President Ferdinand Marcos Jr., during a recent Arangkada forum, asked business leaders to invest in education and skills training, and research and development (R&D) given a looming global cost-of-living crisis and surging inflation. Specifically, he said that manufacturing sector development would greatly contribute to expanding the economy.
The only way to accelerate local industry development is for micro, small and medium enterprises (MSMEs) to adopt more efficient and productive ways of making, storing, and distributing goods and services. This is where Industry 4.0 comes into play.
It has been more than a decade since the world was introduced to the term at the leading trade show for industrial technology in Germany, the Hannover Fair, in 2011 where it was referred to as Advanced/Smart Manufacturing or the Industrial Internet of Things.
Industry 4.0 has since then been used interchangeably with the Fourth Industrial Revolution, which refers to the transformation of industrial companies’ ways of manufacturing, improving and distributing their products through the integration of modern technologies such as the Internet of Things (IoT), cloud computing and analytics, and artificial intelligence and machine learning.
Smart manufacturing, a proxy term for Industry 4.0, has been widely adopted in Western companies. In a medium-sized pasta manufacturing plant in Italy that we visited a few years ago, we only saw three employees whose tasks were to oversee the functioning of the robots that processed, manufactured, and packaged pasta products. In the Philippines, a same-sized pasta plant would employ hundreds of workers.
Where are Philippine MSMEs in their adoption of Industry 4.0? I got insightful answers during the recent Regional Celebration of the 2022 National Science and Technology Week in Central Luzon, organized by the Department of Science and Technology (DoST).
Franz Joseph Libao, senior science research specialist at the Metals Industry Research and Development Center (MIRDC), categorized the Industry 4.0 readiness of MSMEs in Central Luzon in terms of three levels:
– “None” means production processes are executed by humans, and repetitive production and support processes are not automated;
– “Basic” means production is executed by humans with the assistance of equipment, machinery and computer-based systems where repetitive processes are partially automated;
– And “advanced” means that production is predominantly executed by equipment, machinery and computer-based systems.
The MIRDC visited 262 Central Luzon MSMEs that were engaged in food processing, fabrication and agriculture, and evaluated their Industry 4.0 readiness. It found that 90 percent were in the basic level while 8 percent and 2 percent were in the none and advanced levels, respectively.
The MIRDC then offered proposals to upgrade the MSMEs’ use of technology, classified under three types:
– Industry 2.0, involving the use of electric motors, machines running on electricity/motor control/circuit protection and solar-powered systems;
– Industry 3.0, involving the use of electronics, programmable logic controllers, computers, industrial robots, temperature, pressure and humidity controllers, level/proximity sensors, timers; and
– Industry 4.0, involving the employment of IoT, smart sensors and enterprise resource planning.
Only 10 out of 222 proposals were implemented by the MSMEs, primarily simple Industry 2.0 and 3.0 technologies involving the installation of a motor protection system and troubleshooting automated equipment. None of the MSMEs leapfrogged to adopt Industry 4.0 technologies.
Technology adoption barriers noted by the MIRDC were:
– Technical-related, including the lack of available machinery, slow deployment of R&D outputs, no access to working prototypes, and no R&D and innovation initiatives;
– Finance-related, such as high investment costs and risks of losses, manual/semiautomatic machines only suitable for small-scale production, no capital for equipment upgrade, limited market reach and abundance of cheap labor;
– Competency-related, particularly the lack of skilled workers and insufficient training and support;
– And sociocultural-related, such as the lack of technology upgrading plans and fear of worker displacements.
In our engagements with MSMEs, we always encounter abundance of cheap labor, lack of skilled workers and worker displacement fears as reasons for not adopting technologies. These are all aligned with the low digital competency skills of workers in the country based on a regional study.
The current administration and agencies, such as the DoST and the Department of Trade and Industry, should step up to address these barriers. They can seek help from the private sector and business groups to enable MSME adoption of Industry 4.0 in order to leapfrog to the next level of capabilities needed to become competitive in global and local markets.
The author is the founder and CEO of Hungry Workhorse Consulting, a digital and culture transformation consulting firm. He is a fellow at the US-based Institute for Digital Transformation and teaches strategic management in the MBA Program of De La Salle University. The author can be emailed at email@example.com.