Sensing a revolution

04.04.2016

2-Urazalin-4It could be said that Industry 4.0 (also  known as Internet-of-Things) is currently non-existent in Kazakhstan, and proclaim the subject closed, however it is clear that it will not remain this way forever.

As far as Industry 4.0 is concerned the rest of the world didn’t leave Kazakhstan far behind: even in Europe where this concept was born and developed (first in Germany in 2013 and later in the EU) pilot experiments in implementation are scheduled for 2016, and full implementation for as far away as 2025.

What is Industry 4.0?

Industry 4.0 is a principle of production organisation, which implies not only interaction of humans and machines but machines interacting with each other and the digital reality anticipates and compliments the physical. When deviating from set parameters the machine engages set protocols that are designed to self-correct the errors or alerts people or other machines. For instance, if the gas sensors in a mine sense abnormally high gas levels, the system doesn’t only alert human manager but also automatically activates additional ventilation systems.

Industry 4.0 is based around the internet of things, internet services and cloud-based technologies for data transfer. It completely envelops the production chain, so changes of parameters at one stage (for example, metal content in the ore) automatically trigger necessary changes in the other (in this case, the ingot smelting schedule will be adjusted appropriately). Industry 4.0 implies that every piece of machinery will have a digital copy, which allows evaluating its performance in real time. All received information is updated and stored allowing not only to predict future failures (and therefore cut repair time), but also to order required replacement parts or new equipment.

For new production, digital modeling based on accumulated statistics will allow to create and evaluate different possible project solutions, finding the most efficient configuration based on precise valuations instead of personal preferences.

Possible problems

The Policy Department A: Economic and Scientific Policy of the European Commission in their study conducted for the ITRE Committee outlined the key issues to be solved when implementing Industry 4.0.

First one is the standardisation of systems, platforms, protocols and interfaces. Compatibility is required to ensure the systems and machines could interact regardless of different producers and system organization.

The second possible problem is that a new organisation of work will require new business models. The report notes that real-time oriented control will transform work content, business processes & environment, resulting in increased responsibility and continued professional development required of individuals. This will require a concerted effort off all stakeholders in order to succeed.

The third problem is product suitability for both mass production and individual customer.

The fourth problem is lack of clarity in terms of costs and risks involved in implementing new organizational principles and a question of who would have to foot the bill if the initiative turns out to be a failure.

The fifth problem is security and protection of intellectual property and technologies, especially from getting stolen and copied in the countries with little IP regulation. There is also a question of investment volumes ratio in relation to provision of adequate security of workers and production sites, including from unauthorised access.

The sixth problem – human resources required to operate an enterprise organized by the Industry 4.0 principles. Important questions- who will invest in workforce re-education that could supposedly take many years? And what’s in store for those who couldn’t be re-educated?

The seventh problem is finding people capable and willing to do the research on implementing Industry 4.0.

Finally, the eighth problem is the legislative readiness of countries and unions of states for introducing the principles of Industry 4.0.

Possibilities

The Boston Consulting Group (BCG) calculated potential impact of Industry 4.0 in Germany. According to their calculations, in 5-10 years’ time the country should expect the total productivity gains of 5-8%  or 90-150 billion euro. The revenue should grow by about 30 billion euro, or 1% of German annual GDP. The growth is based on a supposed increase in demand for improved equipment and data processing applications as well as growing demand for personalized goods.

However, the implementation will require investment of 250 billion euro over the same 10 year period.

There are two ways of evaluating the employment impact:  on the one hand automation and technological innovations in industrialization in the past always led to job losses. On the other hand, BCG predicted a 6% growth in employment during 10 years. The experts admitted that unskilled workers may be dismissed, but the demand for engineers and mechanics as well as software and IT specialists, on the contrary, will grow.

Another factor that makes Industry 4.0 crucial for Germany is the fact that Bosch and Siemens- two of the biggest German industrial equipment manufacturers are heavily involved in developing the concept.

The Kazakh experience

Kazakhstan is already seeing a number of elements required for implementing Industry 4.0. The main reason for investing in them is an opportunity to improve control and cut losses and therefore reduce costs of production. An automated accounting system of material flows was installed at the ArcelorMittal Temirtau sinter production plant. The main objectives were statistics accumulation and processing, controlling different stages of production and creating error free reports. According to Siemens (who were involved in the project) corporate publication “The Future of Industry”, the project involved fitting the conveyer with precision weighing equipment that connected to a server, while the interface showed a graphic representation of the current status of the technical equipment and historic data in the shape of graphs and reports. According to “The Future of Industry” this innovation allowed ArcelorMittal Termitau to quickly identify and eliminate the sources of technological losses of raw materials and equipment faults (cutting downtime and time spent on repairs), to track material flows and decrease production costs by constant stock valuation and better data on the value of raw materials already in storage. The publication doesn’t mention by how much has this decreased production costs.

McKinsey&Company  is another company planning to implement technologies that tie in with Industry 4.0. In order to deduce how Industry 4.0 implementation will affect companies they conducted a study. It was found that about half of the respondents in the US and Germany (50% and 56%) reported good/considerable progress as a result of implementing Industry 4.0, while in Japan only a small minority (16%) noted a good level of progress. Technology suppliers declared a bigger progress (47% good/considerable progress) then production plants (where only 37% reported a good/considerable progress).  In Kazakhstan, in order to develop Industry 4.0 McKInsey together with Almaty TechGarden are planning to open a Competence Center. Currently the partners are registering a legal entity. According to Sergey Kiselev, the McKinsey & Company partner in Almaty, the partners deliberately chose a direction that doesn’t only concern producers but also has a social aspect. The Centre will concentrate on three main areas.  First one – company audit and identification of imperfect and weak data flows in order to improve company’s productivity. Second – development of training program modules on advanced analytics. Here experts will explain how to collect, process and analyse data and how to analyse correlations between various parameters and find their optimal configuration. The programme also offers review and evaluation of analytics tools, offered by different equipment and software producers.  “First we educate some people and later, after they take part in the launch of the pilot project, workers from other departments will come, see how it works and also learn” – explains Sergey Kiselev.  The third area deals with installation of a laboratory model of production line at the Kazakh National Technical University.  “We will also equip this model with sensors, which will provide data in real time.  We will look at correlations, and make certain findings and learn” – said Mr Kiselev.

The Almaty TechGarden involved in creating the Competence Centre project will get funding from the 1% revenue tax which mining companies are required to pay into the national R&D budget.

Apart from taking part in creating the Centre, Almaty TechGarden works with start-up teams that develop projects for miners, running quarterly competitions that are judged, among others by the mining companies themselves.

At present the judges treat the projects with a dose of scepticism: “The start-ups have to be attractive from the practical, financial point of view but most people presenting projects that I saw, directly said that they didn’t make any economic calculations. Wind turbines and green energy is all good, but my economist would be surprised were I to show them those projects, since they will never pay off. The main focus should be on addressing the problems of specific businesses.” –advised Pavel Semchenko, General Director of the Sary Kazyna LLP who judged one of the competitions.

“It is good to see that the Autonomous Cluster Fund Almaty TechGarden is making steps towards mining companies, in order to have a special platform for dialogue on the subject of compulsory 1% annual income tax for R&D mining companies currently have to pay. For us, it’s of utmost importance to be sure this money funds practical projects that can be used by the Mining and Metals companies. Apart from that, we are extremely interested in keeping the actions of ATG as transparent as possible. It’s the mining companies’ right to have influence on the fund’s spending decisions. Perhaps, this function should be attributed to AGMP”-noted the Executive Director of the Association of Mining and Metallurgical Enterprises Nikolay Radostovets.

The Association believes that in times of crisis it would make sense to deduct the tax from profits as opposed to total annual income. “In my opinion, mining companies together with the Ministry of Investment and Development, Almaty TechGarden, the NURIS Project at the Nazarbajev’ University, as well as the Kazakh scientists working in the field of Mining and Metals research need to collectively define some concrete parameters and amounts to be allocated for development from the efficiency standpoint. Such approach would allow to rationally target payments for the most successful Kazakh innovations for mining industry.”- diplomatically noted Mr. Radostovets.

Kazakhstan’s problem is not only the question of existence or lack of technologies, qualified workers, legal suitability or good will. Improvements  in the framework of the 4.0 Industry can work in Kazakhstan, but only on condition of business integrity- and many experts agree that there might be a problem with this. The sensors can improve production transparency, but they can be easily re-calibrated, switched off or simply covered (in case of gas analyzers in mines). The computer generated models can be altered manually. To track this deception will be difficult as it will also become more high-tech, and its detection will require even higher qualifications.


 

Almaty TechGarden  is planning to present 18 start-up projects at  MINEX Central Asia Forum in Astana on 20 and 21 April.

By Irina Dorokhova, Content Manager, MINEX Central Asia Forum