Markets Germany - Issue 01/2018

The New Interface of Engineering

The Industrial Internet of Things is a multi-billion euro market on the move and a hotbed of innovative technologies. As a global leader in this new era of manufacturing and mechanical engineering, Germany is attracting more foreign investment than ever.

The 5-finger hand, a robotics component built by Schunk. | © DAVID WALTER BANKS/NYT/Redux/laif The Felss Group, an international mechanical engineering company from Baden-Wuerttemberg, recently made a substantial investment: it developed software that enables metalworking companies to track their products and collect data on their way through the factory. Why is this so important? “Our customers can thus optimize their process flows and increase the availability of the machines,” explains Wolfgang Haggenmüller, business development manager at Felss. “Now, thanks to the intelligent analysis of the information collected along the entire value chain, bottlenecks can be reduced and material saved. The costs of production are reduced by 10 to 15 per cent.”

The Felss Group’s subtle but smart development to streamline production processes is just one example of why the German mechanical engineering market is so attractive to foreign investors at the moment. German companies are blazing a trail with their cutting-edge technologies, with a focus developing machines for tomorrow’s world. “It’s no coincidence that the term ‘Industrie 4.0’ came from Germany,” says GTAI engineering expert Claudia Grüne. In her opinion no other market in the world better combines the expertise to build equipment with intelligent digital controls.

Facts & Figures graph © GTAI

Market opportunities

Mechanical engineering is one of Germany’s most muscular industrial sectors. Across some 6,780 companies, the sector employs more skilled engineers than in any other country and the export rate is 77 per cent, according to the industry association VDMA. Last year alone, German machine builders turned over a record €219bn. The Industrial Internet of Things (IIoT) is at the forefront of new developments. “We are witnessing a structural change in value creation. Machine builders, electronics and IT companies will work together much more closely than before,” says GTAI electronics expert Max Milbredt. “This results in interesting investment opportunities for foreign investors.” Specialized clusters dotted around the country bring research institutions together with the private sector to drive the IoT industry forward.

At present, the main focus is on the networking of production machines. The linking together of automated industrial equipment will dramatically increase flexibility in production dynamics, thereby multiplying opportunities for the development of new products. “The industrial IoT is a key driver of innovation for German mechanical engineers,” says the author of an EY study, Stefan Bley. The report found that 69 per cent of engineers believe IoT is of vital strategic importance, while 44 per cent of machine builders already use IoT applications, and another quarter plans to use them.

Andreas Kunze, founder and CEO of KONUX, a startup that offers industrial IoT solutions by combining smart sensors, data fusion and AI-based analytics to optimize operations. They are helping to digitize the rail industry by making operators’ infrastructure smarter, their networks more efficient and their trains punctual. © Jonas Holthaus/laif

Investment rush into IoT

German companies have been investing billions into the IoT and a new market is evolving. “The IoT market is currently establishing itself, with new specialized players and existing system integrators considerably improving their IoT qualifications,” says GTAI’s IoT expert Asha-Maria Sharma. Last year, one in three industrial companies invested between five to ten per cent of its annual turnover into Industry 4.0 applications (while 46 per cent invested just up to five per cent).

A large tranche of the investments goes into software systems and applications. The platforms through which machine builders and manufacturing companies share device data are the control centers of the IIoT. One of the major platform providers is the U.S. IT giant IBM, which in 2017 invested €200m in the IBM Watson Center in Munich. It was the group’s largest foreign investment in the past two decades. “For us, Germany is the perfect location and one of the world’s most important industrial regions in the middle of Europe,” says Carsten Holtmann, the director of Watson IoT. Inside the imposing twin glass skyscrapers – a bold new addition to the Munich skyline – IBM collaborates with IT partners and key players from the industry. And IBM is not the only IT giant with its eye on the Bavarian capital: Microsoft opened its “IoT & Al Insider Lab” in the spring of 2017, offering a range of services related to digitization.

Networking machines

SmartFactoryKL is preparing the ground for the intelligent factory of the future. As a leading center of expertise and a demonstration and research platform which is manufacturer-independent, it develops innovative factory systems which help to make the vision of Industry 4.0 become a reality today. | © SmartFactoryKL

The market potential for digitization and networking of production machinery is huge: industrial machines are usually large-scale investments that may have been in use for decades. A typical factory might deploy a patchwork of old and new machines from different manufacturers. Old machines record little or no data, and while there are add-on devices to do that job, they can only store information in a volatile memory which is cleared after a few days. “The Industrial Internet of Things usually starts with a relatively small step,” explains Holger Kett from the Fraunhofer Institute for Industrial Engineering (IAO) in the city of Esslingen. Companies start by equipping their machines with sensors for generating, visualizing and storing data. The next step is for the system to filter data because the sheer volume of information generated quickly becomes very large.

This harvested data also has inherent value: statistical tools look for patterns and contexts in the information from which interesting anomalies emerge. These anomalies can help predict when a machine is not functioning normally and prevent it from failing well in advance by highlighting which parts need to be serviced. “¬Predictive ¬maintenance” is one of the most important trends in engineering 4.0: companies can now avoid failures due to avoidable defects and save on the cost of expensive routine system maintenance, which may not even be necessary.

“Consolidating the necessary data and developing explanatory models is currently one of the most demanding tasks in the Industrial Internet of Things,” says IBM IIoT expert Holtmann. Ideally the system would not only identify the maintenance needed but also take on more of a project management role by suggesting actions to take based on other data sets: for example, when is the next service, when is a specific technician available and what are the latencies for each process affected by the machine being shut down. “In the most comprehensive scenarios, the alternative actions created by the computer flow directly into production control,” says Holtmann.

Facts & Figures graph | © GTAI

Germany attracts U.S. cloud company

Another big technical challenge is the processing of so-called “unstructured data.” This can come from very different sources, such as when video cameras inspect products for defects. The U.S. cloud provider Virtustream, for example, makes software that can store and analyze unstructured data. Virtustream collaborates with companies such as SAP to enable applications to synchronize data from the production line with information from an Enterprise Resource Planning (ERP) system (for example, with sales and marketing).

Virtustream’s parent company Dell Technologies (which has had a presence in Germany for a long time) provides the other IT infrastructure, such as sensors for generating data and gateways for transmitting it. Virtustream launched a subsidiary in Germany last year and already has 50 employees in sales and technical support.

“Germany, with its strong industries such as mechanical engineering, is an attractive market for us,” says Maik Gasterstaedt, head of technical sales at Virtustream Germany. The decision to found a separate German subsidiary was strategic: the company operates two data centers here, which are subject to the state’s strict legal regulations. “Data security is a big issue for users in the industry,” he points out.

Strategic alliances

Considering the security imperative, IAO researcher Kett identifies a need for cloud-based applications, especially for medium-¬sized companies. “After the big companies, medium-sized industrial companies in Germany have realized the potential of the Internet of Things for their production,” he says. “However, the necessary IT infrastructure is often costly and expensive. For SMEs it may therefore be more interesting to buy cloud-based services from a service provider that offers more flexibility.”

Some machine-building companies that spotted the potential of cloud-based Industry 4.0 software early on have become technological innovators themselves. The toolmaker DMG Mori from Westphalian Bielefeld and Dürr, the Stuttgart-based machine and plant manufacturer, got together with software specialists to found the joint venture Adamos. This strategic alliance of mechanical and software companies is the first of its kind. Launched in October 2017, the IoT platform is vendor-neutral and open to all machine builders as a platform where companies can share data with customers and suppliers for digitally networked production. “Regarding digitalization, mechanical and plant engineers must set their own standards and drive development,” says Christian Thönes, CEO of DMG Mori.

From a long-term strategic perspective, the IoT may even transform the business models of machine manufacturers. Instead of just selling machinery, they could offer leasing or rental models – such as capacity guarantees – or even completely new ancillary services. “Digital services open up new sales opportunities and business models that we do not even think about today,” says Felss business developer Haggenmüller. Could mechanical engineering even learn from the example of Google, which first set about collecting data and then developed multiple associated business models
around it?


Claudia Grüne, GTAI expert for engineering and Industry 4.0:

Asha-Maria Sharma, GTAI expert for Industry 4.0 and IoT:

Further information:

Trade Fair: GTAI at the Hannover Messe

At the industry’s leading trade fair, Hannover Messe in Hanover (April 23–27, 2018), some 5,000 companies will present their products and services. With the lead theme of “Integrated Industry – Connect & Collaborate,” this year the spotlight will be on the interplay between automation and energy technology, IT platforms and artificial intelligence. In the GTAI Investment Lounge, our experts will answer questions about the future of industrial production in Germany and international business opportunities. At the forum, representatives from leading international companies will discuss which technical innovations are currently significant and the new business models IoT will provoke. You can find us in Hall 27.


Claudia Grüne Claudia Grüne | © GTAI

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Claudia Grüne

‎+49 30 200 099 430

Asha-Maria Sharma Asha-Maria Sharma | © GTAI

Contact Us

Asha-Maria Sharma

‎+49 30 200 099 312

Markets Germany - Issue 01/2018 | © GTAI

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