Brian Foster, Head of Industry Finance at Siemens Financial Services in the UK, considers how digitalised technology will transform the UK’s manufacturing industry and how new financing methods are key to this development.
Manufacturing is changing rapidly as advancements in new generation digitalised technology (also known as Industry 4.0) are helping to transform the production process through greater integration of physical production with digital technologies, such as robotics, software, sensors, virtual reality and 3D printing to name but a few. The connection of devices or appliances to the Internet (known as the Internet of Things) is a core pillar of the digitalisation of manufacturing, enabling manufacturers to monitor and swiftly act upon data flowing from connected people, machines and systems. These changes will allow manufacturers to innovate more rapidly and increase revenues through greater efficiency and agility.
The manufacturing sector currently accounts for 10% of the UK’s economy but investment in new and constantly adapting technology is predicted to see this expand. A recent UK Government-commissioned report found that the positive impact of Industrial Digital Technologies, including Internet of Things (IoT) technology, over the next decade could be as high as £455 billion for UK manufacturing, increasing manufacturing sector growth between 1.5 and 3 percent per annum, creating a net gain of 175,000 jobs and reducing CO2 emissions by 4.5%.
Information and data is collated by computers (often cloud-based, such as Siemens’ MindSphere) that enables manufacturers to monitor and adapt their production process to help achieve greater efficiency. IoT has the ability to transform every area of manufacturing - from operations such as asset management and machine maintenance to planning, quality control, and field service. Perhaps the most interesting and far-reaching change, however, will be the ability to provide mass customisation, enabling manufacturers to provide tailored offerings in everything from vehicles to clothes.
To achieve this, manufacturers need to implement smart production lines and IoT-enabled supply chains to react faster to customer requirements, and so deliver these higher-margin items.
It is predicted that by 2020 more than half of major new business processes and systems will incorporate some element of the IoT technology. However, keeping pace with such advancements requires considerable capital expenditure. In this context, it is essential for manufacturers to seek new and sustainable ways of investing without hampering cash flow.
Against this backdrop, access to a range of smart and sustainable financing techniques, such as pay for outcomes, technology upgrade & update and working capital solutions (known as Finance 4.0) is critical to a company’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. These financing methods can help make the upgrade to digitalised technology affordable and potentially cost neutral (or better) for the manufacturer.
Finance 4.0 arrangements tend to be offered by specialist providers, such as Siemens Financial Services, that have a deep understanding not only of how the digitalised technology works, but also of how that technology can be practically implemented. At times, the financing arrangement will be an embedded component of the value proposition, offered right at the beginning of the sales cycle. In other cases, the technology provider will refer its customer to one or more finance providers to fund the sale. This contrasts with the standard financing terms usually available from generalist financiers.
The benefits of digitalised technology for the manufacturing industry are significant and far-reaching and manufacturers are keenly aware of the need to keep up with new technology that is developing at rapid speed. To best navigate this, such manufactures should consider working with a specialist financier to help them understand the most sustainable ways to invest in Industry 4.0 technology. Whilst this can be a challenge, companies that delay investment and fail to embrace the opportunities available to them, risk being left behind by the competition.
 EEF, Manufacturing Factcard 2017/18