From steam to cyber
The manufacturing industry has undergone several key transformations over the past few centuries and each industrial revolution marked a significant leap in technology and productivity, Chart 1.
Chart 1: Industrial revolutions in human history
Source: ResearchGate, Industrial revolutions from Industry 1.0 to Industry 5.0, August 2024.
- The first industrial revolution marked the shift from hand production to mechanised processes, with innovations like the spinning jenny and steam engine transforming textile manufacturing. While it paved the way for mass production, it also caused social upheaval as traditional artisan roles diminished.
- The second industrial revolution introduced steel production, electrification, and assembly lines, expanding industrialisation globally. This era enabled mass production on an unprecedented scale, laying the foundation for modern economies.
- In the 1970s, the third industrial revolution brought automation through electronics and IT, leading to the rise of cyber-physical systems and computer-aided manufacturing. Robots began performing repetitive tasks, reducing the need for human labour in production.
- Industry 4.0, or the fourth industrial revolution, has transformed global business by making companies more agile, efficient, and sustainable. Through connected technology, it enables real-time data exchange, process optimisation, cost reduction, and improved quality.
- Industry 5.0 is emerging as the next phase, focused on enhancing collaboration between humans and machines.
From Industry 4.0 to 5.0
Industry 5.0 is expected to integrate advanced technologies that will further the role of robotics, with machines operating autonomously. A central focus will be on fostering collaboration between humans and machines, enabling people to fully utilise their skills in a more efficient and meaningful way while AI manages repetitive tasks.
By working alongside "robotic colleagues," humans can concentrate on creativity and experimentation, thereby maximising their potential. Building on the foundations of Industry 4.0, Industry 5.0 aims to help companies become even more agile and productive. Self-learning algorithms could be employed to optimise production processes or enhance product quality. The manufacturing industry, in particular, is expected to experience the greatest financial impact due to AI advancements, Chart 2.
Chart 2: A comparison
Source: Atoss: From Industry 4.0 to Industry 5.0, August 2024.
From steam engines to AI
Industrial revolutions have always been driven by technological breakthroughs. For example, during the first industrial revolution, steam-powered engines drastically reduced transportation costs. As we transition to a new era of manufacturing, AI and robotics are poised to reshape society in much the same way, working alongside humans to enhance productivity and innovation. Within the next decade, more than 80% of manufacturing facilities are expected to adopt AI to manage control systems and resolve issues.[1] As part of this, robots are expected to take centre stage. Historically they were constrained by high costs and limited adaptability, but recent technological advancements have made them more flexible, affordable, and capable, expanding their use across a wide range of industries.
- The U.S. is forecasted to generate the highest revenue in the robotics market in 2024, with an expected value of USD 784.6 billion.
- Global companies are accelerating development of humanoid robots powered by large language models (LLMs), improving autonomous intelligence through generative AI that allows robots to learn by observing and mimicking human behaviour.
- By 2050, the U.S. could have 63 million humanoid robots, potentially impacting wages by USD 3 trillion.
- Humanoids may provide cost savings of USD 500,000 to USD 1 million per human worker over a 20-year period.
Sources: Goldman Sachs: Humanoid robot: The AI accelerant, February 2024; How Artificial Intelligence is Reshaping ESG Ratings; February 2022, FT: The rise of robots, June 2024.
This progress has had a positive impact not only in high-income countries, which still dominate global manufacturing value, but also in fostering growth and benefits worldwide.[2]
Beyond the "Magnificent Seven"
So far, the major beneficiaries of AI advancements have been the leading US tech companies, often referred to as America’s “Magnificent Seven” (Microsoft, Amazon, Alphabet, Tesla, Meta, Nvidia, and Apple). As AI technology continues to evolve, other sectors such as healthcare and education are also expected to benefit. However, the manufacturing industry is anticipated to be a key beneficiary of the "real" application of AI, leading to significant productivity gains and increased company revenues, as more work can be completed in the same amount of time.
In that context, AI is not expected to replace people in the manufacturing industry, but rather to enable collaboration between robots and human workers to accomplish tasks. As machines become smarter, they will increasingly handle repetitive tasks, freeing personnel to focus on more complex and creative work. Industry 5.0 redefines the purpose of industry by placing the well-being of workers and the planet at the centre of the production process.
This transition is driven by a holistic vision that embraces sustainability, circularity, digital transformation, worker empowerment, and societal impact, Chart 3.
Chart 3: The three pillars of Industry 5.0
Source: European Commission: Industry 5.9, 19.08.24.
AI's role in the future
AI is a transformative technology that will reshape both industry and society simultaneously. Consequently, businesses will need to continuously reassess their strategies and rethink the roles that people will need to play in this evolving landscape.
From downtime to quality gains
The success of digital transformation in manufacturing is evident in three key areas:
- Improved production processes, boosting revenues;
- Reduced operational losses, lowering costs;
- Enhanced customer experience, driving customer loyalty.
Industry 5.0 is transforming business strategies, with recent outcomes showing a 30%-50% reduction in downtime and a 10%-20% decrease in quality-related costs.[3] The Industry 5.0 market (AI integrated to robotics), valued at over USD 51.5 billion in 2023, is projected to grow at a CAGR of more than 31.5% from 2024 to 2032.[4]
Artificial Intelligence (AI) plays a central role in this shift by enabling self-detection of malfunctions, optimising production processes, reducing waste, and driving continuous improvements.
Through predictive analytics, AI minimises unplanned downtime, manages complex orders, and enhances real-time monitoring, crucial for quality control and logistics. Additionally, AI facilitates data-driven product innovation, improving product tailoring and predicting purchase prices.
Industries set to lead or lag behind
The automotive, food and beverage, pharmaceutical, and electronics industries are among the key sectors set to benefit greatly from the integration of AI in manufacturing. Also here, robots are playing an increasingly important role, with the International Federation of Robotics reporting that over 1 million robots are now in use in the global automotive industry. This sector boasts the highest number of robots in factories worldwide, with China alone having a robot density of 772 units per 10,000 workers in its automotive industry.[5] Less obvious beneficiaries include the fashion and beauty industries, where AI can streamline production processes, enhance supply chain efficiency, and offer more personalised products.[6] Manufacturing companies that fail to embrace Industry 5.0 risk slower operations, higher costs, and reduced revenues, potentially leading to obsolescence and substantial business losses over time.
Chart 4: AI use cases major industries
Source: LeewayHertz: AI Use Cases & Applications Across Major industries, August 2024.
In summary, Industry 5.0 represents a significant shift in the industrial landscape, driven by the integration of advanced technologies such as AI, robotics, and big data. By improving production efficiency, lowering operational costs, and enhancing customer experiences, this new era holds the potential to reshape business strategies. For investors, the adoption of Industry 5.0 solutions presents a compelling opportunity, with the prospect of long-term growth and value creation as businesses increasingly embrace these innovations to remain competitive and drive future success.
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[1] FT: ‘Humanoid’ robot wave signals change on the production line, March 2024.
[2] World Bank Group: Mary Hallward-Driemeier, Gaurav Nayyar: "Trouble in the Making? The Future of Manufacturing- Led Development", Washington 2018, p.40 and p.93.
[3] McKinsey: Preparing for the next normal via digital manufacturing's scaling potential, April 2020.
[4] Skyquest: Robotics Markets Insights, September 2024.
[5] Manufacturing Automation: Robots used in the automotive industry worldwide cross the 1 million mark, says IFR, September 2024.
[6] Forbes: How AI is reshaping five manufacturing industries, January 2024.
