question: Where are the biggest challenges in regards to the utilization of data analytics? Japanese companies’ challenge 36

Lack of Top Management support or willingness to invest

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Lack of opportunities to use big data analytics to your company's benefit

41 26 28

Uncertainty regarding data property or data security

49

Lack of analytical methods or algorithms to be applied

58 33

Lack of skills and competencies in your company's workforce Uncertainty whether or to what extent data privacy laws allow analysis

57 11 29

Germany 57

25

Poor existing data quality

Note: Up to three mentions possible; figures in percent

Japan

35

Poor access to relevant operations data

Inability to divide irrelevant from relevant data in the data collection process

High-level strategic issues

50

54 21 52

Concrete practical issues

German companies’ challenge

Japanese manufacturers might not have a clear business vision/strategy for “Analytics” in digital operation area Strategy& | PwC

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Finding for Japanese companies – Analytics

Japanese companies rely more on external experts than German companies Question: How are you planning to improve your data analysis capabilities in the future?

60

Partnerships or co-operations with technology providers

48 50

Increase skill levels/ technology in-house

73 37

Partnerships or co-operations with skill or training provider

52

Germany

15

Acquisition of teams or data analysis companies

Japan

19 0

None of the above

10

Note: Multiple answers possible, figures in percent

Japanese manufacturers may not clearly position “Analytics” as future core competency yet, while others do … Strategy& | PwC

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1. Introduction: Review of Industry 4.0 – Key implication for Japanese Manufacturers

2. Key findings from PwC 2016 Global Industry 4.0 Survey – Hypothetical Issues in Japanese Companies

3. Recommendation to Japanese companies – Suggested Approach to Overcome Challenges

Strategy& | PwC

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Recommendations

It should be the first step to clarify vision and agree on transformation strategy and roadmap • Well understand industry trends and essential nature behind Buzzwords – Inevitable change in manufacturing and supply chain competitive dimension – Shift from local optimization to total optimization – Shift from Close to Open – Next level of “Intelligence” through Big Data / Analytics • Revisit, analyze and fully understand your industry (products, customers, and overall ecosystem) and its possible future scenarios • Establish your vision and develop strategy/roadmap to achieve it – New business model – New partnership and collaboration – New mind-set (corporate culture) and skills, in addition to new technologies • Implement the strategy, giving bold investment (monetary and human resource)

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Contacts

Masahiro Ozaki Japan Industry 4.0 Lead PwC / Strategy& Partner, Japan +81 90 7192 6491 [email protected]

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Stefan Schrauf German Industry 4.0 Lead PwC / Strategy& Partner, Germany +49 151 4612 3326 [email protected]

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© 2016 PwC Consulting LLC. All rights reserved. PwC refers to the PwC network member firms and/or their specified subsidiaries in Japan, and may sometimes refer to the PwC network. Each of such firms and subsidiaries is a separate legal entity. Please see www.pwc.com/structure for further details.

Disclaimer: This content is general information purposes only, and should not be used as a substitute for consultation with professional advisors.

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