The manufacturing industry faces many challenges, such as fluctuating capacity utilization, structural change, and the move toward Industry 4.0. A central feature of these changes is the desire for more flexibility, in terms of both the equipment – machinery, robots, conveyor belts, and even entire production lines – and the financing solution. The long-term reduction of TCO is also at the top of many companies’ lists. But how do these requirements fit together? And how can they be met?
We talk to Florian Orth of CHG-MERIDIAN, one of the leading non-captive technology management companies in the industrial sector. Orth and his team support market leaders in the automotive and logistics sector around the world.
Mr. Orth, you are working with your customers to manage the current challenges. What is your evaluation of the situation we find ourselves in?
The coronavirus pandemic has caused considerable upheaval within a very short space of time. Remote working, for example, has become the norm for many, which has made paper-based administrative processes more complicated and pushed them to their limits. Just think of a simple process such as signing a contract.
Then there is capacity utilization, which has fluctuated significantly across sectors. It therefore comes as no surprise that for many companies, making sure they have sufficient liquidity is a top priority. And this is a challenge, especially as production facilities are often leased and fixed lease installments have to be paid. We are seeing demand for flexible financing options growing every day.
WHAT SOLUTIONS ARE AVAILABLE?
Flexible finance strategies that can help companies adapt to the current situation are one solution. If we know the capacity utilization of a machine or production line, for example, we can reduce the lease installment and extend the term of the lease instead. In other words, we can work with our customers to modify the structure of the contract so that it better suits their needs.
Another approach is pay-per-use, whereby billing is based on usage, for example the hours a machine is online. The customer only pays for the time that the machine is actually running, making fluctuating capacity utilization less of a problem.
Or take investment in equipment, such as new production facilities. This often entails high capital expenditure, for example in new robots, cellular transport systems, or adaptable handling portals. Long advance financing phases are also an issue for tier 1 automotive suppliers, as a lot of time can pass between signing a contract and commencing production. With a pay-per-use solution, we take on this cost until production is up and running and revenue is coming in. Or to put it another way, ROI starts with the first component manufactured.
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How can administrative processes be optimized in the age of remote working?
Ultimately, it is about bringing processes into the digital age. The more extensively they are digitalized, the better. One example is the introduction of digital signatures, which make it possible to sign contracts from anywhere, whether that be at home or in the office. All legally binding, without pen or paper.
Even greater potential for optimization and savings lies in the general streamlining of administrative processes. Take heterogeneous asset structures – managing a wide range of types, models, and manufacturers can quickly tie up a lot of resources. There is huge potential for optimization here, for example by standardizing contracts and reducing the number of contacts to one. We can achieve this on an international scale. This reduces administrative effort immensely and speeds up processes, while making our customers’ work easier – not just in the event of a crisis – and saving internal resources.
What potential savings are possible, and how can they be sustained in the long term?
The key here is full cost accounting that is as transparent as possible, based on financial expertise and many years’ experience in the sector. At CHG-MERIDIAN, we start by breaking down our clients’ core production processes and identifying costs and potential savings. This provides a fully transparent overview of the cost structure of their production facilities, including service costs, the proportion of costs accounted for by spare parts, and the overall return on investment.
We then create a customized business concept that exactly meets our customer’s needs and is as cost-effective as possible. The goal is always to achieve greater transparency about the total costs, as this can then be translated into permanently reduced TCO. Potential cost savings of up to 15 percent are possible.