Sector sets another record for production output in 2015
For 2016, the German machine tool industry is cautiously optimistic. “We’re expecting moderate growth of 1 per cent in 2016,” says Dr. Heinz-Jürgen Prokop, Chairman of the VDW (German Machine Tool Builders’ Association), speaking at the organisation’s annual press conference in Frankfurt am Main.
This prognosis is based on capital investment from the major customer sectors, global figures for machine tool consumption, and finally the order bookings at Germany’s machine tool manufacturers.
For the investments, Oxford Economics, the VDW’s forecasting partner, was in the autumn of last year expecting a global increase of 4 per cent. The principal drivers are traditionally the automotive industry, followed by the electrical engineering and electronics industries, metal product manufacturers, and the mechanical engineering sector. Machine tool consumption is predicted to rise by 4.2 per cent. Europe tops the rankings here (plus 4.6 per cent), closely followed by Asia (plus 4.5 per cent) and America (plus 2.5 per cent).
Order bookings at German machine tool manufacturers, an indicator for medium-term business activity, showed a moderate rise of 1 per cent in 2015, to reach 14.9 billion euros. Production output and order bookings are thus settling at approximately the same level.
During the first three quarters of 2015 Asia and Europe ordered 4 and 3 per cent more German machine tools respectively than in the previous year. Orders from China, which account for around a quarter of the total, were down again, this time by 8 per cent. This shows that the restructuring process in the Middle Kingdom will remain an issue for quite a long time to come. Nonetheless China remains important due to the sheer size of its market alone – the country is responsible for one-third of international machine tool consumption.
In 2015, the sector produced machines worth 15.1 billion euros
The VDW’S prognosis is based on the record year of 2015. Last year, the German machine tool industry produced machines worth 15.1 billion euros, corresponding to an increase of 4 per cent. “That’s once again a record figure, following the last high in 2013,” explains Dr. Prokop.
With an export ratio of around 70 per cent, and exports up by 4 per cent to around 9.4 billion euros, markets abroad made a somewhat greater contribution to the overall result than domestic consumption. Contrary to all expectations, Europe did particularly well, with a plus of 8 per cent.
Asia, by contrast, a few years ago on almost level pegging with Europe, disappointed with a fall in exports of 5 per cent. China, the largest market with a share of still over one-fifth, has been severely affected.
In 2015, the sector’s workforce increased by an annual average of 1.5 per cent to around 68,500 employees. Capacity utilisation was running at an annual average of just over 88 per cent, which was about 2 per cent down on the preceding year’s level. The current figure in January, however, shows a renewed uptrend. The order backlog, at 6.8 months, was averaging half a month below the preceding year’s figure.
“Overall, these figures show the sector has once again performed very well. Some of our member companies have reported the best year in the firm’s history,” is Dr. Prokop’s comment on the figures for 2015.
Global business is getting progressively harder
“Nonetheless, the business environment for our operations has become more difficult, and our options for exerting a direct influence are limited,” says Prokop. The newly industrialising countries, in particular, are under pressure, due to the low prices for raw materials, Russia is suffering from the weak rouble and the low oil price, Brazil is mired in a serious recession, while China, with its faltering growth is weakening the most important trading partners. Then there are the numerous geopolitical uncertainties. “So it’s all the more important for our companies, in time of transformative global change, to be on the lookout for new long-term market potentials,” says Dr. Prokop. This applies both to new sales markets, and to new products and services from the manufacturers.
Market potentials for German machine tool manufacturers
Iran, currently on everyone’s lips, offers potentials for German manufactures as well. In the boom times of the early 1990s, they exported machines worth almost 190 million euros. The figure for last year, by contrast, was a mere 20 million euros. The country’s machine tool consumption is expected to increase rapidly from its most recent 82 million. In particular, German vendors are anticipating good sales opportunities thanks to a very substantial demand for modernization among equipment suppliers for the oil and gas industries, and in the automaking segment. In order to reconnect with the traditionally good relationships with Iranian customers, VDW is joining forces with Messe Stuttgart to host the AMB Iran, a trade fair with an accompanying symposium, in Teheran from 30 May to 1 June 2016.
Mexico is also regarded as an exciting high-growth market, driven predominantly by the automotive and aviation industries Mexico’s machine tool consumption rose by an impressive 85 per cent between 2010 and 2014. With 1.5 billion euros, the country nowadays ranks among the world’s biggest markets for machine tools. Germany is the third-biggest supplier, with a share of 14 per cent. German exports have since 2011 climbed by more than 250 per cent. In mid-April 2016, on the initiative of the VDW and with political support, there will be a German exhibition called “German High-Tech in Metal Working” under the aegis of the Expomaq trade fair in León.
Another promising region is the ASEAN bloc, whose countries represent a market volume of 3.9 billion euros. The Japanese have so far been dominating the market, not least because the Japanese automotive industry has a strong local presence. Japan supplies around half of the machine tools imported, Germany a mere 4 per cent. Nonetheless, German exports to the region have risen substantially in the past few years, and most recently totalled more than 150 million euros. “So greater involvement will be well worth while,” opines VDW Chairman Dr. Prokop.
Upgrading competitive advantage with new technologies
“If you want to continue prospering in the face of international competition, it’s increasingly imperative to offer solutions that others cannot emulate,” adds Heinz-Jürgen Prokop. Keyword Industry 4.0: it’s becoming progressively more difficult to attain major competitive advantages in terms of machine technology. For this reason, machine tool manufacturers are well advised to broaden their viewpoints and to think in terms of holistic production solutions. If these are to be consistently adopted throughout a system, this demands profound knowledge of the process concerned in the context of what are sometimes highly disparate customer’s requirements. “No one knows these worlds better than we do, and this is our great opportunity,” is Dr. Prokop’s firm conviction.
Another issue with a definite future is additive manufacturing. It enriches the range of existing conventional metalworking processes by enabling customised or complex components to be produced, for example. More and more manufacturers are accordingly examining the idea of hybrid machines, which combine conventional machining processes with additive manufacturing. Nonetheless, their use is viable only if it creates an additional benefit for the customers that justifies the higher production costs involved. “In the case of customised or complex components or in small series, this is easy to implement; in medium or large series and mass production, there’s still quite a lot left to do in order to achieve competitive unit costs,” admits the VDW’s Chairman.
125 years of success for the German machine tool industry – 125 years of the VDW
All in all, the German machine tool industry is in excellent shape. It is doing intensive work in the fields that it can influence itself, so as to successfully compete with its international counterparts. The majority of companies are taking globalisation on board and are operating all over the world. They are training young people, researching and developing new products, integrating new technologies, and expanding their spectrum of service capabilities. “If they succeed, they will maintain their international competitive lead,” is Dr. Prokop’s firm conviction.
The machine tool industry has since way over 100 years been demonstrating that it can repeatedly re-invent itself, has met and mastered numerous challenges, and never failed to upgrade its leading position in the world. This is equally true for the VDW, which in 2016 is celebrating its 125th anniversary. Over all these years, the association has provided backing and proactive support for the sector.
“Against this background, it’s all the more important to be properly prepared to identify and maintain a shared course, and never lose sight of the shared goal. What we’re relying on here is tradition and experience. What’s also essential is flexibility and creativity if you want to continue being successful even under altered situational conditions,” to quote Dr. Prokop.
Orders received by the German machine tool industry in the second quarter of 2015 were 10 percent up on the previous year’s figure. Domestic orders were 3 per cent higher, foreign demand grew by 14 percent. There was 6 percent growth in orders from the euro zone, and a 16 percent increase from non-euro countries. Compared to the previous year, incoming orders stagnated in the first half of 2015. Domestic orders fell by 8 percent, whereas foreign demand rose by 6 per cent.
“After a decline in the first quarter of 2015, orders recovered again in the second quarter. This means that the German machine tool industry has presented a balanced half-year balance sheet,” said Dr. Wilfried Schäfer, Executive Director of the VDW (German Machine Tool Builders’ Association) in Frankfurt am Main, commenting on the result. This is mainly due to the significant increase in demand from abroad. Domestic business continues at a satisfactory level despite percentage cuts triggered mainly by the base effect of strong figures in the equivalent period last year.
The main driver of growth in the second quarter was the non-euro zone. Asia – where China posted a slight increase in business, strong orders were received from South Korea and the ASEAN region performed positively overall – was a major factor in maintaining order levels. The United States, however, has been disappointing so far.
Relative to the first half of 2015 the euro countries posted a double-digit growth in orders, providing a greater boost. This is largely due to the strong industrial demand from Spain and Italy which are returning to growth thanks to investment incentives. The development in France is striking. The politically motivated support for the modernization of production equipment is also likely to provide for buoyancy there.
Sales remained the same or were slightly up in the first half. “Achieving the 3 percent increase which was forecast for 2015 now appears somewhat ambitious,” said Wilfried Schäfer. This would be dependent upon an increase in demand in the second half of the year, particularly with regard to domestic orders. German industry should remain in good shape because large groups of customers are export-oriented and should benefit from increased price competitiveness thanks to the weak euro. Confounding analysts’ expectations, the IFO business climate index recovered in July following two falls. “The temporary relaxation in the Greece situation is boosting sentiment in the German economy,” explained Schäfer.
Employment remains high. This is an indication that the German machine tool builders are in good shape for the future despite the cyclical swings. “The industry is strong and is investing in qualified staff,” emphasised Schäfer. In May 2015 almost 72,800 people were employed in the machine tool industry – an increase of 2.3 per cent year-on-year.
First solutional approaches expected from the EMO Hannover 2013
This is not the first time a technical breakthrough was supposed to revolutionise the world of factories: we’re talking about computer-integrated manufacturing, or CIM for short. Derided by many as a CIMera. Around a quarter of a century later, we ask the scientist Prof. Dr. Thomas Bauernhansel, Director of the Institute for Industrial Manufacturing and Management (IFF) and the Fraunhofer Institute for Manufacturing Engineering and Automation (IPA) in Stuttgart, how far Industry 4.0 is just CIMera 2.0. Whether it will gain widespread acceptance or will remain just a bit of media hype, that’s a question to which as yet there is no definitive answer.
Be honest, when did you first hear of Industry 4.0, and what did you think of it?
Bauernhansel: It was in 2011, at a meeting of the Fraunhofer Production Matrix .We all started to google terms like cyber-physical systems, and tried to make sense of what could be meant by Industry 4.0. None of the production luminaries at this meeting had more than the vaguest idea. So the term was not coined by production experts, but comes from the fields of IT and artificial intelligence. Nonetheless, production technology experts had been working on it for a very long time.
Humans take charge of value creation
What’s the difference from CIM?
Bauernhansel: CIM was based on the assumption that we won’t be having people in the factory any more. The concept with CIM is that everything is highly integrated, and centrally controlled from a master computer. Here, humans now had merely an integrative function as planners and “commanders”. Industry 4.0 adopts an entirely fresh approach, focusing on communication, not integration. This means we have decentralised autonomous systems that communicate with each other, irrespective of the particular system and manufacturers involved. We say: the human being continues to play a central role in the factory, but a different one. He takes charge of the value creation process. And we are opting for data management in realtime. This means there’s no time-lagged data image in some central database. What happens is that the data are acquired in realtime at the places where they are currently being generated. In the context of control system technology, we’re talking about milliseconds here. In the context of planning and control, perhaps minutes or hours will suffice.
Industry 4.0 stands and falls with cyber-physical systems (CPSs). But there are experts who say they are often too expensive, not reliable enough and frequently overdimensioned. What’s your answer to one of these critics, who in fact comes from your own institute?
Bauernhansel: My respected colleague Alexander Verl has rightly remarked that ultimately we have to focus on the cost-efficiency of these systems. This critical approach is important, so as in particular to rein in those among the vendors concerned, meaning software firms or also machinery manufacturers, who are scenting business opportunities for themselves here. Ultimately, the system as a whole has to offer an advantage to the customer who is buying a product. At the moment, Industry 4.0 is being driven very largely by factory equipment producers and less by the customers. So there’s not a market crying out for it, but there is a technology that’s looking for an application. So what my colleague Alexander Verl is saying is not in contradiction to my own stance, because in the final analysis the thing has to be commercially viable.
Data security is a problem
Might it also be that many companies fear going into Industry 4.0 because they’re worried their data might be stolen from the cloud? What’s the story behind the “Virtual Fort Knox”, in which, according to the institute, “jointly used sensitive data are as safe as the USA’s gold reserves in the legendary stronghold of Fort Knox”?
Bauernhansel: There’s not going to be absolute data security in any system. It would be misleading to say security is going to be a huge problem, because security is already a huge problem now. Just as today we take the issue of security with the utmost seriousness, we shall take an equally serious approach when it comes to the issue of the cloud and concurrent users. And that’s precisely why we at the Fraunhofer IPA have launched the flagship project Virtual Fort Knox, in which we have taken a long hard look at everything: encoding and physical, communicative and organisational security: who is permitted to do what? Who has access and where?
What would you recommend in general? Should a cloud be located on the internet or rather in a firm’s own intranet?
Bauernhansel: Each company has to find its own compromise, and then decide: what data will I not be putting on the net, and what data will I be putting on my own net? What data will be located in the private cloud and what knowledge for the customers and vendors on the public cloud?
Let me return for a moment to CIM, which only began to be more widely adopted after standardisation. An expert from the automation sector has told me that standards for Industry 4.0 are a real turbo-boost for many activities, but the road to achieving a standard is very long and rocky. What’s your view on this?
Bauernhansel: We’re not all that far away from standards: from a technical viewpoint, the problem of standardisation has already been very largely solved in some fields. The actual problem is more the aspirations of firms who want to set these standards. Here we have to cultivate a community spirit. Even the major protagonists in this issue have to rethink their approach and say: yes, perhaps it makes sense that we have standardisation and openness here, assuring everyone of access to the internet of things and services. After all, it’s no use to anyone if at the end of the day we have several different internets of things dominated by large companies. Only with a standardised system will new business models evolve, able to develop their full benefits for the end-user as well.
The German Research Union, in its “Implementation Recommendations for the Industry 4.0 Future Project”, proposes taking as a model the service-oriented architectures (SOAs), which support interlinked, re-usable applications. What’s your opinion of this proposal?
Bauernhansel: I’m very much in favour of it. Service-oriented architecture has been discussed since the early 1990s. It’s not such a huge innovation on the IT side, it’s been around for a very long time. Really, it only goes to show how sluggishly the “oh-so-innovative” software industry adopts new ideas of this kind.
A glance into the future: what might a vision of Industry 4.0 look like?
Bauernhansel: We decouple affluence and growth from resource consumption, and provide large amounts of the requisite technology through the Industry 4.0 initiative. The networking, the decentralisation and the communication capabilities will lead to high levels of efficiency.
Perhaps on the way there we need some new input: “Inspired by technology” is the watchword at the 4th VDMA Congress on “More Intelligent Production”, which is being held at the EMO Hannover for the first time this year. What inspirational insights are you expecting from this congress, and from the world’s premier trade fair for the metalworking sector?
Bauernhansel: Inspired and driven by innovative technologies, the resource-efficiency potential for all production factors can be upgraded within the framework of Industry 4.0. Technology, not renunciation, has to be our motto. From the EMO Hannover and the congress, I am expecting approaches in this direction for holistically conceived, sustainable production operations of the future.