Digitalization Potential to release Over 6.3 Percent of Manufacturers’ Revenues

Siemens Financial Services (SFS) has released a new research paper, launched at Hannover Messe 2017, which investigates the value of digitalization for manufacturers. New-generation digitalized technology (also known as Industry 4.0) is enabling manufacturers to improve performance through increased manufacturing productivity, improved planning and forecasting, enhanced competitive capabilities and greater financial sustainability. The importance and potential of digitalization for manufacturers is the main focus of Siemens’ presence at Hannover Messe.

The various dimensions of productivity differ between industries and countries. Nevertheless, increased manufacturing productivity – the ability to either produce the same number of products for less, or more products for the same – has a clear and calculable positive effect on costs and margins. The new paper has named this positive effect the Digitalization Productivity Bonus.

Capturing testimony from over 60 international industrial companies, expert management consultancies and academic specialists based in 11 countries, the paper has built a model that estimates the Digitalization Productivity Bonus for different industries. The potential Global Digitalization Productivity Bonus (all manufacturing sectors) is estimated to be between 6.3 percent and 9.8 percent of total annual revenue by 2025.

The paper analyzes the pharmaceutical and food & beverage sectors to demonstrate how digitalization can be practically applied to contribute to improved manufacturing productivity. In the food & beverage sector, for example, digital information flowing up and down the distribution and supply chains helps to better match supply and demand to guard against over-ordering and over-production. In the pharmaceutical sector digitalization and data analytics can reduce the high levels of downtime typically experienced by pharmaceutical plants.

The Digitalization Productivity Bonus can only be realized when a manufacturer has upgraded production technology to new generation digitalized systems and equipment. Specialist financing techniques have been developed to enable the technological platforms and new mindset of Industry 4.0, for manufacturers to achieve digital transformation in a sustainable fashion. These techniques allow companies to harness the future benefit of digitalized equipment in order to fund the acquisition of that enabling technology.

The paper examines these specialist financing methods, including pay-to-access/use, technology upgrade finance, pay for outcomes, transition finance, working capital solutions, and more. They cover a range of requirements from the acquisition of a single digitalized piece of equipment, right through to financing a whole new factory.

“Intelligent financing arrangements tend to be offered by specialist providers that have a deep understanding of not only the digitalized technology, but also of how that technology can be practically implemented,” comments Brian Foster, Head of Industry Finance at Siemens Financial Services in the UK. “They play a vital role in enabling organizations to access cutting-edge technology and start benefitting from the Digitalization Productivity Bonus.”

Methodology
Over 60 international industrial companies, expert management consultancies and academic specialists were interviewed over the phone in February and March 2017. They were asked to estimate the potential financial benefit that conversion to digitalised technology could deliver to manufacturing organisations, specifically in terms of increased manufacturing production productivity. Manufacturing productivity is defined as a reduction in the cost of production – or conversely an increase in margins. Respondents gave their assessment of this reduction of production costs –the Digitalization Productivity Bonus – expressed as a proportion of total revenues. Interviewees came from the following countries and regions: China, France, Germany, India, the Nordics, Poland, Russia, Spain, Turkey, the UK and the US.

For further information, please see www.siemens.com/the-digitalization-productivity-bonus