Retrofit for the future: Gaining a competitive advantage with smart finance

3 mins read

By Stefania Moruzzi, business development manager, Siemens Financial Services, UK

Digitalised equipment and technology impact every aspect of industrial production from quality to meeting supply/demand and efficiency and even service and after sales. This means that when it comes to investing in new equipment, manufacturers are likely to only consider investing in technology that is digital-ready.

So, what’s standing in their way?

Supply chain disruption, for one, represents a significant obstacle. Production schedules have been upset by input shortages, longer supplier lead times and capacity constraints. Meanwhile, delays to all forms of shipping – via land, sea, or air – alongside the disruptions caused by Brexit and COVID-19 are leading to longer vendor lead times for the supply of machinery.

Unsurprisingly, the pandemic shutdowns and problems it has caused manufacturers have left many reluctant to invest. However, historical evidence shows that those who invest during a downturn are likely to gain long-term competitive advantage.

Indeed, as vaccination rates increase and bottlenecks ease, confidence is returning to the sector. This puts greater pressure on those manufacturers that have deferred investment in Industry 4.0, as they are at even greater risk of being left behind by competitors who maintained momentum during the downturn.

Given the well-known benefits of Industry 4.0 – enhanced operating agility, flexibility, and efficiency – the fact remains that every month that goes by where a manufacturer doesn’t invest is a month of lost production improvement, output efficiency and opportunities for reduced energy costs. Quite simply, it’s a month’s worth of lost competitive advantage.

However, with the limited access to new digital technologies and lengthy lead times for delivery from vendors, manufacturers must consider other pathways to Industry 4.0. Given the reduced access to new machinery caused by pandemic disruptions, manufacturers are increasingly turning to retrofitting - or refurbished equipment acquisition - for their digitalisation needs.

Retrofitting consists of updating existing equipment in situ to add in digital sensors, new components or enhanced software that increases machine efficiency and productivity. As a result, it becomes easier to maintain, adjust and test the production environment. Similarly, it can also be more rapidly fixed.

Additionally, within the equipment supply chain, several OEMs – anywhere from materials handling to production line and packaging – are taking back end-of-life equipment and refurbishing and digitalising it. They are adding in new components that rival those in the latest models and are then able to offer these out to market again.

Refurbishing old equipment can also help businesses to comply with sustainability objectives as it relies upon reuse of original infrastructure. Instead of replacing entire units, the process requires reusing the base frame of the original machine and only replacing specific components.

Likewise, while out-of-date machines are more likely to suffer downtime, their modernised version will be more agile to manage supply chain disruption, more efficient and generally more productive. Not only will this impact costs, it’s also likely to impact areas such as energy efficiency.

With substantial benefits to be gained from retrofitting and modernisation measures, manufacturers are now under pressure to start investing in digitalisation as soon as possible. Smart financing arrangements (usually based on a leasing structure) help organisations acquire new equipment or retrofit existing machinery without having to deploy retained capital or over-burden their banking.

Smart financing enables the acquisition of technology and equipment for competitive advantage, in a way that is financially sustainable and tailored to the organisation’s specific business and cash-flow needs. It offers three major advantages over generalist finance: technology expertise which understands real business outcomes; a breadth of financing solutions which can meet every organisation’s exact needs; and smooth, sophisticated processes which makes the use of smart finance seamless and easy.

Technology expertise leverages deep understanding of the technology & how it is applied in practice, plus the benefits & return on investment it delivers in real-world applications.

Breadth of financing solutions offers a true spectrum of financing products and solutions which can be flexed & customised to fit each organisation's individual circumstances.

Smooth processes put customer experience front and centre – delivering speed and ease, supported by digital tools, techniques, and specialist sector experts.

There’s no better time for manufacturers to start their digitalisation journey and reap the rewards of more agile, flexible and efficient production processes in the face of ongoing volatility.

Where investment in brand new equipment is not possible or severely delayed due to supply shortages, retrofit or refurbished models provide an ideal option for organisations. Not only is it better for environment, it also enables manufacturers to digitalise the factory floor sooner. With support from knowledgeable, specialist financiers, smart finance solutions can make investment in digital transformation affordable and manageable for manufacturers. 

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