The current health and economic crisis is affecting all industries, without exception. Many factories are accelerating their production or transforming their processes to meet their urgent needs. Others adapt their pace to maintain yield. In both cases, the benefits of digitizing the entire plant can be decisive in terms of agility, profitability and productivity to withstand periods of change and cope with fluctuations in demand, both upwards and downwards.
Companies that are not aware of the benefits of digital transformation are likely to fall considerably behind their competitors. The non-adoption of Industry 4.0 has a cost. This is the subject of the latest study by Siemens Financial Services (SFS), which estimates the amount of investment needed and examines the potential organizational and financial gains from adopting technologies clean to smart factories – from which latecomers will not benefit. Digital transformation can make all the difference. Accumulation of backwardness, survival or prosperity: the stakes are enormous in the current climate of economic uncertainty.
The first in a series, the report "Industry 4.0: Meeting the Challenge" cautiously estimates that the global challenge of moving to smart factories will exceed $400 billion over the next five years (1). Reduced to half of the "available market", these forecasts offer a very conservative perspective on the scale of the financial investment required for market penetration of the order of 50%. Europe alone represents huge capital needs, in the order of $137.4 billion of this total.
While all manufacturers potentially have access to the productivity benefits of digitalisation, the window of action to invest and gain a competitive advantage is limited, making the issue urgent. Currently, only 10% of global manufacturers fall into the category of digital champions. And almost two-thirds of them have just started their migration (2). If manufacturers continue on this trajectory, it is unlikely that they will be able to compete in the very short term. An earlier FSS study showed that the window of action to get ahead of the competition will have a 'tipping point' in five to seven years' time (3). Past the point of majority adoption (i.e. when 50% of manufacturers will have made substantial investments in Industry 4.0), those who have not yet begun the digital transformation will have to catch up. Even during this period, migration remains an emergency, with the competitive advantage of conversion diminishing as manufacturers adopt Industry 4.0 platforms.
The challenges of digital transformation are usually a financial issue, especially in this period of economic turmoil. However, these obstacles can be overcome thanks to smart finance techniques, also known as "Finance 4.0", which cover the whole range of needs, from acquiring a single digital equipment to financing a brand new factory. Smart Finance's techniques help companies meet their investment needs, leveraging sustainable third-party capital to reduce the load on credit lines, while deploying cash flow management techniques to optimize working capital. These benefits are crucial to deal with market and economic volatility.
Integrated with the technology provider's solution, Smart Finance's solutions are typically offered by specialized funders who can understand technology, industry, applications and operational pressures and design tailored financing structures, based on tailored technologies, services and advice, to achieve clearly defined business outcomes. One of the main advantages of this approach is the ability to react quickly to market difficulties. Broadly speaking, smart financing is adjusted according to business results, with financing calculated according to the expected rate of return on investments in digital technologies.
Beyond technological transformation and productivity gains, the digital transition increases production capacity, enhances agility and improves productivity, while offering competitive rates. Factoring can be a solution to the cash flow problems arising from successful digitization and rapid growth, which weigh on liquidity. The asset-based loan allows you to leverage assets to access working capital. A revolving line of credit, secured by the borrower's claims and inventory, provides the liquidity necessary for the operation of the business.
In the longer term, the pace of technological innovations and upgrades will increase and smart finance techniques (4) proposed by specialized lenders will integrate these investments into global financing to protect factories against the risk of technological obsolescence. The service life of the equipment is extended, its value increased and its capacities optimized. A growing number of suppliers are therefore integrating Smart Finance into the overall value proposition of their Industry 4.0 solutions offered to the manufacturing sector. The solutions thus gain in added value, are more financially sustainable and adjusted according to the expected benefits.
Analysts around the world agree on the need to maintain the adoption of new technologies, even in times of economic turmoil. Migrating to Industry 4.0 technologies helps manufacturers achieve the desired business outcomes more easily, through greater flexibility, productivity, and reduced energy consumption and even storage costs. As the digital transition accelerates, the window of opportunity narrows and the competitiveness of returns on investments diminishes. As a result, companies are increasingly using integrated financing options to facilitate the transition to Industry 4.0 and all-digital.
(1) Siemens Financial Services, Industry 4.0: Meeting the Challenge, 2020 (2) PwC Digital Operational Study, PwC Digital Operational Study 2018, 2018 (3) Siemens Financial Services, Countdown to Tipping Point for Industry 4.0, 2019 (4) According to a study by Siemens Financial Services, published in Investing in Success (2016), 67% of respondents from the production sector observed an intensification of technology replacement/upgrade cycles
Precia Molen, a global specialist in industrial and commercial weighing, continues to expand its international activities with the opening of a third factory in India in Chennai (Madras), India's fourth largest city.