One of the biggest trends worth celebrating this National Manufacturing Day (October 1) is how digital solutions can keep powering manufacturing forward. At the 2016 MAPI Executive Summit, Raj Batra, president of Siemens’ Digital Factory Division, noted that companies are beginning to realize that they need to do things differently and that starts with embracing digitalization. However, moving to a digital enterprise takes time.
Manufacturers also often face financial barriers to afford critical upgrades while maintaining productivity. Creative financing from a tech-savvy financier such as Siemens Financial Services (SFS) can make digitalization within reach, allowing firms to stay competitive in a rapidly evolving market.
Adopting a Digital Mindset with the Help of Financing
As the fundamentals of manufacturing have evolved, so too have financing solutions. According to a recent report titled “The Digitalization Productivity Bonus,” more firms are moving toward financing business outcomes rather than financing a single technology investment directly. Manufacturers should also consider all financial options that effectively digitalize their entire operation – from equipment to production lines. Financiers, such as SFS, understand this technology intimately and can properly assess future benefits and business outcomes over the long-term. Financing techniques that support this new mindset include:
- Covering the total solution and total cost of ownership – from hardware and software to services – allowing manufacturers to secure digital transformation at guaranteed cost
- Building in technology upgrade options so manufacturers are not stuck with obsolete equipment
- Offering flexible financing periods to suit the pace by which each manufacturer will reduce costs or increase sales because of digitalization
- Providing capital to support strategic mergers or acquisitions or tightened liquidity due to rapid growth
- Supporting a manufacturer’s expansion, using project finance solutions, both domestically and abroad with resources to meet customer needs all over the world
Modernizing Equipment
According to the Bureau of Economic Analysis, the average age of manufacturing assets in the U.S. is close to 20 years. Unfortunately, moving to new technology can result in a period during which a manufacturer is paying for two pieces of equipment at once. Transition financing offers one solution. This arrangement defers payments until the new product is fully operational.
A great example is the Extended Payment Term (EPT) loan, which allows up to 180 days to complete payment with no effect on credit lines. EPT was critical to a manufacturing customer in completing the MTA East Side Access Project in New York City. SFS approved the manufacturer for this loan, enabling the purchase of equipment from Siemens to complete the project.
Beyond Equipment
Financing helps manufacturers digitalize full operations beyond equipment. Manufacturing firms become better equipped to leverage digitalization with capital to grow business, whether it’s through a merger or acquisition of manufacturing lines, automation solutions, IT processes, and even entire factories or additional funds needed to support growing demands.
U.S.-based AK Steel took this approach when it sought to acquire a Russian steelmaker’s operations in Dearborn, MI to expand and modernize its operations. SFS helped the company accomplish this by committing $100 million in a multi-lender working capital facility in support of the acquisition. The resulting value of the acquisition was a 40% improvement in the company’s shipping capabilities and enhanced operational flexibility to increase scale and better serve customers.
As more manufacturers look to these processes to improve their bottom line, finding the right financing solution is crucial to making the transition seamless.
