OEMs hold the key to the Industry 4.0 toolbox
24 April 2019
Brian Foster, Head of Industry Finance at Siemens Financial Services in the UK, explores how digitalisation is boosting the market for manufacturing Internet of Things (IoT) and how integrated finance can help original equipment manufacturers (OEMs) and their customers capture the benefits of automation in a financially sustainable way.
The manufacturing sector currently accounts for 10% of the UK’s economy. The machine tools industry is at its core. With an estimated turnover of £1.9 billion in 2017, the UK manufacturing technology sector contributes to the productivity of sectors including aerospace, automotive, medical equipment, construction, oil and gas, and consumer durables. Across these industries, manufacturing requires precise, specialised tools and machinery to create high quality products. Increasing automation, digitalisation, and connectivity of the manufacturing process helps to increase the value of products, by improving cost efficiency, quality, and allowing increased customisation. But the rapid technological advances in Internet of Things (IoT) also bring about accelerated innovation cycles, which require significant financial investments from manufacturers. OEMs are in prime position to enable and accelerate investments into IoT, by supplying new technology while offering flexible and sustainable financing solutions.
Automated equipment can help manufacturers save money, time and energy by offering fully integrated solutions, that can analyse production patterns, employ predictive modelling based on previous manufacturing processes, and initiate pre-emptive equipment servicing. By enabling a more efficient production process, optimising performance, and reducing energy consumption, manufacturing IoT can help companies reduce costs while adding value to products. Estimates suggest that between 5% and 30% of UK GDP is wasted due to inefficient working practices and correcting mistakes. A recent study also found that the impact of machine downtime is costing Britain’s manufacturers more than £180 billion every year with 3% of all working days lost annually due to faulty machinery. The manufacturing industry has recognised the need to upgrade, and it is industry consensus that manufacturing IoT is crucial to continued growth and business success.
Many sectors have embraced this ‘digital revolution’. For example, the plastics and injection moulding industry has seen dramatic change in the past years. The introduction of robotic equipment that can work alongside skilled workers has allowed human labour to be focused on value added areas, leading to a more efficient and productive application of knowledge and skill. Forward thinking companies are also taking advantage of additive manufacturing or 3D printing technology, which allows manufacturers to deliver new products to market at a faster rate. Not only can manufacturers benefit from automation, companies located along the supply chain can also improve their processes through interconnectivity and IoT.
The food and drink industry offer an example of the potential benefits of technological innovation along the supply chain. Tracking and tracing foodstuffs throughout the manufacturing process, for example, can inform manufacturers about the quality and availability of products in advance, allowing them to adapt their production process. In addition, shelf life can be improved by monitoring shipping times and assessing supply and demand from farm to market. Employing automated technology in the supply chain will reduce waste, enhance productivity, and create more efficient production practices.
The increased focus on automation and digitalisation has led 80% of manufacturers to believe smart factory technologies will improve their supply chain relationships and 92% of manufacturers to believe smart factory technologies will enable them to increase productivity levels per headcount. As technology continues to advance, however, so too has the pressure on businesses to acquire new technology or upgrade existing equipment more frequently. Some manufacturers lack the necessary investment budget and are concerned about ongoing costs. OEMs and their customers are therefore increasingly looking to diversify their funding options and gain access to flexible and transparent finance. With integrated finance, OEMs are in a competitive position to introduce their customers to financing techniques that draw on diverse sources, are easy and flexible to arrange, appropriate to their needs, help transparent financial planning, and are demonstrably reliable and sustainable in the long term.
A range of alternative financing solutions providing greater ease of access to the technology are available. Asset finance solutions have several advantages over conventional bank loans. Pay-to-use or access financing techniques such as leasing, and pay-for-outcomes agreements whereby the savings or gains made possible by a given technology fund monthly payments, are effective, alternative methods of funding equipment and technology investments and upgrades.These financing arrangements offer end clients the option to spread the costs of the equipment over a pre-agreed period, thus removing the need for a large initial payment. As the finance facility is secured wholly or largely on the asset being financed, the need for additional collateral is reduced. The lease cannot be recalled during the life of the agreement and there is more flexibility for customers because businesses have the option to add on, replace or update equipment during or at the end of the lease period.
OEMs can themselves leverage these benefits to drive sales, by integrating asset finance into their overall offering, helping their clients invest in new technology. Specialist financiers have an in-depth understanding of the financed machines and/or components, as well as business models. This helps them to deliver appropriately tailored financing solutions to meet the specific needs of each end customer. Their technology and financing expertise also allow them to fully assess the business benefits and risks involved with the acquisition and make a reliable estimate of ROI. Additionally, specialist financiers can design arrangements that embrace the full costs of using technology (not just the cost of acquisition) to ensure that running costs are also managed. As manufacturers are now demanding financial arrangements that encompass the total cost of ownership (TCO), OEMs offering an integrated financing solution to their own clients have the potential to enhance their offering and remain competitive.
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