Digital transformation is driving change in manufacturing with equipment financing playing a key role in developments, according to a new report.
Finance has to adapt to the developing needs of the manufacturing sector, as it responds to the fundamental changes brought about 4IR, a research from Siemens Financial Services (SFS) argues.
According to the report, the productivity gains available from digitalisation and automation are affecting every industry, from automotive to machine building and the printing sector, delivering a ‘digitalisation productivity bonus’.
Creating this automated, digitalised manufacturing environment requires major investment and it is changing the nature of finance, according to SFS, with an increasing focus on ‘pay to access/use’ services and payment for outcomes instead of directly for the equipment itself.
For example, Südzucker, Europe’s biggest sugar producer, wanted to invest in new technologies to achieve environmental and cost savings during production.
The Südzucker Zeitz plant in Germany introduced a fan system with a new Siemens drive, financed by SFS using an energy performance contracting model.
Under the arrangement, monthly instalments are adjusted according to the actual savings that result from the reduced energy usage. The company did not need to raise capital to acquire the technology.
Südzucker is currently saving 930,000 kilowatts each year, or 680 tons of CO2 emissions.
Financiers are developing a range of specialist financing tools, which SFS describes as Finance 4.0, to support the transition to smart, digitalised industrial processes, including software finance and transition finance or working capital solutions.
Digitalisation involves the widespread installation of sensors in the physical environment and the ability to rapidly enhance production economics through real-time performance data analysis, according to SFS.
Some pioneers are using digital controls and data analysis to improve a wide range of processes, including production capacity, job set-up and turnaround, uptime maximization, predictive maintenance, supply-chain logistics and just-in-time distribution.
There are even instances of manufacturers improving their competitive edge through mass customisation, a technique where tailored products are offered with much the same economies formerly associated with mass production
In its report, called The Digitalization Productivity Bonus: Sector Insights, SFS said: “For manufacturers that want to remain competitive in increasingly aggressive global markets, the move to increased automation and Industry 4.0 is not an option – it is a necessity.
“But seizing the competitive advantages of automation and digitalisation that lie at the heart of Industry 4.0 requires a substantial investment in new generation automated and digital platforms.
“Responsible business leaders will therefore need a solid business case that justifies this kind of significant investment to stakeholders and shareholders, one that paints a credible picture of the revenue, margin and growth benefits an investment in automation and digitalisation technology will bring.”
Industry expects greater productivity
The research revealed that by automating and digitalising their production systems, manufacturers were set to make production productivity gains equivalent to between 6.3% and 9.8% of their annual revenues.
In the global automotive industry, it is estimated that conversion to digitalised technology could deliver a ‘digitalisation productivity bonus’ of between $173.3bn and $269.5bn.
The industry is experiencing significant upheaval because of new regulations, market model shifts and changing consumer behaviour, including a transition to plug-in hybrid and electric vehicles, as world governments legislate for the use of zero-emission vehicles, with some cities already introducing tough emissions limits.
Manufacturers face intense competition, while consumers are reluctant to pay more for vehicles. New business models are also emerging, such as subscription services, while the introduction of autonomous vehicles could bring even more disruption, meaning automotive business models need reform, the SFS report said.
Therefore, the automotive production environment of the future must become much more flexible, moving from fixed-chain production to more flexible, modular production.
Digitalisation is set to drive change throughout the production process, including the greater use of data sharing between manufacturers and suppliers to drive efficiencies in inventory and supply management.
Plant and machinery will increasingly be able to self-monitor using digital sensor technology, to warn of impending problems before they cause disruption to the manufacturing process.
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