Even during these turbulent times, digital transformation is a widely recognised imperative in manufacturing, reports Neli Ivanova, Sales Manager, Industrial Equipment, Siemens Financial Services.
In the pharmaceutical sector, for example, digitalisation and data analytics can reduce the high levels of downtime typically experienced by pharmaceutical facilities.
Internet of Things (IoT) communication between machines and machine-learning artificial intelligence (AI) deliver seamless processes, predictive maintenance and automatic corrective actions.
According to one commentator, this could reduce unplanned downtime by 30–40%, significantly improving overall equipment effectiveness (OEE).1
The pharmaceutical manufacturing environment is highly sensitive and tightly regulated. The smallest of errors can result in life-changing patient outcomes and have a disastrous commercial, legal and reputational impact on the manufacturer.
A few years ago, for example, a global pharmaceutical giant had to recall more than a half a million tablets because of packaging and human-monitoring errors in the plant.
Digitalisation and automation are now ensuring that this company will not experience a similar error in the future and suffer the financial ramifications and negative brand impact it endured in the past.
The company has introduced digital sensors and robotics, and invested in high-availability computing to guard against data-transfer issues between units.
This has created a fully automated production line that has the by-product benefits of making it much easier to maintain cleanroom processes, capture and manage electronic batch records, and analyse process performance (through root-cause analysis) to identify and implement improvements.
Digital information integration up the supply chain and down the distribution chain is also delivering greatly enhanced demand-supply management. One manufacturer that supplies a wide range of therapies has set up information links with all the hospitals in a particular location.
Links to the clinical information systems within these hospitals enables the gathering of aggregated anonymised patient data in a selection of specialties and uses predictive analytics to better plan manufacturing production volumes. This pilot has already demonstrated high levels of accuracy and is planned for gradual rollout across the UK.
Although the various dimensions of productivity differ between industries and countries, increased manufacturing output — the ability to either produce the same number of products for less or more products for the same cost — has a clear and calculable positive effect on costs and margins.
This effect — which we’ve called the Digitalisation Productivity Bonus (DPB) — is the focus of research from Siemens Financial Services, which draws on testimony from more than 60 international industrial companies, expert management consultancies and academic specialists based in 11 countries.2
The research looks specifically at the potential gains for the pharmaceutical manufacturing industry in the UK. The resulting totals are an estimate of the potential financial gain for the pharmaceutical industry as a direct result of improvements in manufacturing productivity from digital transformation.3 It is estimated that conversion to digitalised technology could deliver a DPB of £973.1 million in the UK.
Although digitalisation drives financial sustainability, access to a range of smart and appropriate financing techniques — Industry 4.0 Finance — is also critical to a company’s ability to sustainably invest in the new fourth-generation of digitalised technology and automation equipment.
Industry 4.0 finance covers a range of requirements from the acquisition of a single digitalised piece of equipment through to financing a whole new factory.
Financing techniques have now been developed to allow an organisation to in effect apply some or all of the DPB to fund the digitalised technology and equipment that makes the bonus possible in the first place.
In simple terms, these financing methods seek to align payments for the new generation technology with the rate of gain from the DPB. Broadly speaking, this can help to make the upgrade to digitalised technology affordable and potentially cost neutral (or better) for the manufacturer, which is particularly crucial in the current climate.
Financing arrangements can also cover other costs, such as installation, as well as providing the flexibility to upgrade technology in line with developments.
Industry 4.0 Finance arrangements tend to be offered by specialist providers that have a deep understanding of how the digitalised technology works and how that technology can be practically implemented to deliver the promised benefits.
At times, the financing arrangement will be an embedded component of the value proposition, offered right at the beginning of the sales cycle. In other cases, the technology provider will refer its customer to one or more finance providers to fund a sale.
Moreover, specialist financiers can devise financing plans that cover a broad range of costs associated with using the equipment and technology, not just the cost of acquisition, meaning greater transparency regarding the expected operating costs for the customer.
By using flexible financing, manufacturers have the opportunity to benefit from the investment in equipment and technology straight away rather than delaying their acquisition, and through that timely investment gain an important competitive advantage.
Pharmaceutical manufacturers have much to gain from embracing digitalisation. Yet, to reap the benefits, they must first invest in the technology, which can be a challenge given present economic circumstances. Intelligent, tailored finance can support the business case for investment, helping to make it sustainable and clearly linked to the improvements achieved by the technology.
- The potential global digitalisation productivity bonus (all manufacturing sectors) is estimated to be between 6.3 and 9.8% of total annual revenue by 2025.
- The average bonus percentage range has been applied to the total annual revenue of the pharmaceutical industry in selected countries (data on revenue was taken from official third-party sources).