Fit for the crisis, well equipped for the future

Complex challenges ask for agile solutions that provide answers for today and reliable tools for the long run. Advances in digitalization are promptly delivering building blocks to tackling any number of issues, while focusing on sustainable, innovative business priorities. Smart financing goes hand in hand with digitalization.

By Klaus Meyer, Siemens Financial Services

From today’s perspective, the pandemic was certainly not the greatest challenge imaginable for the baked goods industry. The continuing strains on supply chains, in addition to increased energy prices and the reluctance of inflation-stricken consumers to spend are demanding answers from companies. Against this backdrop, fundamentally familiar solutions such as process optimization, digitalization and increased energy efficiency are gaining in urgency. This applies all the more to the intelligent financing of the necessary investments.

Energy consumption, costs and CO 2 emissions down, efficiency, productivity and profitability up: the basic recipe for resilience during times of crisis is simple. Unfortunately, this cannot apply for implementation, even though a new generation of digital technologies is enabling large-scale bakeries to network all the data points (e.g., sensors) of their various plants and connect systems to synchronize workflows and thus obtain a holistic overview of a factory’s performance. Networking makes it possible to identify problems and efficiency gaps more quickly and to initiate continuous improvements up to and including further automation of production processes. The latter factor is particularly suitable for reducing personnel costs and mitigating the consequences of the shortage of skilled workers.

Potential through digital technology

The way to greater efficiency, greater flexibility and sustainable cost reductions in the bread and baked goods industry is, therefore, through end-to-end digitalization of production. Only when all processes are optimally interlinked and all plant components communicate reliably with each other can companies in the baked goods industry produce more and conserve resources at the same time. With the optimum technical equipment, problems that arise in the production process can be solved more quickly, defined process parameters can be better adhered to, raw material losses and energy consumption can be minimized, and cost efficiency and productivity can be increased.

Even relatively small improvements in the areas mentioned can make significant contributions to improving the operating result. For many bakery manufacturers, however, the question is how they can invest in technological improvements with optimism despite uncertain markets. The fact that companies continue to be reluctant to use their own funds further hinders the necessary investments in technology and digital solutions. decisions, the financier can also offer a framework agreement that optimally accompanies step-by-step digitalization.

But time is running out, as a recent study by Siemens Financial Services shows. According to the study, the window of opportunity for gaining a competitive advantage by investing in digitalization is closing. The ‘tipping point’ is in about five years. From then on, companies will likely find themselves trailing behind and will have to engage in a laborious race to catch up.

Because the timeframes for technological innovations and upgrades are becoming shorter and shorter, financing should offer the flexibility to adapt the equipment to new requirements and developments during the financing period. Such upgrades involve modernizing the technology platforms with new hardware and/or software. Competent financiers can also include the software element in an overall financing package.

Changing technology or production platforms also presents challenges that the right financier can mitigate – for example, by suspending installment payments until the new systems are actually productive and begin generating revenue.

Answers in flexible financing

What can technology providers and financiers do to facilitate timely investments in digitalization and automation for bakery manufacturers? From Siemens’ point of view, this calls for solutions that enable companies to digitize and automate in a gradual way and, to this end, include a tailored concept for intelligent financing. Such financing enables the acquisition of technology and equipment in a way that is financially sustainable and tailored to the specific business and cash flow needs of the companies looking to invest.

This sounds logical, but it puts a lot of pressure on the financier. For a financing solution to be able to offer such a degree of sustainability and adaptation to typical industry and customer-specific requirements, its provider must have deep insights into the world of baking. They must know the technologies used there, the markets, the applications and the competitive situation – and this is likely to apply to only a few specialized financing providers.

Based on this knowledge, these specialized providers can match the financing period and terms to the expected benefits that will accrue from the technology. Savings or profits from access to the technology are used to fund the monthly payments, allowing the technology to become cost-neutral to the user from the start. Future savings are effectively used to fund the current investment without having to commit capital.

In addition, ancillary costs, such as those required for maintenance, are often covered in a bundled monthly payment. To enable rapid purchase and implementation

A close relationship between financing and technology providers is also advantageous. Siemens Financial Services (SFS) maintains that it uses this close relationship to offer buyers of Siemens products tailored agreements such as extended payment terms of up to 180 days. Another advantage is the bank independence that specialized financiers like Siemens Financial Services offer. This gives businesses access to additional funding without impacting existing bank credit lines. This creates economic freedom of movement for sales initiatives, hiring skilled workers, or logistics measures. The use of flexible financing models enables bakery manufacturers not only to adjust their payments according to the liquidity profile but also to fix guaranteed interest rates over the entire financing period. Payments can also be aligned, where appropriate, with strategic goals such as waste reduction, increased productivity, energy efficiency, etc. And last, but not least, flexible financing helps to take advantage of short-term tax breaks and depreciation and amortization and to design them freely.

Conclusion: technology and financing to secure the future

Technological excellence alone is therefore not enough to make the bread and baked goods industry fit for the future. Only the combination of innovative technology and flexible financing offers companies a sustainable way to modernize, automate and digitally transform their processes. It is high time to start taking the first steps on this path. +++

About the author

Klaus Meyer is the Head of the Commercial Finance business of Siemens Financial Services in Germany and Chairman of the Managing Board (CEO) of Siemens Finance & Leasing GmbH; fub.de@siemens.com