Pandemic Planning: Muddy Waters or New Waves for Equipment Finance?
by Diane Croessmann May/Jun 2020
The coronavirus COVID-19 outbreak has shown us how rapidly pandemics can alter public health and global markets. How quickly we recover from these events depends in large part on collaboration from every sector, including the equipment leasing and finance industry.
Diane Croessmann, Director, Strategy & Competitive Alignment , The Alta Group
Industrial cobots, medtech robots and drones, which are increasingly important in their own right, are even more valuable when examined through the lens of coronavirus. They can prevent the transfer of highly contagious diseases by limiting human-to-human contact, supplying essential medical support and sustaining factory operations in times of crisis. As a result, it’s become imperative for the industry to step out of the comfort zone of time-tested equipment categories and support “emerging” asset types.
Similarly, more affordable usage option programs can accelerate the ability to scale automation across multiple industries. They can also provide much needed cash flow buffers to help support overall business health during periods of global crisis.
Rising Global Threats
Some would argue that globalization is a recent phenomenon. However, long distance global trade can trace its roots back to spices, textiles and precious metals that made their way from Mesopotamia to the Indus Valley in Pakistan around 3000 BC. It gained significant momentum in 1492 when daring sailors made the journey to the New World and returned, opening even more channels for trade. Regardless of when it started, no one can deny that the supply chain for delivering goods and services was forever altered as soon as suppliers and buyers saw the opportunities for enrichment.
Today, globalization has taken on new proportions. In addition to rapidly evolving supply chain dynamics, we see extensive political networks, broad social interaction and an explosion of data connectivity. This has created complex new interdependencies, opportunities and risks.
Sadly, one of the most notorious recent threats to our global economy has been the rise of pandemic risks as we see dense population growth in highly industrial geographies colliding with the steady and rapid movement of individuals across borders. The coronavirus causing COVID-19 is a sad manifestation of that reality as it carves a path on every continent.
In addition to the priority focus on individual health care and prevention in spreading the virus, there has also been significant attention given to the corresponding economic “pandemic” created as factory, office, education, travel and entertainment venues are temporarily shuttered. With governments, health organizations and communities working together to resolve these health and fiscal shock waves, the equipment leasing industry can’t be idle. Perhaps there’s an opportunity to invigorate growth by wading into muddy waters and agitating waves of economic recovery. It might be time to more aggressively focus on emerging asset types combined with more forward-thinking usage options to stimulate much needed change in how we conduct business in the future.
Funding New Equipment Types
In order to reduce the transfer of a highly contagious virus, all industries will be looking for opportunities to minimize human-to-human interaction in an emergency situation. This brings urgency to the development and use of emerging technologies. However, the equipment financing industry, and vendor programs in particular, have historically followed a path of funding more time-tested essential use asset classes. Based on what we are witnessing today with the coronavirus, there is good reason for funders to expand vendor programs to include other assets.
If we look more carefully at some of these assets, you could argue that they fall into a category that goes beyond essential use to one that borders on “essential for survival.”
Industrial Cobots are a natural extension of an existing solution that has primarily focused on efficiencies and cost reductions. Today, only a fraction of industrial robots works collaboratively with humans. These are called cobots. More traditional robots are caged to prevent injury to workers. Where robots perform scripted tasks and are limited in terms of flexibility, cobots are designed to work in close proximity to humans using multi-dimensional computer vision and sensors. They can augment a human workforce or replace parts of it by performing more complex tasks than robots can, and by delivering outputs that can be more easily varied. Because cobots are smaller than robots, simpler to program and don’t require major renovations, they are also more economical solutions. Technology that was once reserved for the largest manufacturers with the deepest pockets is now available to a wider range of manufacturers and industries. These technologically advanced cobots might be able to sustain critical production levels with minimal staff during a pandemic outbreak. This would be especially important to address supply shortages that are required to support the medical community. Today, most “bots” are used in the automotive, electrical/electronics and metal/machinery industries. However, there is insufficient penetration in other industries to deal with issues that abruptly shut down operations because of a pandemic threat.
Medtech Robots create another opportunity to contain the spread of a pandemic and drive efficiencies in normal times. Although surgical masks can provide a partial barrier for respiratory viruses, they are not as effective as the total elimination of patient to provider contact. Among many other routine medical tasks, medtech robots can disinfect rooms, dispense medicines, check vital signs and enable communication as a more effective way to isolate contagious patients.
Drones can serve multiple purposes. In addition to the obvious roles of delivering supplies to quarantined locations, there could be a need to also deliver a more widespread disinfectant or to surveil large crowds for thermo feedback on individuals who might have elevated temperatures. We may not like some of the ethics behind facial recognition and other remote bio feedback but some drone manufacturers are looking at leveraging doppler radar and artificial intelligence to monitor symptoms in the event this becomes essential for early detection and containment.
Supporting More Rapid Transition
With a goal of minimizing human exposure, providing essential medical support and sustaining factory operations, industrial cobots, medtech robots and drones will undoubtedly increase in importance to combat the risks associated with future pandemics. The equipment leasing and financing industry can play a vital role by offering attractive financing and usage options to support a more rapid transition. Automation can then become a reality for many more manufacturers and service industries.
First and foremost, funders need to get comfortable with adding these technologies, and the associated expertise, to their current portfolios. When options for market expansion are being explored, more often than not the decision will defer to time-tested options. Although newer technologies might create risk anxiety, some of this can be mitigated with an awareness of how the collateralized hardware can be adapted or shared in multiple use environments.
Usage and consumption options will also be vital to enabling a more rapid adoption rate. The unusual situation we are faced with as of this writing includes factory slowdowns and reduced production outputs. Although robotics can help sustain some level of production, consumption models will need to support variability in production. To the extent possible, and under specific contract conditions, funders should be looking at programs that can provide interest-only payments, temporary payment gaps and other usage options. Flexibility in being able to adapt to these unknown variables can provide invaluable assistance to small suppliers of essential products. It can enable them to survive a potential business interruption by utilizing automation to supplement a temporary reduction in their workforce.
The implications of the coronavirus COVID-19 pandemic will not be fully digested until it is contained and an effective vaccine is distributed. Only then can health and business communities turn their attention to analyzing the fallout. Small and large business owners who have temporarily shut down operations due to supply or labor shortages, preventive measures or forced closures may struggle to regain cash flow and credit quality. If they are forward thinking, they will simultaneously be focused on investment strategies that mitigate the risk of a similar crisis in the future. Health providers will be exploring various options to improve quality care while mitigating exposure.
Although available technology is capable of tackling some of the gaps that will be identified, other gaps will emerge dealing with the inability to scale these technologies to sufficient levels. The recovery effort of this global crisis falls on every industry and sector. The equipment leasing and financing industry has an important role to play. There is an opportunity to step forward into murky waters, develop collateral confidence and stimulate technology investment through creative financing and usage options.
Editor’s Note: This article was written in mid-March amid rapidly changing markets. As conditions evolve, the author may adjust her perspective and provide future updates.
Global economic and political changes are affecting equipment leasing and finance markets in diverse geographies. In our interconnected economy, it pays to understand what is happening globally and to look at emerging opportunities.
Patrick Gaskins, Vice President of Financial Services, Corcentric Capital Equipment Solutions
The first step in developing a long-term equipment financing strategy is to identify all of the fixed and variable costs associated with operating your current fleet. Patrick Gaskins of Corcentric recommends developing a spend analysis to identify current and future potential purchases.