Emerging technologies are transforming operations at a rapid pace. For manufacturing organizations, strategic capital expenditures could mean the difference between growth and loss. Working with an experienced banker can help put you on the path to success.
A meeting with an experienced banker can help put you on the path to success.
When it comes to the resurgence of manufacturing in the U.S., the numbers are stunning. In May 2018, the Institute for Supply Management (ISM) manufacturing index closed above 50 – indicating overall growth for the 21st consecutive month1
The industry is also creating jobs, with manufacturers adding approximately 18,000 jobs in May, according to the U.S. Department of Labor, increasing overall 12-month job growth to 259,000.1
But it’s important to look behind the numbers, as well. The operational landscape is changing rapidly for manufacturers of all types and sizes. With this manufacturing resurgence comes the challenge of determining how to invest strategically to ensure maximum ROI.
In no area is this more important than technology. Many organizations are increasing their technology spend – particularly on digital solutions – to operate more efficiently and effectively, meet heightened customer demands and keep pace with competitors both at home and abroad.
Manufacturers worldwide are expected to spend more than $333 billion on digital technology and services in 2018, according to a recent report from International Data Corporation.2 This figure amounts to nearly 30 percent of all digital technology and services spending around the world this year.2 The implication is clear: Manufacturers that do not make savvy investments run the risk of falling behind.
Of all the resources available to explore strategic technology investment options, organizations should not overlook their commercial bankers and lenders. In addition to providing banking and financing options, an experienced banker can offer a vision of the marketplace, access to other manufacturers charting their technological journey and connecting with key third-party resources.
There is no better time to meet with your commercial banker/lender to ask these six questions about investing in technology.
1. Why is this technology surge happening now?
With manufacturers continually seeking new ways to take costs out of their processes, many of today’s emerging solutions are designed to drive efficiencies by automating manual, repetitive tasks. Organizations are also looking to continuously power innovation in this highly competitive sector where margins are thin – technology can be a key enabler for product development and improvement. For example, 3D printing can finally help operationalize a goal many manufacturers have had for decades: the efficient production of one-off components to assemble customized products for individual customers.
2. What types of technology solutions do other manufacturers gravitate toward?
Many manufacturers are considering new or upgraded process systems to lay the foundation for digital technology transformation. This strategy can include solutions such as advanced automation technologies and robotics. Advanced sensors connected via the industrial internet-of-things can collect reams of data, which can then be mined for insights using analytics solutions.
Some manufacturers are investing in artificial intelligence and machine learning technologies that promise to be able to identify patterns or anomalies in those reams of data, react appropriately and provide real-time intelligence into processes while improving decision-making capabilities.
Nanotechnology is another emerging area. For example, at SUNY Polytechnic Institute in Albany, New York, teams are using nanotechnology to make systems smaller, more powerful and more efficient.
3. What financial factors should I examine before considering any technology investments?
Because technology can have a major impact on an organization, manufacturers must thoroughly understand their entire operating model before making an investment. An experienced banker can help analyze your balance sheet, income statement, expenses, gross profit margin and all related factors to help guide strategic decision making.
Of course, the organization must also carefully consider taking on the debt required to finance a technology investment, particularly for a solution that may not produce immediate revenue. Do you have sufficient cash flow to fully support debt service assuming zero added income produced by the new system? Manufacturers should also analyze precisely how the technology will provide the capacity to grow the business commensurate with the investment.
Some of these systems are so complex and can change so rapidly that it’s critical to keep in mind it may require more time – and financial resources — to implement them as initially planned. Technology projects may fail to generate sufficient ROI, which makes it important that manufacturers and bankers work together to anticipate future additional financing needs when planning for these investments.
4. How can I ensure I’ll have the workforce to take full advantage of today’s – and tomorrow’s – technology?
The most recent Skills Gap study from the Manufacturing Institute and Deloitte reported that nearly 3.5 million manufacturing jobs would likely need to be filled between 2015 and 2025, but a skills gap would result in 2 million of those jobs going unfilled.3
Any manufacturer considering investments in advanced technology should evaluate the state of both its engineering/technology talent and skilled labor force to plan for taking full advantage of any new or upgraded systems.
If new talent needs to be sourced or current workers retrained, a manufacturer can benefit from working with a skilled banker with access to employment and talent development resources.
Some bankers have experience in providing financing to fund different types of talent development strategies, including bringing on new hires and developing training programs for current workers. In some cases, a manufacturer will receive a government grant to fund new operations contingent on their ability to locate and hire new talent. A bank may offer pre-funding to finance the hiring in order for the organization to quality for the grant.
Additionally, a banker may have relationships with local universities, colleges and other educational institutions to link a manufacturer with engineering or technical talent. A bank’s charitable foundation may provide grants to community organizations that provide job training services, providing another potential source of labor for a manufacturing client.
5. How can I find out how other manufacturers are deploying technology?
An experienced banker is likely to have relationships with industry groups as well as individual clients that can offer perspectives on technology research, implementations, best practices and lessons learned. Some banks host periodic roundtables and other group meetings that bring together bankers, manufacturing executives and outside experts to share ideas.
6. Other than financing for technology investments, what banking solutions do manufacturers focus on today?
As manufacturing is changing so rapidly, some organizations are finding that their treasury function must evolve as well. Manufacturers may consider integrating and streamlining their treasury processes to not only reduce costs, but also optimize cash flow, simplify workloads, become more efficient and organize their finances to drive better business decisions.
Some banks have embraced technology as actively as leading manufacturers have, so it’s important to ask your banker what solutions are available to help you work smarter. Ideally, finance executives should have anytime, anywhere access to a full range of electronic bank account information services. For example, utilizing a bank’s electronics payments platform may make reconciliation faster and more efficient, while reducing a manufacturer’s exposure to fraud.
Meeting with an experienced banker can help put you on the path to success. Contact your Relationship Manager today.
This article is for informational purposes only. It is not designed or intended to provide financial, tax, legal, investment, accounting, or other professional advice since such advice always requires consideration of individual circumstances. Please consult with the professionals of your choice to discuss your situation.