Leveraging finance for digital transformation

OEM/vendor criteria for choosing the best financing partner

Drivers and challenges for digital transformation

Today’s pressures on manufacturing equipment companies are immense.

Input prices have risen for manufacturing technology companies (‘OEMs’ or ‘vendors’). Energy costs are significantly higher than pre-pandemic^[i]. The cost of raw materials and components has inflated. Supply chains have been disrupted and are being restructured to mitigate geopolitical risk^[ii]. New governments across the globe are creating further uncertainties. And the manufacturing sector itself – the users of OEMs’ manufacturing machines – is experiencing a softening of demand in many parts of the world^[iii]. The global perspective is important, because most manufacturing equipment OEMs serve international markets.

Let’s just say that the market outlook is challenging.

At the same time, though, drivers of demand are also growing.

In particular, digital transformation – the drive to Industry 4.0 – is widely recognised as a ‘must do’ for manufacturers. And that means adopting and investing in new, digitalised manufacturing equipment. There is wide consensus that the cost savings, production efficiencies and competitive advantage to be gained from digitalisation cannot be ignored.

In addition, mandatory corporate sustainability reporting standards are driving demand for more sustainable production (and post-production) machines. In fact, digitally enabled equipment is the technology platform that enables more sustainable production capabilities – less energy use, lower volumes of raw materials, fewer defects, improved uptime through remote maintenance, and so on. Digitalisation and sustainability are two aspects of the same trend – symbiotic, interdependent.

Government is also behind the transition to digitalized manufacturing and climate targets. A new subsidy and tax-break regime was introduced at the last budget, along with major infrastructural developments around clean hydrogen power.

Transformation requires investment

Yet despite these positive influences – the clear commercial advantages of digital transformation in manufacturing, underpinned by government support – manufacturers still remain hesitant in many cases to commit to the substantial capital investments required. Manufacturers are not keen to tie up their precious funds in capital equipment that will take some years to deliver full return on investment and more.

This hesitancy is understandable. An analysis commissioned by Siemens Financial Services (SFS) of the manufacturing sector as a whole shows that headwinds (negative factors) – especially rising input and labour costs – have inflated more than tailwinds (positive factors such as production and confidence) in the sector.

Nevertheless, the need for manufacturers to invest in digital transformation will not go away. It cannot be ignored. Therefore, OEMs need every technique in the box to help their manufacturing customers feel confident and capable of investing.

Integrated financing boosts sales

Embedding flexible financing options is one of the most powerful ways of making investment in new-generation equipment palatable, and financially sustainable. For example, in a recent research project (commissioned by SFS) among international manufacturing equipment OEMs, 66% said that integrated finance options helped them sell more machines from their sustainable portfolios. On the more general level, another research project revealed that OEMs said integrated finance enabled 20% more sales revenue, and 24% more profitability, than if products were offered without these financing options^[iv].

So the broad view from the manufacturing equipment OEM community is that flexible financing options certainly get more deals over the line, by helping the manufacturing customer spread the cost over time – in alignment with the flow of benefits being received from the investment – and keeping the manufacturer’s cash free and liquid for agile sales or business growth initiatives.

A perfect mix of automation and expert finance support  

Through the SieSmart Partner Portal from Siemens Financial Services (SFS), Haas UK typically receives financing decisions within 30 seconds – while retaining access to a dedicated account manager for specialist advice.  

Haas Automation is the largest machine tool manufacturer in the western world, producing over 18,000 machines every year. The company’s UK team, based at its state-of-the-art head office in Norwich, offers financing solutions for manufacturer customers in-house, helping them acquire Haas machinery without overstretching finances.  

Tim Ross, Business Finance Manager at Haas Financial Services, explains the benefits of the partnership. “I worked for Haas Automation for about 14 years before we decided to bring our brokering system in house rather than use an external company. SFS had always been a partner of the former finance company so when we moved the system over, we decided that they should stay on the panel.  

“Given that SFS’ parent company Siemens produces CNC controllers, the team has an excellent understanding of the machine tool industry. For instance, they can provide slightly higher residual values (the estimated value of an asset at the end of its lease term or useful life) than other funders who have to approach external companies for valuations. With this knowledge and its digital financing platform, SFS provides exceptionally quick acceptances for financing requests.  

“We started using SieSmart, SFS’ online partner portal, because we wanted to avoid contacting the team over email or on the phone each time. So now we have finance at our fingertips. SieSmart is the easiest portal to use out of others we have access to. It’s user-friendly and intuitive, so even the less computer-literate can use it. We can typically get an acceptance or referral within 30 seconds, which is exceptional.”

But how do you choose the right financing partner?

The key question, then, is who to partner with? What are the qualities of a financing partner that will most benefit the OEM? To help the OEM community consider this critical question, we have laid out a few criteria that can help make that choice.

1. Technology and market know-how

Knowing how manufacturing technology works helps assess the likely business outcomes that a manufacturer will achieve by investing in each machine or equipment solution. Does your financing partner have that in-depth sector knowledge? Such expertise is critical to their ability to structure a financing arrangement so that it truly fits the customer’s cash-flow profile and aligns payments to likely commercial outcomes. It is a fundamental building block for optimising revenues and profits. And can your financing partner establish ‘master’ agreements, making it easier and quicker for the customer to acquire further pieces of equipment in the future?

2. Full range of financing tools

Smart finance has many underlying components – leasing, loans, invoice-based financing, deferred payments, service contracts, and so on – and can be structured in many ways. Can your financing partner deploy a wide range of financing techniques to cover all eventualities and help you differentiate from competitors? Do they have a track record of experience deploying these techniques in support of manufacturing technology vendors?

3. Digital processes

Do they have digital processes that return rapid finance decisions? And do those digital capabilities integrate financing into your customer systems, so that finance can easily be discussed with the customer or prospect at point of sale?

4. Sales finance and cash flow management

Sales finance needs to be combined with powerful cash flow management tools. Does your financing partner offer ways of delaying payment for machine building components until you are close to selling the final equipment product? These kind of extended payment terms help vendors/OEMs to meet rising demand without hitting any cash flow obstacles.

5. International footprint

Most vendors and OEMs work across international markets, and seamless access to those markets is fundamental to business growth ambitions. Does your financing partner bring multi-country expertise to the table, in the USA, Europe and the Eastern Regions? Only with experience and expertise in multiple jurisdictions and regulatory environments can smart finance provide consistent support for a vendor across the globe.

6. Sales support

Can your financing partner, working alongside you and based on deep industry knowledge, flex smart financing arrangements to make more powerful technology solutions affordable and financially sustainable for your customers? Can they structure deferred payments so that a customer is not paying for a new system until it is up and running? Do they partner with you to help negotiate deals and close business?  Do they train your people to present financing options to the customer, helping to make your sales propositions even more compelling?

7. Emerging market needs

Flexible finance should help make a vendor or OEM business sufficiently agile to support customers through market changes. Does your financing partner offer support in these circumstances? Can they structure deals for possible upgrade mid-term? Do they offer retrofit financing so the customer can make the most of their existing assets? Do they offer OEMs/vendors a window onto their client portfolio so that salespeople use that intelligence to pro-actively renew, upgrade, upsell, or cross-sell to customers?

Key takeaways

The evidence proving flexible financing can improve sales is strong and increasingly recognised. As various ‘headwinds’ – input costs, labour costs, inflation, market uncertainty, etc – provide challenges, it is imperative for OEMs and vendors to deploy every aspect of a compelling value proposition to help manufacturing customers invest in the future – whether digital transformation or sustainability goals. A financing partner that can support manufacturing equipment sales with flexible, appropriate financing tools and expertise will make a major commercial difference. The critical factor is to choose that financing partner with care!

Find out more at siemens.co.uk/financialservices.

Are you attending the Processing and Packaging Machinery exhibition (PPMA) taking place from the 23^rd to 25^th of September? We’ll be available to discuss the role of flexible financing in supporting digital transformation and sustainable manufacturing.

Notes:

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^[i] https://www.pwc.co.uk/industries/energy-utilities-and-resources/insights/energy-survey.html

^[ii] https://www.xeneta.com/blog/top-10-global-supply-chain-risks-in-2024

^[iii] https://cebr.com/reports/global-manufacturing-sectors-are-in-recession-expect-this-to-worsen-as-the-inventory-cycle-turns/

^[iv] https://assets.new.siemens.com/siemens/assets/api/uuid:416542bf-9da7-4731-8375-4cb1b0fcd692/sfs-iva-insight-services-vendor-finance-benefits-en.pdf