Industry 4.0 is becoming increasingly important within the manufacturing industry, but what exactly is it and how does your business make the transition? Here, Iain Butler, R&D Director at Buzzacott, explores the significance of Industry 4.0 and the available support for manufacturers who wish to switch.

The importance of Industry 4.0

Industry 4.0, or digitalisation, is the trend towards automation and data exchange in processes within the manufacturing industry. Simply put, it’s essential for businesses as manufacturers cannot remain competitive without undergoing a digital transformation. Customer demands are rapidly increasing, and the insight from the data collected in Industry 4.0 can produce goods more efficiently and improve productivity across the supply chain.

Industry 4.0 uses the following tools to create an interconnected manufacturing system whereby machines can visualise an entire production process and make autonomous decisions to drive intelligence:

• Internet of Things (IoT) – This is the concept of connecting machines equipped with sensors to other web-enabled devices to form a network of connected devices. The network integrates data from different devices to allow large amounts of data to be collected, analysed, and exchanged to provide real-time data about the machinery’s condition, performance, or location.
• Big data analytics – Big data analytics uses advanced analytic techniques against huge, diverse data sets from various sources, including equipment, CRM systems and IoT. Analytics can occur in real-time to improve decision-making and automation in every area of supply chain management to optimise production.
• AI and machine learning – The big data analysed can be used to perform predictive maintenance on machine learning algorithms and provide real-time insights and responsive recommendations. By monitoring the manufacturing processes, alerts can be sent out before system failure and automated maintenance can occur. This can create insights providing visibility, predictability, and automation of operations.
• Digital twins – A digital twin is an exact, virtual replica of real-life processes, production lines and supply chains. Data is collected from IoT sensors and devices connected to the internet to create a real-time data exchange and automation process. The digital twins can be robustly tested and reconfigured to allow manufacturers to understand, analyse and improve the performance and maintenance of industrial systems and products, without risk in the physical world. Digital twins can increase productivity, improve workflow, and design novel products.

Manufacturers can then form a smart factory, which integrates these technologies for Industry 4.0 into a single, digitally connected network. Most existing facilities will have limited connectivity or data extraction, therefore, a major component of moving to a smart factory format will be creating the infrastructure and systems to collect data throughout the manufacturing process. Manufacturers must rapidly invest in digitalised systems to remain competitive and integrate into customers’ supply chain systems. This change will cost money, however, the R&D tax credits scheme can help with the cashflow impact of any investment.

Implementing a smart factory

Once the investment is made, the benefits of a smart factory are wide-reaching, including:

• It reduces the need for reactive practices and moves supply chain management into a resilient and responsive mode.
• Accurate demand forecasting, improved efficiency, and real-time error processing.
• Fewer shutdowns, improved processes, and optimised facilities.
• Identifying, reducing and eliminating underused or misplaced production capabilities.
• Increases efficiency and output with little investment in new resources.
• Ultimately, lower costs, reduced downtimes and less waste, which can increase cashflow.

Traditional supply chains are failing to be resilient or adapt to the uncertainty within the 2020s, and consumer demand is increasing. Manufacturers must shift to an adaptable, agile solution that is fully digitally enabled for success But how do manufacturers fund the significant investment required to keep pace with Industry 4.0?

Available support for manufacturers

Upgrading to a smart factory can seem daunting with a significant cashflow impact, but you can transform your business without replacing every machine. This will require clear design and development of interfaces and control architectures to combine legacy equipment into the new smart factory. This is where accessing R&D tax credits can help fund the transition to digital technology and improve the overall return on investment KPIs.

At the outset of your digital transformation journey, it’s best to review which processes are the most critical to your business. An initial analysis should be undertaken with specialists in different areas of your business so the entire workflow is evaluated. Engineers will need to work with management and I.T. system specialists to identify the key areas to upgrade. The plan should consider optimising processes, increasing sales, reducing costs, and saving time throughout the manufacturing process.

The last five years have seen lots of growth in available funding for new technology. The COVID-19 pandemic increased the urgency of newer technology and exposed the weaknesses in traditional supply chains and funding is now widely available for digital transformation in manufacturing and supply chain technology. Funds such as the Made Smarter Innovation challenge and the Industrial Strategy Challenge Fund have funded projects that use industrial digital technology to transform manufacturing productivity. Therefore, it’s worth applying for funding when making the change to a smart factory. However, the drawback of these funding sources is that they can be inflexible if your plans evolve, and the funding can be competitive so you can be left footing the full bill if the application fails.

The R&D scheme provides a more certain source of support and should not be overlooked at the outset of your digital transformation. The R&D scheme allows businesses carrying out qualifying R&D activities to either mitigate their tax liability or receive a payable tax credit. This credit can be a valuable source of cashflow for manufacturers who are looking to invest in smart technology. Broadly, modifying an existing product to a smart technology can be eligible under the R&D tax incentive scheme if it’s technically challenging or attempts to resolve scientific uncertainties. Your business may be able to claim for smart machinery that your company has invested in, which will directly offset any investment costs.

However, the R&D scheme is broadly defined, and many businesses feel uncertain about what activities qualify under the R&D scheme. Preparing a claim correctly requires a thorough understanding of the industry challenges and the underlying technology and requires an eye for detail. A submission report should be submitted alongside the R&D claim, which provides example technical descriptions that highlight the eligible work undertaken and link the work to the costs being claimed. Getting this report right is difficult, such as supplying HMRC with sufficient technical information. An R&D advisor could assist with the immediate cashflow challenge and work with your business to ensure that your R&D claim has picked up all the eligible costs.

Manufacturers must shift to an adaptable, agile solution that is fully digitally enabled for future success. Manufacturers can directly offset investment costs in smart technology by utilising the R&D scheme.

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For more information or advice to maximise your claim, get in touch with an expert advisor.

Iain Butler
R&D Director at Buzzacott
E butleri@buzzacott.co.uk
T +44 (0)20 7556 1343
W https://www.buzzacott.co.uk/r-d-tax-credits

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