One of the more attractive prospects of the Internet of Things (IoT)—and digital manufacturing, in general—has been that taking part in this industrial evolution does not require manufacturers to rip and replace their legacy equipment with all-new, IoT-ready versions of digital technologies. Numerous options exist for retrofitting legacy machinery with new devices for digital data delivery or applying updated analysis software capabilities to data already being collected.
But with the average age of equipment in most U.S. manufacturing plants being 20 years old or older, at least some level of equipment replacement will be necessary to take full advantage of manufacturing’s digital future.
While these kinds of updates are certainly less costly than any complete rip-and-replace option, they are not without cost. And, if you’re looking to upgrade more than one or two facilities, the total costs for a digital manufacturing upgrade can increase exponentially.
When you add to this the knowledge that delaying any move toward digitalization puts your company at risk of being left behind by competitors, your focus will inevitably be drawn to figuring out how to cover the costs of the updates you need.
In response to this industry need, financial firms are devising a variety of options. One such organization—Siemens Financial Services (SFS)—helps manufacturers afford critical digitalization upgrades while maintaining productivity. This includes:
- Covering the total cost of ownership for technologies purchased—from hardware and software to services—allowing manufacturers to secure digital transformation at guaranteed cost;
- Offering flexible financing periods to suit the pace at 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; and
- Supporting operational expansion through project finance solutions globally.
One of the flexible financing options is called transition financing. This approach provides organizations extended time to submit service payments, resulting in greater operational flexibility for project completion. “A great example of this is the Extended Payment Term (EPT) loan, which allows up to 180 days to complete payment with no effect on credit lines,” said Gary Amos, North America Commercial Finance CEO for SFS. EPT was critical to one of our manufacturing customers being able to complete its portion of the Metropolitan Transit Authority’s 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.
Amos added that, when it comes to financing digitalization upgrades, “more firms are moving towards financing business outcomes rather than financing a single technology investment directly.”
Explaining how financing can help manufacturers digitalize full operations beyond a single piece of equipment, said Anthony Casciano, Global CEO, Industry and Healthcare Finance, SFS. “With financing, manufacturing firms become better equipped to leverage digitalization with capital to grow their 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.”
AK Steel took this approach when it sought to acquire a Russian steelmaker’s operations in Dearborn, Mich., to expand and modernize its own operations. “SFS helped the company accomplish this by committing $100 million in a multi-lender working capital facility in support of the acquisition,” said Casciano. “The resulting value of the acquisition was a 40 percent improvement in the company’s shipping capabilities and enhanced operational flexibility to increase scale and better serve customers.”
Beyond financing aspects, Amos also cited another key aspect manufacturers should consider in any new technologies they acquire as part of a digitalization upgrade: “Make sure that upgrade options are built-in to any new technologies purchased so that you are not stuck with obsolete equipment in the future.”
