Financiers have the opportunity to accelerate innovation for manufacturers by applying financial service solutions to advance industrial operations. Gary Amos, chief executive of commercial finance – Americas at Siemens Financial Services, looks at how this can work in the context of the digitalization trend.
Recently, US President Donald Trump sat down with German Chancellor Angela Merkel and a few CEOs of leading German organizations. Joe Kaeser, the chief executive officer of our company, Siemens AG, was one of the attendees at the meeting, providing valuable insights into our company strategy. In addition to the economy, discussions focused on manufacturing, specifically around Germany’s highly respected vocational programmes and apprenticeships.
Germany is the third-largest export economy in the world, and the US served as the top purchaser of German goods, importing $114bn worth of German products, chief among them vehicles and car parts.
I found these discussions particularly interesting as they demonstrated the depth and breadth of bridging the international communities and the value add that canbe drawn from collaboration, best practice sharing and learning from one another’s successful models, such as Germany’s vocational programmes.
Last year, I had the opportunity to attend the Hannover Messe trade show in Hanover, Germany, the largest industrial trade fair in the world. Coming in to the trade fair with a financial background, I could not help but think of the importance financing offers to fuel innovations across the expansive global manufacturing floor and the evolution of technology.
The 2017 Hannover Messe theme is Integrated Industry – Creating Value, which is focused on developing new business models that can transform industries and, ultimately, forward the digitized industrial agenda brought on by Industry 4.0.
Similar to what can potentially be achieved at the public level through international collaboration, financiers have the opportunity to accelerate innovation for manufacturers by applying financial service solutions to advance industrial operations.
At Siemens, we call this new manufacturing era the ‘digital enterprise’, but to most it is defined as the ‘smart’ factory. Forbes describes this as the bridging of cyber-physical systems to monitor the processes of the factory and make decentralized decisions – becoming intermittently connected by the Internet of Things (IoT) and communicating and operating with humans in real time across the wireless web.
We are more connected than ever and today’s global manufacturing floor involves
automated processes requiring a new skill set for human capital. With the megatrend of digitalization leading this charge, I wonder how does financing specifically fit in to this larger shift taking place across industry?
Ageing assets present financial challenges
With the acceleration of new technology, expectations of businesses are greater than ever before. Dynamic information is needed more quickly, solutions must be more integrated, and products must be delivered to the client faster. In the past, business technology and equipment innovation moved at a slower pace.
Businesses would acquire equipment with the understanding that it would deliver benefits over a five-to-ten-year period. Today, businesses can no longer expect one piece of equipment to last them a full decade.
With dynamic information needed more quickly, manufacturers can no longer afford to forego innovation. Capital is now a paramount requirement for manufacturers to keep their equipment and technology up to date and to stay competitive in today’s digitized market.
Financing allows manufacturers to adopt distributed network models, which localizes product generation to be closer to the site of distribution. Distributed manufacturing leverages large numbers of ‘partner’ factories and minds to create agile supply chains. This is one way financing can inspire innovation and help manufacturers meet today’s industrial challenges.
Models shifting to ‘pay for performance’
Manufacturers and technology providers often sell solutions with the promise of an outcome for their customers. Pre-established service benchmarks, known as key performance indicators (KPIs), drive the agreement between a manufacturer and third party service provider.
KPI benchmark objectives are established and the underlying payment obligations are made by the end customer for the service performance. Manufacturers look to financial service providers to assist in monetising these future payments and fund those payments at inception of the contract.
At Siemens, we have aligned our financial models to ensure business outcomes
for our customers. An example of this was our work with a leading aviation manufacturer. Collaborating with Siemens’ Industry division, we structured a deal that financed product lifecycle software for the customer.
The agreement included a software and license agreement with Siemens’ Industry, and SFS allowed the manufacturer to have extended payment terms to complete all payments. The financial flexibility offered by Siemens enabled the aviation supplier to
acquire the necessary software.
This dual-service ability is what truly makes Siemens a differentiator in the market, as we can provide the service, financing and enable a target outcome for customers.
Collaboration and adapting to Industry 4.0
Our team recently attended the Manufacturing in America (MiA) conference in Detroit, Michigan, where we used this opportunity to share the value proposition that financing
brings to the manufacturing floor.
We listened to the needs and daily challenges that our diverse customer base faces. Whether they are manufacturers, distributors or third-party original equipment manufacturers (OEMs), our customers all have one thing in common – a need for capital to keep up with the technological shift of Industry 4.0.
Similar to international collaboration, integration of industry best practices for private enterprises is becoming more critical than ever before. This is especially true for financial providers which offer lending solutions to the manufacturing sector.
Through collaborating together to finance outcomes, and hold our service providers
accountable, the path to Industry 4.0 has never been easier. So next time you attend an industrial show or see a final product on the market, think to yourself: How would this
be possible without finance?