Taiwanese machine tool maker Tongtai Machine & Tool Co. reported explosive net profit growth of 111 percent in the first three quarters of 2014 and a large increase in gross profits. Yet Tongtai Group Chairman and CEO Jui-hsiung Yen (J. H. Yen) humbly explains that the impressive numbers were largely due to a low base of comparison the year before.

Tongtai's profits plummeted in 2012 and 2013, largely because of a hiccup in operations resulting from the company's transition to Industry 4.0, also known as intelligent manufacturing, explains Yen, who is also the chairman of the Precision Machinery Research Development Center in Taichung.

"Our explosive growth (in 2014) mainly came from customized orders. So our gross margin was about two percentage points higher than last year or the year before," notes Yen with a chuckle.

"I've also invested quite a lot of money in R&D instead of distributing it to shareholders," he says.

What exactly did Tongtai do during these three years of self-imposed hardship?

Yen pulls out a chart of three sheets of A3-size paper pieced together that lists in detail the skills of staff working in the electrical control department as well as the detailed description of every task carried out there. Which skills are needed? Ranging from specialist knowledge to cross-disciplinary skills and the four language skills (listen, speak, read and write), the requirements have been pinpointed for every job. What's clear is that versatile people with multiple skills are needed everywhere.

Because the company has thoroughly taken stock of the skills it needs, it knows where its people fall short of requirements and where additional training is called for. As a result, Tongtai trained more than 30 employees over the past two or three years to equip them with a cross-disciplinary skill mix spanning mechanical engineering and information technology. Much to the envy of industry peers, this skills initiative has bolstered Tongtai's explosive growth.

In an interview with Yen, CommonWealth Magazine found out how Tongtai has hopped on the intelligent manufacturing bandwagon and what is needed for the rest of the domestic machine tool industry to follow suit.

The following are excerpts of our interview with Yen, in his own words:

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Germany is touting Industry 4.0, the United States is championing intelligent manufacturing, and China, Japan and South Korea themselves are trumpeting some things. Shouldn't Taiwan follow suit and shout too?

If we want to shout, what is it that we really want to pitch?

The Ministry of Economic Affairs has recently begun to tout "Productivity 4.0." A while ago, they pitched "Three Industries, Four Reforms," but they have done away with that. They don't tout that anymore.

The manufacturing industry covers a very wide scope. Where exactly should we place our focus?

We have model students in our manufacturing sector such as Taiwan Semiconductor Manufacturing Company (TSMC) but some others have not even reached Industry 3.0. They're in no position to shout along. The gap is too big.

Everyone knows manufacturing processes well. You confirm the steps, you confirm the process, there's the machinery and the raw materials and then you fabricate a finished product.

Such processes and products are bound to hit the walls of "variety" and "quantity."

Manufacturers aspire to always make the same product. But today, that is absolutely not feasible. Market demand keeps changing and product cycles are becoming ever shorter. Your production lines must be able to adapt to such changes.

In manufacturing, small volume, large variety or large volume, small variety, changing variety and changing volumes all post challenges for the enterprise.

Customization Trend Unstoppable

The market is trending toward small volume, large-variety or even one-of-a-kind customization.

In addition, even with mass production, product life cycles are not long. You probably need to release a new version within three or six months. The challenge the manufacturing sector faces today is how to respond to product needs, how to quickly adjust production lines.

It's the equipment that is producing. So the entrepreneurs hope, of course, to put it to work every day, to print money. But once you have a large variety of products, you find that in a 24-hour period, the machinery is not producing much of the time. Most of the time is spent on such things as retooling, redoing the set-up, doing trial runs and calibrating.

Our production challenges can be broken down into two areas: First, we want to shorten the processing time to improve efficiency and increase output. Second, if we can eliminate reprocessing and shorten the overall process, that's even better.

Everyone knows that Germany's manufacturing sector is highly efficient and produces good quality. I have closely read reports about Germany's Industry 4.0. Aside from raising efficiency and quality, the third advantage is the ability to meet customized needs and the fourth is low cost.

If you look at applying big data and information technology and forging connections with the Internet of Things, these are all means to achieve points three and four.

Taiwan's Version of Industry 4.0: Learning from Competitors Abroad

They didn't spend a lot of time discussing how processing time could be shortened. Instead, they studied how the time when machines were idle was being used. In shortening this non-processing standby time, they were able to bring down costs.

High efficiency and high quality count among their essential skills. They were already there in the Industry 3.0 era.

Germany also found out by itself that its customers have begun to move toward small volumes – it could be 10 pieces or even just one. How did they respond? How did they manage to shorten changeover time [needed to convert a production line from running one product to another]?

Here in Taiwan, every industry runs into different problems. The needs are different. The furnaces in the chemical industry, for instance, run continuously 24 hours 365 days a year. The entire plant is solely producing based on a chemical equation. They don't have these small-volume, large-variety needs. If you talk about small-volume, large-variety with them, it's like a chicken talking to a duck.

Therefore, when Taiwan talks about Industry 4.0, it should consider the issue based on individual industries. With regard to Industry 4.0, the vast majority of Taiwan's manufacturing sector should make efforts in two areas.

First, companies that supply foreign customers with Taiwanese equipment as well as parts and components [like us], we need to clearly identify and immediately satisfy rapidly changing customer needs. That's what we need to do as our first step.

Second, [we must ask ourselves] are we equipment makers able to help the manufacturing sector that is still in Taiwan to apply the advantages of these trends to transform and upgrade?

A number of companies have rushed to China, Indonesia and Vietnam to produce there. Most of the businesses and industries that have stayed behind in Taiwan fit in with the high-price, small-volume, large-variety production model. They must have the ability to meet the demand for ever greater customization.

Therefore, if I were in the government's shoes, I would make the second area the point of emphasis and I would make it a top priority to train talent with multiple skills.

In Germany's Industry 4.0 plan, the Ministry of Education and Research plays a very important role. Germany invests government funds mainly in education to train "T-type talent" who are better the farther they can stretch their arms. (Note: The horizontal line or "arms" of the T stands for width of knowledge, while the vertical line stands for depth of expertise.)

We have cultivated such people over the past three years. We have more than 30 [such employees]. All were trained in-house and the training was carried out in the form of special projects.

The schools are not able to provide [such training], and on top of that factories can't clearly identify [what is needed]. We only understood how to do it after taking stock of our human resources in recent years.

Traditional Master-Apprentice System Out of Date

It takes too much time if you let young people learn with master workmen. We use scientific methods and let interns work side by side with a master workman. They observe his work methods, write them down and quantify them. Those who come after them can learn based on the data and produce results that come close to those of experienced workers.

Such observation, simulation, comparison and processing [of data] made us slowly understand how young people can become familiar [with their work] efficiently and quickly.

Taiwan's machine tool industry originally ranked fifth worldwide in output but then South Korea caught up with us and pushed us into sixth. Last year, the United States overtook us and we fell to seventh. Very likely, we will soon be surpassed again.

In the past, my customers would compare my machines with Japanese ones. Now they compare them with German machines.

Germany in Front, China on Taiwan's Heels

They might say that Tongtai estimates it will take five of its machines to a job when only two German machines are needed. "Five of your machines might still be a little cheaper than two of their machines, but I'm willing to buy their two because they take up less floor space," customers say.

Such [customer] requirements now give me terrible headaches.

First, their efficiency per machine is higher; second, their changeover time is shorter.

However, when my customers use their high efficiency for comparison, I am forced to make progress on all fronts. We need to catch up and we are having a hard time chasing them.

We are still making efforts to increase the efficiency of single machines, while they are already making single-machine, multiple-function machine tools.

Therefore, when it comes to Industry 4.0, we in Taiwan are not in a position to compare ourselves to them because we have not yet even graduated from Industry 3.0.

Some industry peers might think they don't need to move toward Industry 4.0 at all because their customers don't need it. They are avoiding Germany and Japan by selling in low-end markets. But while ignoring [German and Japanese competition] they will find that China has already caught up with them.

Translated from the Chinese by Susanne Ganz