Building Smart Factories with Industrial IoT

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15 May, 2023

Building Smart Factories with Industrial IoT

Article #3 of Transforming Industrial Manufacturing with Industry 4.0 Series: Manufacturing has an adoption rate of 85% for IoT, the highest among businesses. Driving the move toward smart factories, some challenges must be overcome to reap the benefits of this disruptive shift.

This is the third article in a 7-part series featuring articles on Transforming Industrial Manufacturing with Industry 4.0. The series looks at technological developments and emerging trends in the manufacturing industry that drive growth and innovation. This series is sponsored by Mouser Electronics. Through their sponsorship, Mouser Electronics shares its passion and support for engineering advancements that enable a smarter, cleaner, safer manufacturing future. 

According to Statista, an established market research firm, global spending on the Internet of Things (IoT) should reach $1.1 trillion in 2023[1], nearly doubling the 2021 market size. Surprisingly, though, it is not technology or even web-based services leading to the adoption of connected technology. Instead, it was found in market research by HFS research that industrial manufacturing exhibited an adoption rate of 85%, the highest among surveyed businesses.[2]

There are well-known benefits to industrial manufacturing, adopted over time as standalone functional improvements, such as production rate optimization and increasing the data collected to improve operations insights. But as manufacturing takes a more holistic view to integrating the information technology (IT) infrastructure with operations technology (OT) to create the smart factory, manufacturers can realize the full benefit of industrial IoT (IIoT) propelling their industries forward.

In this article, we will explore how IIoT enables the creation of smart factories. We will discuss their characteristics and benefits as well as the challenges that must be overcome to fully realize the potential of this massive digital transformation.

But before diving deeper into the benefits and challenges, it is worth reviewing the characteristics that differentiate a smart factory from a traditional one.

Smart Factory Characteristics

The biggest difference between a traditional factory and a  smart factory is that in traditional factory, a confluence of digital information and physical assets extends the manufacturing capabilities. These cyber-physical systems (CPS) incorporate additional sensors and automated controls into manufacturing processes, leading to three principal characteristics. They are: 

  1. Asset connectivity

  2. Performance/trend visibility

  3. Operator autonomy.

Integrated digital and physical tools connect operators with the equipment. This connection provides them with a real-time, virtualized picture of the equipment status on a monitor. By enriching the insights into how the process is running during operation, the operators can monitor the processes closer while spending less active time watching the machines run, increasing autonomy.

Another smart factory characteristic is data collection and requisite analysis that engineers need to decode process operations. In addition, there must be on-site or cloud-based servers to process and house the higher volume of data, a feature legacy infrastructure did not need.

Benefits of the Smart Factory

The IIoT is driving this 85% adoption rate in industrial manufacturing due to its many advantages. The first layer is the historical gains manufacturers realize from using AI and machine learning as part of their process. The benefits of smart factories include:

  1. Improved inventory control: recording insights into production flow enables the dual benefits of lower inventory —a high-priority key performance indicator (KPI) historically —and higher resilience/component availability (a known drawback of just-in-time (JIT) production). Analytics can optimize the balance while de-risking supply. This improvement reduces order management and material handling costs.

  2. Lower production cost through higher overall equipment effectiveness (OEE): using collected data and AI, the smart factory adjusts production flow to maximize uptime, identify patterns, and predict demand variations. This approach also optimizes assets for improved production and energy efficiency.

  3. Improved quality and lower scrap: collecting substantial data during production allow operators to have a deep insight into equipment life cycles. This view enables them to uncover trends in tool wear and predict the next (likely) point of failure. In addition, predictive maintenance reduces both repair cost and downtime to execute it, a significant advantage when considering run rates and targeting process waste reduction through lean initiatives.

With these three apparent improvements, the IIoT further enables the smart factory by promoting decentralization. Through the recent global supply chain disruptions, businesses pivoted to a more vertically-integrated model to reduce supplier qualification time and gain control over quality and component delivery. As more companies implement IIoT tools down the supply chain, connecting suppliers' assets to a shared network can benefit an intelligent factory without vertical integration. 

Furthermore, adding this capability increases the ability of the supplier to work with other companies by affording new partners insights into process capabilities themselves without time-consuming quality audits or process reviews. Increasing IIoT throughout manufacturing also facilitates creating industry standards to assure companies that a new partner has adopted the new capabilities properly.

IIoT also helps companies create new business streams, such as improved customization offerings and products —or manufacturing-as-a-service. Increased data collection and analytics will deliver quality through continuous improvement across the manufacturing process, regardless of application.

Finally, integrating IT with OT streamlines product development or process improvement/troubleshooting initiatives by leveraging virtual simulations to speed up iterative changes before cutting a physical part.

Smart Factory Challenges

Despite the numerous advantages of the IIoT-enabled smart factory, businesses must overcome some challenges to set up a truly smart factory.

  1. Higher Initial Costs: The first is the initial cost of adding the data collection and digital processing tools. However, as mentioned, these improvements can lead to cost reductions in other aspects of the manufacturing and supply chain, so the business case should consider the total impact of the investment, including modularizing data collection/processing tools and reduced inventory and downtime.

  2. Retrofitting legacy infrastructure with new technologies: Another challenge is integrating new technology with legacy infrastructure. While building a new integrated architecture can be smoother, it may not be practical. While retrofitting a factory with IIoT tools, one should consider non-negotiables like connectivity, network resiliency, and cybersecurity, all of which become more critical with higher reliance on a connected factory.

Finally, it is important to add or contract the infrastructure and skill sets required to implement the technology appropriately.


While businesses must always overcome challenges when implementing a disruptive shift to an industry, industrial manufacturing is sprinting into Industry 4.0, by near-universal adoption of the IIoT. As a result, manufacturers can realize optimized inventory, lower operating costs, and higher quality through improved connectivity, visibility, and autonomy. 

In addition, the IIoT provides the opportunity to move toward a standardized, decentralized, connected supply chain. Along with faster product and process development improvements, that end state has created an exciting inflection point for industrial manufacturing.

This article is based on: How the IIoT Enables the Smart Factory, a blog by Mouser Electronics. It has been substantially edited by the Wevolver team and Electrical Engineer Ravi Y Rao. It's the third article from the Transforming Industrial Manufacturing with Industry 4.0 Series. Future articles will introduce readers to some more trends and technologies transforming industrial automation.

The introductory article presented the different topics covered in the Transforming Industrial Manufacturing with Industry 4.0 Series.

The first article discusses Sensor Fusion, PLCs, Low-Power Components, and Vision Systems and their impact on the progression of Manufacturing 4.0.

The second article examines the expanding and evolving roles of systems, process, and design engineers within the design chain of bringing new industrial automation products to fruition.

The third article takes a look at the development of smart factories, their characteristics, benefits, and challenges that need to be addressed for a successful digital transformation.

The fourth article focuses on technologies like Robot Operating Systems, edge computing, and new software solutions that are improving robotics in industrial and commercial environments.

The fifth article explores some challenges in accessing information in the manufacturing sector and how AI-driven AR has the potential to overcome them.

The sixth article explains how digital twins are helping bridge the gap between design and manufacturing.

The seventh article how manufacturing environments are adapting to the evolving customer needs and expectations.

About the sponsor: Mouser Electronics

Mouser Electronics is a worldwide leading authorized distributor of semiconductors and electronic components for over 1,200 manufacturer brands. They specialize in the rapid introduction of new products and technologies for design engineers and buyers. Their extensive product offering includes semiconductors, interconnects, passives, and electromechanical components.


[1]“Internet of Things (IoT) Spending Worldwide 2023.” Statista. Lionel Sujay Vailshery, June 28, 2022.

[2] The industrial manufacturing industry has the highest adoption of IoT among all industries, HFS research, 3 Aug 2021, [Online], Available form:

More by Adam Kimmel

Adam Kimmel has nearly 20 years as a practicing engineer, R&D manager, and engineering content writer. He creates white papers, website copy, case studies, and blog posts in vertical markets including automotive, industrial/manufacturing, technology, and electronics. Adam has degrees in Chemical a...