Serving up finance
OEMs can help their customers in the Machine Building sector embrace digitalisation with integrated finance. Neli Ivanova, sales manager, Industrial Equipment at Siemens Financial Services in the UK, reports.
Manufacturers in the Machine Building industry are facing a number of key challenges, including increasing productivity and responding to changing consumer demands. These consequences also impact the original equipment manufacturers (OEMs) that supply their machines. The sector requires that its OEMs manufacture systems with ever-shorter run times, greater flexibility, and increased efficiency in order for their customers to stay competitive.
Industry 4.0, which refers to new generation digitalised technology , brings clear, specific benefits to the Machine Building industry. It introduces highly flexible and totally automated manufacturing that enables new economies of production and it allows businesses to take a product to market more quickly by connecting the supply chain to the production facility through interoperability. Connected and communicating production machinery reduces wastage. This enables more flexible production with shorter swap-over times, provides greater energy and machinery-utilisation transparency and improves overall equipment effectiveness and other key performance factors.
Rising levels of automation associated with Industry 4.0 implementations means that machine builders will have more equipment and technology to monitor and control. To meet these changing requirements, machine builders are making decisions about the technological building blocks of their products. Industry 4.0 – including customer-specific compliance standards – is placing increasing demands on machine communication networks, for example, requiring them to handle more data types and larger data volumes, while at the same time maintaining operating performance required by regulators for safety and reliability. Digitalisation and sensor technology enable remote control, monitoring, and in-line adjustment, all of which allows processes to be refined and maintenance predictively scheduled to maximise uptime. Customers’ preferred network standards also have to be seamlessly accommodated.
Digital virtualisation is certainly making it easier, faster and less expensive to develop and test client machine configurations. Machines are developed in a virtual environment, various options and configurations tested, and the results reported back to the client before physical specification and construction is finalised. Similarly, software modules are tested in the same environment. Creating a ‘digital twin’ – the virtual copy of a real machine or system – in this way, is increasingly helping to ensure optimized machine design, efficient commissioning, short changeover times, and smooth operation. One source claims that this digital virtualisation approach can eliminate up to 80% of the work required to develop machine control applications.
It is now an industry-wide expectation among manufacturers that new-generation digitalised technology will reduce costs and increase revenue as standard. Although, the various dimensions of productivity differ between industries and countries, increased manufacturing productivity – the ability to either produce the same number of products for less, or more products for the same – has a clear and calculable positive effect on costs and margins. This effect can be measured using the Digitalisation Productivity Bonus (DPB), a financial model devised by Siemens Financial Services (SFS) which estimates the potential gains as a result of investment in digitalised Industry 4.0 technology. In the case of the UK Machine Building industry, it is estimated that conversion to digitalised technology could deliver a DPB of between $2.8 billion and $4.4 billion.
While manufacturers in the Machine Building sector may be aware of the many benefits associated with digitalisation, financial obstacles frequently delay or discourage investment. Access to a range of smart and appropriate financing techniques – Finance 4.0 – is critical to a manufacturer’s ability to sustainably invest in the new fourth-generation of digitalised technology and automation equipment. Finance 4.0 covers a range of requirements from the acquisition of a single digitalised piece of equipment, right through to financing a whole new factory. Financing techniques have now been developed to allow an end-user to in effect apply some or all of the Digitalisation Productivity Bonus to fund the digitalised technology and equipment that makes the bonus possible in the first place. In simple terms, these financing methods seek to align payments for the new generation technology with the rate of gain from the Digitalisation Productivity Bonus. Broadly speaking, this can help make the upgrade to digitalised technology affordable and potentially cost neutral (or better) for the end-user.
Examples of Finance 4.0 include: Pay to access/use equipment and technology finance, Manufacturing technology upgrade and update, Pay for manufacturing outcomes, Transition finance, Working capital solutions, Asset-based lending and Acquisition growth finance.
OEMs engaged in the manufacture of machinery can leverage these benefits to drive sales by integrating Finance 4.0 into their overall offering and helping their customers invest in new technology. Such finance arrangements tend to be offered by specialist finance providers that have a deep understanding of how the digitalised technology works. Such financiers are able to work with OEMs to demonstrate how that technology can be practically implemented to deliver the Digitalisation Productivity Bonus as well as other benefits of digitalisation to the Machine Building sector. As the financing arrangement can be an embedded component of the value proposition, OEMs are able to introduce customers to the latest equipment and technology and simultaneously present them with a financially sustainable method to invest in digitalisation. OEMs offering an integrated financing solution to their own customers have the potential to enhance their offering and remain competitive. In other cases, the technology provider will refer its customer to one or more finance providers to fund a sale.
Integrating finance into their sales proposition allows OEMs to facilitate investment in the latest equipment and technology and help customers to invest sustainably in digitalisation. Complete solutions should be taken into consideration in order to identify the best finance package to effectively digitalise a manufacturing facility’s entire operation – from equipment to software to the production line to the whole enterprise. Between them, this range of Finance 4.0 techniques allows Machine Building manufacturers to access the Digitalisation Productivity Bonus.