The new era will feature the ‘smart factory’, where digitalised production processes and the Internet of Things form the basis for highly efficient manufacturing, writes Siemens Financial Services’ Brian Foster

We are currently witnessing the early stages of a new industrial era. At its centre point is the ‘smart factory’, where the digitalisation of production processes and the integration of the so-called Internet of Things (IoT) form the basis for intelligent, highly efficient manufacturing systems.

This development is driven by the installation of widespread sensors in the physical environment, the link between physical and virtual reality, and the ability to rapidly enhance production economics through real-time performance data analysis.

As during the periods of innovation and development triggered by the rise of steam power, the use of electricity and the development of digital technology and the internet, the manufacturing world is once again fundamentally transforming.
These new dynamics have been identified as the fourth industrial revolution.

For manufacturers these are exciting times, as a plethora of potential future opportunities for adding value to their products and services arise.

Research by the McKinsey Global Institute suggests that on a global scale, the growing interconnectedness of equipment and machinery via the internet, the IoT, may have a potential economic impact of as much as $11.1trn per year in 2025.
Among the physical environments in which these systems are deployed, factories are expected to reap the greatest share of economic gains, with up to $3.7trn per year.

Gains will come from productivity growth, enhanced energy efficiency and savings in the area of maintenance. Consequently, it will deliver financially for manufacturers to invest in the fourth industrial revolution.

Companies in the sector have already recognised this opportunity. In a recent study by Siemens Financial Services, manufacturers across the world reported a need to invest in new-generation technology to manage four key sector challenges.

Firstly, respondents felt an urgency to increase production capacity and flexibility to meet changing demand and drive sales. Secondly, manufacturers are under pressure to enhance client service quality while reducing production costs.
Additionally, respondents reported that they are striving to improve competitive positioning by providing higher-quality products and a broader product range, while optimising efficiency, cost control and manufacturing agility through automation and digitalisation.

This creates mounting pressure on the sector to acquire new equipment, upgrade existing machinery and invest in new software and hardware solutions.

In order to meet this need for investment, manufacturers are increasingly diversifying their range of financing techniques.  
In this brave new world of manufacturing, asset finance is seen as an important investment facilitator due to its ability to accommodate the total cost of ownership approach to key technology.

In addition to the technology price, individually tailored finance solutions can also cover other costs such as installation.
This gives a high level of transparency and allows the customer to appropriately assess the cost-benefit ratio of the acquisition right from the start. Solutions such as leasing and lease purchase, however, not only offer reliable financial planning and contribute to the calculation of production cost per unit.

Payments can also be arranged to align with expected cost savings or improved productivity delivered by the newly acquired technology. As a result, the costs for a technology acquisition or upgrade are at least partly offset by the financial gains generated by the deployment of the equipment.

Investments in digitalisation and automation can therefore take place in a financially sustainable way.
As well as extending the available volume of financing, the speed and ease of the financing decision and arranging asset finance allows manufacturers to act fast to seize market opportunities.

This new era of industrial production is characterised by rapid innovation cycles, with new business opportunities continually emerging.

Manufacturers have to remain financially flexible and retain their ability to react to unexpected market developments, technology advancements and new investment opportunities. Businesses therefore increasingly look for financing solutions offering a high level of flexibility to fund investments.

Asset finance solutions can include the exchange or upgrade of leased equipment within pre-defined periods.
Specialist financiers combine capital markets expertise with a sound understanding of the funded technology and the dynamics of the manufacturing sector.

They are therefore in a unique position to structure complex financing solutions and ensure reliable and beneficial outcomes for the client.

As the world of manufacturing once again sees major changes, it appears that for businesses in the sector it is no longer sufficient to just make the best products in order to stay ahead of the game. Among the most successful companies will be the ones that efficiently gather high-quality data and use it to create innovative digital service offerings.

Consequently, manufacturers are increasingly recognising the need to invest in machinery and equipment that support the integration of IoT applications.

Additionally, the digitalisation of the shop floor requires an advanced IT infrastructure and solutions for data management to make proper use of the increasing quantity and quality of data. Many firms in the manufacturing sector however – SMEs in particular – lack the necessary expertise to assess whether a new application will create the desired return on investment.

Specialist financiers with extensive technology knowledge can help companies make the right investment decisions and offer them appropriate funding solutions.

In its early stages, the fourth industrial revolution presents businesses in the manufacturing sector with a unique chance to reinvent themselves and take advantage of an abundance of new opportunities.

For companies successfully managing this substantial change, rewards lie ahead. More than ever, access to the right funding will make a decisive contribution to businesses both large and small.

Offering flexible and reliable financing solutions as well as in-depth sector knowledge and technology expertise, specialist leasing providers are well positioned to enable manufacturers to embark on revolutionary innovation efforts.