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Industry 4.0

Creating a practical pathway to Industry 4.0

An ideal digitalized, automated, Industry 4.0 world is one in which people, machinery and systems are all digitally linked. It will provide manufacturers with greater efficiency, quality and performance for their businesses. But, to reach this goal requires careful planning – and financing. 

A successful transition to Industry 4.0 is likely to be reached in a series of steps, rather than a wholesale and sudden change. Experienced managers know that they risk dangerous business disruption if they move too far, too fast, without quality controls and return-on-investment measures firmly in place. 

Latest research from Siemens Financial Services (SFS), which captures opinions from over 40 manufacturers and expert management consultants in 11 countries around the world, attempts to uncover the pathway to success and identifies the key challenges to digital transformation. The results of the research are summarized in the whitepaper Practical Pathways to Industry 4.0, published in spring 2018, to be downloaded here.

The research identifies six challenges facing manufacturers:  

Challenge #1 Digital skills: Respondents clearly defined three key areas of digital skill where shortages are already being experienced: digital production expertise, digital maintenance capabilities and operating and strategic analytics. 

Challenge #2 Access to finance for the scale of investment: All interviewees consider that without access to appropriate and sustainable third party finance, manufacturers are precluded from acquiring the required digitalized technology for effective digital transformation.

Challenge #3 Creating a culture of collaboration: Whereas historically there has been a clear demarcation of roles and responsibilities, Industry 4.0 creates an interconnected environment where multiple perspectives can be combined and viewed.

Challenge #4 Data and cyber security: Over half of interviewees were of the view that these information security concerns are likely to give rise to a future market in specialized secure data sharing services.  

Challenge #5 Comprehensive access to proof points: Proof points are defined as case studies about manufacturers’ investment in Industry 4.0 technology, which clearly illustrate the level and period of return-on-investment. 

Challenge #6 Specialized strategic management and planning capabilities: Too few respondents have converted the need to digitalize and automate into a clear, phased, strategic plan. This includes evaluating the commercial benefits gained from each phase of investment, organized into a process where each phase is measured, and its impact on the following programme phases assessed and suitable adjustments made.

Key challenges for Industry 4.0

Creating a sustainable plan for Industry 4.0

Interviewees of the study were adamant that building a sustainable plan for Industry 4.0 cannot be reduced to a single, simplistic formula. Each company’s circumstances, digital maturity, market dynamics, management capabilities, talent pool and financial capacity are different. But respondents agreed that a coherent approach – a methodology that interrogates a number of aspects of a manufacturer’s business – is the key to building a sustainable plan for digitalization and automation. The methodology emerging from this study reflects consensus among respondents over six key areas:

  • Assessing the obstacles
  • Evaluating the opportunities
  • Recruiting and training talent
  • Measuring the efficiencies
  • Developing digital management
  • Integrated strategic finance
Strategic Goals

Financing 4.0 to enable a sustainable plan for Industry 4.0 

As a strategic first move, manufacturing organizations should seek to understand the potential access points to financing for digital transformation. The repositioning of financing, as an early consideration, potentially serves to open the range of technology investment options available as part of strategy development in the quest for Industry 4.0. 

To overcome the obstacle of investing in Industry 4.0 technology, specialist financiers have developed a set of financing tools – “Finance 4.0” – that enable the transition to new-generation digital technology in a way that is affordable, sustainable and is designed to alleviate the manufacturer’s cash flow and working capital pressures.

Finance 4.0 is a fast-developing sector with emerging flexible structures developed on a client by client basis. These flexible financing tools are being combined in a multiplicity of ways to enable the investment required for Industry 4.0 over time:

These specialist Finance 4.0 tools include:

  • Pay to access/use equipment and technology finance – This enables the acquisition of a system or piece of equipment. Periods can be adjusted to match payments to the financial benefits gained. Master agreements can be established that also help speed up future technology acquisitions.
  • Pay for outcomes – These arrangements base payments on the expected business benefits, or “outcomes”, that automation or digitalisation technology makes possible, such as reduced electricity consumption, for example.
  • Technology upgrade and update – Finance can also offer options to upgrade technology during the financing period, whether to replace with a newer model or retrofit enhancements to the main technology platform.
  • Transition finance – These arrangements defer payment for a new system until it is reliably up and running, eliminating any period of cost duplication for the manufacturer.
  • Software finance – Specialist financiers understand how software is implemented and the likely benefits in practice, so they can understand the associated risks and include the software as an element in the total financing package.
  • Working Capital Solutions – Improved competitiveness can lead to sudden growth, which exerts pressures on supplies, inventory and overall cash flow. Financing services – usually based on some form of invoice finance – are available to help manage the broader financial challenges that success through digitalisation brings.

Industry 4.0 finance arrangements tend to be offered by specialist providers that have a deep understanding not only of how the digitalised technology works, but also of how that technology can be practically implemented to enable a sustainable plan for Industry 4.0. 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 a sale.

Complete solutions should be taken into consideration in order to identify the best finance package to effectively digitalise a manufacturing facility’s entire operation – from equipment to software to the production line to the whole enterprise. Between them, this range of Industry 4.0 finance techniques allows manufacturers the opportunity to begin putting their Industry 4.0 transformation plans into action.

Andy Swadlo, Head of International Account Management at Siemens Financial Services (Commercial Finance)
Picture credits: Siemens AG