Industry 4.

0:
The future of the
Czech F&B
industry – Big
opportunity or
existential threat?

Prague, September 2016

A few words about me

Philip Staehelin
Managing Partner
Roland Berger Prague

> 21 years consulting & industry experience, including:

– CEO of CCS (fuel cards and telematics), other executive roles in A.T.
Kearney, T-Mobile, Accenture and UniCredit
> Pilot "Executive-in-Residence" at StartupYard (Prague), and mentoring
startups of other accelerators in the region
> Angel investor, and entrepreneur (founded 4 startups)
> Represented the Czech Republic startup community in Silicon Valley for
the Visegrad 4 Startup project
> MBA from INSEAD

Source: Roland Berger 2

Roland Berger is the only strategic consultancy of European origin –
We provide strategic advice to the world's top decision makers
Roland Berger: Company overview – Top global management consulting

1967 in Germany by Roland Berger

Founded in

50 offices in 34 countries, with around 2,400 employees

Nearly 220 RB Partners currently serving

~1,000 international clients

Austria, Vienna; Bahrain, Manama; Belgium, Brussels; Brazil, São Paulo; Canada, Montreal; Croatia, Zagreb; Czech Republic, Prague;
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Singapore; South Korea, Seoul; Spain, Barcelona, Madrid; Sweden, Gothenburg, Stockholm; Switzerland, Zurich; Thailand, Bangkok;
Ukraine, Kyiv; United Arab Emirates, Dubai; United Kingdom, London; USA, Boston, Chicago, Detroit

Source: Roland Berger 3

Content

A. Industry 4.0: from global buzz to reality

B. Industry 4.0 readiness of F&B in the Czech Republic

C. Czech Republic to prepare for Industry 4.0 – Next steps

Source: Roland Berger 4

 A

The global manufacturing industry is gearing up for the next level of

industrial revolution – Industry 4.0
Development stages of industrial manufacturing
First industrial Second industrial Third industrial Fourth industrial
revolution revolution revolution revolution?
1.0 2.0 3.0 4.0

1784 1923 1969 2014

Mechanical weaving loom Introduction of a "moving"
Introduction of mechanical assembly line at Ford
production assets based Motors
on water and steam power Introduction of mass
production based on division
of labor and electrical energy
First programmable logic
controller (PLC)
Introduction of electronics
and IT for higher automa-
tization of production
Real time, self optimizing
connected systems
Introduction of intelligent
machines, embedded cyber-
physical sensors,
collaborative technologies,
and networked processes

Source: Bitkom/Fraunhofer, DFKI, Roland Berger 5

 A

Industry 4.0 can be understood as the full integration and

digitalization of the industrial value creation
Definition of Industry 4.0 (not exhaustive)
> Digital transformation refers to the changes
Digital transformation associated with the application of digital
technologies in all aspects of human society
> Industry 4.0 is the industrial application of
Car sharing Wearables Mobile devices the concepts applied in the digital
transformation, key elements are:
– Complete connectivity with real-time ability
Cloud data Apps – Decentralized, intelligent and self
Private robots
optimizing/organizing
Industry 4.0 – Modular and reconfigurable
> Assessment of Industry 4.0 impact needs to
E-Commerce take analogies from digital transformation
Smart handbooks Self-learning
robots
Contactless pay and specifics of the manufacturing industry
into account
Smart Home > The digital transformation in the consumer
Self-optimizing
Predictive goods sector is much more advanced than
systems
Maintenance Home robotics the industrial application

Source: Plattform Industry 4.0, MIT Sloan Management Review, Roland Berger 6
 A

Interlinking of real (physical) and virtual (cyber) world will lead to so

called cyber-physical systems that determine Industry 4.0 solutions
Schematic interlinking of physical and virtual world – Examples
Physical world Cyber world Industry 4.0 solutions Characteristics/Goals
> Robotics > Advanced algorithms Self-learning > Connectivity as the key
> Automation equipment > Machine learning robots factor is linking both
worlds in each solution
> High-performance
hardware > Enable
– Individualized or mass
> Traditional machinery > Advanced data analytics Predictive customized products
> Traditional & > Database mgmt. systems maintenance – Highly flexible
semiconductor based > Cloud computing production
sensors – Integration of
customers and value
> Traditional machinery > Embedded systems Self- adding partner
> RFID > Real-time image reconfiguring into value creation
processing (e.g. OCR) machines – Coupling of production
> Automation equipment
> Data storage hardware and high-value
services
> Camera & imaging systems > Real-time image Smart environ- – Cost and efficiency
> Visual sensors processing ment recognition benefits and quality
> Advanced data analytics improvements
> Traditional sensors
> Advanced algorithms

Source: Roland Berger 7

 A

Industry 4.0 combines a wide set of technologies becoming well

known – Across the 5 dimensions of the Industry 4.0 ecosystem
Product 1
design/ Monitoring/ 2
process Monitoring, control
command
Virtual
Interconnected
Traceability
industrialization Flow
machines & plants
"Virtual manufacturing Active sensors management
plant" digitalized, Remote monitoring,
production process mobile app, shared
simulation databases Thermal, hygrometric, Automated logistics/ Precision
counting sensors... Internet of Things Manufacturing 3
CFAO Centralized "Smart" machine operations
planning and Per piece Shared GPAO (self-correction)
management RFID tracking
Automated
Laser sensors, vibra switches, Flexibility
of machines corrective programs
Gravage laser, internal logistic Additive
PLM MES manufacturing
flashcode, GPAO, Precision 3D printing,
puces PLM, engineering Intelligent Assist Cobotics Services
CAO, Digital Batch RFID GV grinding, Devices 4
IAO command mana- Digitalization laser cutting, Multi-support and
multi-operation
(integration,
HFwelding Conditional
gement of order-
flow
Traditional
Transfer
machines
Big data, maintenance
maintenance)
techniques
Programmed/ center télémaintenance
De-programmed Retrofit
machines SNC, programs,
Machine
installation
multi-spindle, etc.
Augmented operator
Work 5
Duty
organization Learning organization organization
Task specialization Lean Manufacturing

Available maturity/ Emerging maturity/ Future maturity/

Industrial diffusion Limited diffusion Precursors

Source: Roland Berger 8

 A

Most industrial players have launched Industry 4.0 pilots to test

those solutions in legacy plants – F&B industry is catching up
Smart Collaborative Conditional Humanoid
production robotics maintenance robotic

MOST INDUSTRY 4.0 TECHNOLOGY BRICKS ARE EXISTING

Intelligent 3D food Traceability Augmented
logistic bins printing reality

Source: press review, companies websites, Roland Berger 9

 A

A few projects and concepts are emerging and look extremely

promising in the manufacturing world – Examples food & beverage
Smart production Collaborative robotics
> Integrate production units from different > Robots pick 2 waffles each based
manufacturers via software interface to enable smart on visual line tracking and collision
platforms guard
> Reduce machine integration costs through faster > Number of waffles and their position
integration of on the conveyor belt is communica-
production ted to robots via camera
and packaging > Robot controller assigns an
lines equal amount of waffles to each
robot while avoiding collision
Industry when picking the waffles
Unit #1 Unit #2 Unit #3 4.0 in the food
Traceability & beverage 3D food printing
industry

> Personalize food based on

selected ingredients,
nutritional components,
> Modern track-and-trace technology documents product flow and medication etc.
enables each item to be tracked back- and forwards > Flexibly produce custom
> Data stored in corresponding database, which can be connected output (mass customization)
to other IT systems e.g. SAP > Shape individual products
> Example: Meat industry – identification of slaughtered animal to creating new shapes,
finished meat pack possible textures, etc.

Source: Arla, ABB, TNO, RSW BV, Roland Berger 10

 A

The goal of 'Industry 4.0' is the intelligent factory which is

characterized by adaptability, efficiency and a full digital integration
Factory 4.0 – Overview
> Give sense to complexity
Cybersecurity Big data > Creativity
> Stronger protection for Cloud > Collaborative manufacturing
internet based computing > Customer & marketing intimacy
manufacturing > Flexibility
> Technology products > Perfect match with customer's
Sensors Advanced > Cyber Physical Systems (CPS)
with longer life cycle needs with production mass
> Digital command
Cluster of suppliers
> Zero default/deviation manufacturing – Full automation
efficiency
> Reactivity systems > On demand manufacturing
Suppliers > Traceability – Totally interconnected systems
> Predictability – Machine to machine
communication Mass
customization
Clients

3D printing/ Nanotechnology/ Autonomous

Robot
Logistics 4.0 additive manufacturing Advanced materials vehicle Internet of things
> Scrap elimination > Smart value added products > Real time – Autonomy – > Flow optimization
> Fully integrated > Mass customization > Technical differentiation Productivity > Increased security > Object tagging
supply chain > Rapid prototyping > Connectivity > Full transparency on data > Lower costs > Internet-object communica-
> Interconnected reporting Plant of the future A tion via low power radio
systems Plant of the future B > Real time data capture
> Perfect coordination Cluster of plants > Optimized stocks
> Reduced wastes
> Clean and renewable energies
everywhere
Resources of the future > Energy Storage
> Alternative raw materials
Wind Alternative/non conventional Solar Geothermic

Source: Roland Berger 11

 A

Data and communication will be the backbone of Industry 4.0 –

Some players with already wide offering and new players entering
Positioning of different players for Industry 4.0 – Factory view
Client

"Virtual" Production
routing

Building automation

Factory 4.0
ERP System

MES System M

M
M
M

Controls & Automation

MES System
New players
ERP System MES System Sensors/Automation Building Automation 3D Data Big Data Services

Data/ > All transaction data > Shopfloor transaction > Sensor status like > Status of all building > Product 3D data > Storage capacity
Funct.1) > Asset data data pressure, position data, e.g. temp., light, > Factory 3D data > Algorithms and
> Price/cost data > Machine data etc., communication access control, > PLM data analytics
> Maintenance data with other sensors ventilation > Connectivity
> Logistic data > Machine control data
Players1)
1) Not exhaustive; examples only

Source: Roland Berger 12

 A

Industry 4.0 is changing the paradigm of manufacturing strategy…

Industry 4.0 – Characteristics

1 From mass production

to mass customization
Flexible production, short production lead time enabling new business models
emergence and affordable customization

2 From volume scale effect

to localized & flexible units
From large factories specialized per product in LCC to smart factories with high
technological equipment enabling to produce at competitive cost everywhere

3 From planned make to stock

to dynamic make to order
From an organized production, based on planning and forecast and supported
by stocks, to dynamic production and yield management, on demand

4 From product
to usage
Integrated conception, services being a key element of the business model/
decision factor

5 From cost driven

to ROCE driven
Higher ROCE for lower Capital employed as complexity is transferred to the
digital elements and working capital needs are reduced

6 From taylorism
to flexible work organization
Remote work (augmented reality, permanent connectivity), Tasks parallelism,
flexible organization and management

7 From hard working conditions

to attractive work space
Development of complex artisanal production, with clean/highly connected work
space, white collars intensive

Source: Roland Berger 13

 A

… and will significantly change the rules of the game; It offers

enormous upside to the new winners, but kills non-innovators
Industry 4.0 – Expected benefits

1 Design and manufacture better products – Industry 4.0 will enable adaptation of manufacturing
methods by region e.g. automated zero defect manufacturing

2 Improve process efficiency and save costs – It would connect digital and real processes to identify
and address manufacturing issues in advance, e.g. a quality issue
Create new business models – Industry 4.0 would disintermediate value chains or change the
3 business rules itself e.g. Value chain will become more visible and need for intermediaries might be
eliminated
Generate additional business – New 'Industry 4.0' comers would be the future game changers e.g.
4 3D bio-printing for fabricating biological constructs to produce soft tissues and artificial bones would
help in generating additional business

5 Unleash innovation – It would free up additional creativity to fully leverage digital potential e.g.
demand for business-model innovation is currently rising

6 Rethink organizations – Industry 4.0 would make organizations more responsive and flexible e.g.
R&D teams would be able to leverage on global expertise at a faster rate

Source: Roland Berger 14

 A

But… 'Industry 4.0' is a long journey and technologies will take

10-15 years to reach maturity in the market
Industry 4.0 roadmap
Transition to
"True Industry 4.0"
Broad adoption of
Isolated/selective standard solutions
Laboratory pilot installations
2025+
solutions
Existing Factories
(Brownfield) 2030+
New Factories 2020
(Greenfield)

~2018 2025 Along the lifecycle of most

production machinery the

Today ~2020 The penetration of the

Mainly showcases or
laboratory solutions in
development
In next years mainly
technology driven
isolated standalone/plug-in
solutions will be developed
market with isolated
transition to true Industry
4.0 will start to be more
solutions will lead to an comprehensive once most
interconnection of many machinery, infrastructure
solutions via existing and employees are
connectivity channels Industry 4.0 ready

Source: Roland Berger 15

 A

Countries have prioritized Industry 4.0 in their future plans as a key

enabler for future growth – Czech Republic needs to catch up
Selected initiatives supporting advanced manufacturing and ICT in Europe
Issuer Program [content, funding volume] Eligibility CZ
BMGBF1) Future Project Industry 4.0 Support German industry for future challenges EUR 200 m

Fund for Digital Future Inventions Monetary support for R&D on embedded systems, big data and EUR 150 m
Society integrated objects
University of Warwick Manufacturing Group Different research initiatives focused on automotive & ICT EUR 229 m
Warwick
Innovate UK Catapult Centers Double manufacturing contribution to GDP EUR 370 m

Cleantech MIP Innovative cleantech and transition economy projects n.a.

Vlaanderen
Made different Factories of the Future 4.0 Support the development of "Factories of the future" EUR 8 m

CFI Intelligent factories clusters Structure Italian manufacturing community to develop & leverage EUR 41 m
research, with 4 projects
European Factories of the Future Financial resources for Research and Innovation dedicated to EUR 1.2 bn
Commission advanced manufacturing in the EU
✓
SPARC Robotics Support from EU to the robotics industry from R&D to production EUR 700 m
(part of Horizon 2020)
✓
Digital Convergence Foster the digital convergence throughout the EU (part of the EUR 10 m
European regional development fund ERDF)
✓
Future Internet Technology Advance future internet usage across EU countries EUR 300 m
✓
1) Federal Ministry of Education and Research

Source: European Commission, Roland Berger 16

B. Industry 4.0 readiness
of F&B in the Czech
Republic

17
 B

A country's 'Digital Transformation' indicators can serve as a proxy

for Industry 4.0 preparedness – And it shows CZ needs to catch up
Czech ranking in "Business Usage Index"
"Leader" "Underperformer" Czech ranking

Business Usage #32

Technology absorption
at company level #50
Innovation capability #28
International patents,
apps/million of people #29
Internet usage for B2B #25
Internet usage for B2C #12
Employee training and
development #55

Source: WEF Global Information Technology Report 2015, Roland Berger 18

 B

CZ goes against the trend of de-industrialization, which means it has

much to gain, but even more to lose, in regards to Industry 4.0
Manufacturing share of gross value added in selected countries, 2000 vs. 2014 [%]
22%
15%
32%
16% 28%
15% 23% 23%
12% 11% 18% 19% 21% 19%
26% 27% Russia

USA UK

Germany Poland China1)

16% Japan
11% 10% 11%
Czech
17%
republic
13%
France 11%9%
Austria
12%
18% 7%
Portugal 20%
13% Greece
Global Average 15%
Australia
2000: 17%
Spain
Italy
2014: 16%
1) 2004 vs. 2014

Source: UNCTAD, Roland Berger 19

 B

Czech Manufacturing GVA in the Food & Beverage segment is

slowly declining – Both in absolute and relative terms
Sector-wise contribution to GVA Czech Republic [bn EUR, %]
Sector-wise contribution to GVA [bn EUR, %] Comments
Food & 10.4% 10.0% 9.0% 8.4% 8.0% 7.6% > The Czech F&B industry's GVA has fallen by 7% from 2009 (EUR
Beverages1) 3.2 bn) to 2014 (EUR 2.9 bn)
143 > The F&B industry in the Czech Republic accounts for 8.0% of
132 133 135 135 135 manufacturing GVA, but manufacturing GVA is heavily skewed by
the automotive sector (unlike in Poland)
27%
Manufacturing 23% 23% 24% 25% 25%

F&B share1) of Manufacturing GVA, 2013 [%]

Construction,
Utilities, Mining 37% 37% 37% 37% 37% 38% 16.8
& Quarrying Ø EU 28
14.5
9.9
8.0 7.3 7.1
Services 7.0
39% 38% 36% 36% 36% 33%
Agriculture
& allied activities
3% 2% 2% 3% 3% 3%
Poland0 Hungary Czech Germany Slovakia Slovenia
2009 2010 2011 2012 2013 2014
Republic
1) Share of value added in manufacturing total
GVA = Gross Value Added = GDP + subsidies – taxes on products
Source: Eurostat, UNdata, Ministry of Agriculture of the Czech Republic, Roland Berger 20
 B

Because of its reliance on industry, the Czech Republic needs to

ensure it becomes a Frontrunner… or it will put its economy at risk
Industry 4.0 readiness – Positioning European countries for Industry 4.0
Roland Berger
Industry 4.0
Readiness Index1)
High Germany
Norway Belgium Finland Sweden
Denmark
Netherlands Austria Frontrunners
UK Potentialists
Luxemburg France

Italy Slovenia Slovakia Czech Republic

Hesitators Spain
Portugal Estonia Lithuania Hungary
Cyprus Poland
Croatia
Greece Latvia
Traditionalists
Bulgaria Romania Manufacturing
Low
share
Low High [% GDP; index]
1) Based on industrial excellence (production process sophistication, degree of automation, readiness workforce and innovation intensity)
and value network (focus on high value add, industry openness, innovation network, internet sophistication)
Source: Roland Berger 21
C. Czech Republic to
prepare for Industry 4.0
Next steps

22
 C

A dedicated and focused approach is needed to increase the Czech

Republic's readiness for the Industry 4.0 revolution
Required focus areas to address Industry 4.0
Government/ Accelerate Adoption of Establish Foster Develop a
1 Regional
support 2 Innovation
3 best
Practices 4 Infrastruc-
ture 5 New Talent
6 Roadmap

> The Government > Public and > Industries need > The digital > Besides > Each company
would need to private partners to adopt the aspect has infrastructure, this needs to identify
support in have to global best become mission- dynamic digital the objective and
creating a collaborate practices in four critical for many environment also potential of
suitable closely to boost major domains: products and needs to foster Industry 4.0 for
ecosystem by innovation – Business Model services new talent their firm and
investing in develop a tailored
infrastructure, > In Czech Republic, – Value Chain > Therefore, "new" > Backward looking strategy
power, data industrial bodies – Financial Base industry needs a education accordingly
connectivity need to take the competitive policies and
lead in – Knowledge environment that ancient content > Top down
> Czech promoting base fosters dynamic will need to be organization
companies will innovation by > Widespread telecommunicatio radical changed to change is
have to show providing avenues adoption of ns and Internet enable adoption required to
readiness to for stakeholders to global practices usage of Industry 4.0 implement the
adopt new come to a will ensure overall strategy and
technologies common forum growth generate buy in
across all levels

Source: Roland Berger 23

 C

Roland Berger helps prepare companies with a 4-step approach to

define an Industry 4.0 vision and prepare an implementable roadmap
Approach to define Industry 4.0 roadmap

1. What is your
company's 2. What are the
opportunities for 3. What is the
potential for your 4. Which
way to
objective? your company? company? excellence?

2 Customer needs/ 5 Prioritization of levers

differentiation Quantification of full 7
potential (financial, skills
…) & impacts
1 Implementation
3 Internal performance Opportunity roadmap and
Priority Objectives diagnosis identification program
6 Mapping of building governance
blocks (regulations,
4 Disruptive new technology, cyber
technological security, standards, …)
solutions

> Validated list of > Internal diagnosis of current > List of priority improvement levers > Operational roadmap
Key deliverables

priority objectives company 4.0 performance > Financial target impact on CAPEX, including key milestones
to cover through > Review of current initiatives Working Capital, Gross margin > Adjusted budget including
the program > Defined target for the company > Detail of impacts on job and skills program financial impacts
> Gap analyses to target (resource shift, new skills to capture) > Governance structure

Source: Roland Berger 24

Your contact in Prague

Philip
STAEHELIN
Managing Partner
E-mail: philip.staehelin@rolandberger.com
Tel: +420 210 219 511

Roland Berger GmbH

Na Poříčí 24, 110 00 Praha 1

Source: Roland Berger 25