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Investing in smart factories

20 December 2021

Neli Ivanova discusses 5G and the future of smart factory investment. 

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5G has the potential to dramatically enhance productivity and encourage growth across manufacturing industries. Through increased connectivity, the technology is likely to accelerate smart factory initiatives and given its transformational promise, mobile technology is viewed as a crucial tool for post-pandemic recovery. 

5G is between 10 and 20 times faster than its predecessors 4G and LTE (Long-Term Evolution), while simultaneously capable of supporting a million connected units per square kilometre. It boasts a transmission rate of up to 20GB per second and consumes only one-thousandth of the amount of energy per bit transferred compared to LTE. 

The Covid-19 pandemic has highlighted the increased need for food manufacturers to be able to swiftly change production processes in response to shifting demand alongside labour shortages. With 5G manufacturers would be able to dynamically adapt their production areas to current circumstances at any time, without the need for major infrastructure changes. 

Understanding the cost of not transforming to Industry 4.0 is the topic of the most recent research from Siemens Financial Services (SFS), which estimates the size of the investment challenge and looks at the potential organisational and financial gains – from migrating to smart factory technology  – that late adopters of this technology will miss out on. 

The report  – Industry 4.0: Rising to the challenge – conservatively estimates the global transformation challenge for smart factory migration to be in excess of $400 billion over the next five years. Europe alone accounts for $137.4 bn of this total. 

An urgent issue
While the productivity benefits of 5G and digitalisation are potentially accessible to all manufacturers, the window of opportunity to transform and thereby gain competitive advantage is limited, making the issue an urgent one. Challenges to implementing digital transformation tend to pivot around the issue of finance. These barriers, however, can be overcome using smart finance techniques – known as Finance 4.0 – which covers the full range of requirements, from the acquisition of a single digitalised piece of equipment, to financing a whole new factory. Smart financing techniques can help manufacturers address the need to invest, to harness sustainable third-party capital to reduce the burden on corporate lines of credit, as well as to deploy cash flow management techniques that help maximise available working capital. All of these are playing a crucial role in helping deal with the current period of volatile markets and economics.

Smart finance solutions tend to be offered by specialist financiers, where the funder understands the technology, the markets, the applications and the operating pressures and where financing is an integrated part of the discussions with technology vendors. Using this knowledge, they create and align financing structures which are focused on achieving recognisable and clearly identified desired business outcomes for the manufacturer, through access to the right technology, services and advisory. Currently, one of the greatest advantages of such an approach is the ability to flex and adapt rapidly to market challenges. More broadly, these financing techniques align payments to the expected rate of return-on-investment delivered through new technologies and equipment.

Increased production capacity, agility and productivity, while improving price competitiveness are just some of the examples of the benefits of smart factory transformation. While manufacturers eagerly await the arrival of 5G, measures should be taken to keep factory processes optimised to ensure a business is competitive, especially during challenging times. 

Neli Ivanova is sales manager, Industrial Equipment at Siemens Financial Services in the UK.

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