Industry 4.0: Implications for SMEs in Singapore

Industry 4.0: Implications for SMEs in Singapore

Industry 4.0, or I4.0, has increasingly featured in conversations about changes taking place in the proverbial factory floor and the future direction of the economy.

Featured Image Source: EDB

But first, some background. I4.0 takes place in the larger context of the Fourth Industrial Revolution characterized by a fusion of technologies that is blurring the lines between the physical, digital and biological spheres. It is marked by emerging technology breakthroughs in a number of fields, including robotics, AI, nanotechnology, and the Industrial Internet of Things (IoT).

Industry 4.0 refers to the gradual convergence of traditional manufacturing and industrial practices with the fast advancing technological developments taking place. This includes using large-scale machine-to-machine (M2M) and IoT deployments to help manufacturers provide increased automation, better communication and monitoring, as well as self-diagnosis and analytics for greater productivity.

Image Source: I-Scoop

The factory floor will become more automated and autonomous as the machines in it are given the ability to analyse and communicate with each other and their human co-workers. This grants companies much smoother processes and frees up workers to focus on more value-added tasks.

Imagine this scenario in an I4.0 assembly factory. When an order is received, Automated Guided Vehicles pick the components from storage, batch them up and send them to the relevant workstations. Autonomous robots take over to assemble these parts, working in collaboration with human co-workers and each other, while advanced visual technologies perform quality control in real-time. I4.0 is not just meant for regular operations. When an urgent order comes in, the cloud-based planning system automatically calibrates the entire manufacturing schedule in order to optimise workflow and still meet all order deadlines.

Current Economic Challenges

Moving away from the factory floor to a higher vantage point at the national level, what will be the impact of I4.0 on the Singapore economy and workforce?

Image Source: Nikkei Asian Review

First, there is a need to look at the current challenges to the economy. Manufacturing accounts for about one-fifth of Singapore’s GDP and more than 400,000 jobs. But even as it is expected to remain a major component of the economy, regional competition and domestic restructuring have put considerable pressure on the sector.

Constraints, especially from a labour perspective, are serious. Having blitzed from third-world to first, Singapore now faces high costs, stagnant productivity and an ageing workforce in a global economy undergoing major changes. In such conditions, manufacturers are likely to find it tougher to go on like it is ‘business as usual’. There is a greater need for companies to rejuvenate business models, and workers to acquire the skills for new roles.

I4.0: The Next Big Thing?

This is where I4.0 can prove crucial, with technology that is able to address such constraints, and open up opportunities for innovation and new markets. Optimists say that I4.0 could be the next big thing for Singapore’s economy. According to a report by the World Economic Forum (WEF), Singapore is among the 25 countries best positioned to benefit from the rise of advanced manufacturing and smart factories.

Image Source: Weforum

Another study, by the Boston Consulting Group, certainly paints a rosy picture. The rapid adoption of I4.0 could boost Singapore’s labour productivity by as much as 30% by 2024. It is projected to add S$36 billion in total manufacturing output and revenue for local and foreign companies, and create 22,000 jobs with average salaries up to 50% higher than current ones.

I4.0 can have an impact on a wide range of manufacturing SMEs in precision engineering, textiles, food, and semiconductor and electronics, among other fields. They stand to gain from a number of potential benefits. From a company perspective, SMEs can find new revenue streams from the transformation of business models and expanding into new markets; acquire capabilities to serve more global customers with higher requirements; and better meet client needs by optimising the manufacturing process. From a labour perspective, SMEs embracing I4.0 can tackle manpower shortages through enhancing productivity and create value-added jobs for Singaporeans in the new digital economy.

Keeping Up with Change

The government has been active in helping SMEs navigate the challenges and opportunities of I4.0. It has pledged $3.2 billion from 2016 to 2020 to develop research and technological capabilities in the advanced manufacturing and engineering domain, formulate industry transformation maps and strengthen the workforce’s skill sets

A set of guidelines was launched in late-2017 to help manufacturers here build smart factories. The Singapore Economic Development Board (EDB), partnering with German manufacturing firm TUV SUD, launched the Singapore Smart Industry Readiness Index.


Video Source: EDB Singapore

The index is a diagnostic tool that companies across all industries and sizes can utilise to understand I4.0 concepts, evaluate their preparedness for it, and develop a roadmap for transformation. The index should be especially useful for manufacturing SMEs, many of which are unfamiliar with I4.0.

According to a senior EDB official, initiatives such as the index are part of efforts to enhance the competitiveness of Singapore’s manufacturing sector. He added: “Many companies often put technology first. With this index, we put people and processes alongside technology so that companies can maximise the potential of Industry 4.0.”

In another initiative, the Agency for Science, Technology and Research (A*STAR) launched two model factories in August this year, aimed at helping 500 SMEs here by providing them with an environment to learn about advanced manufacturing technologies.

Image Source: A*Star

The private sector too is getting involved. McKinsey & Company, the Boston Consulting Group and Siemens are among companies that recently launched facilities in Singapore to guide and advise manufacturers on their I4.0 journeys.

Is that Enough?

But is that enough? Given that I4.0 is such a major change, what other forms of support can SMEs turn to?

Companies, particularly SMEs, will need a greater range and depth of support in this complex transformation that will likely see constant changes in demand and technologies emerging from the global marketplace.

The products and services from capital solutions firms in Singapore like ETHOZ Capital allow business owners to improve their cash flow flexibility, enhance financial budgeting, and seize expansion opportunities that come with the I4.0 transition.

With new hardware such as machines involved in the digitalisation process, practical support from equipment leasing would make business sense as machine technology evolves and machine life cycles become shorter.

Hire purchase would ease the load on a company’s cash flow as capital expenditure on machines, training and maintenance can be spread out and funded as revenue is generated from increased productivity and new capabilities. Business loans are a solution for companies in Singapore to adapt to the disruption and transition to a more hi-tech economy.

Working in conjunction with the government, ETHOZ Capital is a participating financial institution for the Local Enterprise Finance Scheme (LEFS) administered by Enterprise Singapore, formerly known as SPRING Singapore, which aims to assist and encourage the growth of locally-owned SMEs through SME loans in Singapore. ETHOZ can authorise SME loans or business loans in Singapore of up to $15 million, which can be made available for factory or equipment upgrading, process automation, and for the purchase of new factory or business premises.

Given the complex challenges yet promising opportunities that I4.0 holds for Singapore SMEs, they will need to be proactive in adapting to the new business and manufacturing environment. Support from the government and private sector, be it technology advisory or financial services, will be imperative as they move forward.

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