This report identifies how digital commissioning and maintenance analytics solutions can reduce the cost of capital for funding nation building manufacturing projects, reducing the risk burden on internal company stakeholders, external financiers, and public financing institutions. It then explores how the adoption of these digital solutions can be a dramatic competitive advantage when bidding on highly complex, high cost custom automation projects.
Scenario: Tom Smith operates a packaged goods manufacturing firm that provides the province with 10,000 jobs. Direct competition with international companies is pressuring Tom to improve efficiency and expand operations to meet growing demand. Tom requires a custom packaging line but does not have the internal capital to fund this expansion. In the past, he has had help from federal and provincial loans to ‘foot the bill’. Financial institutions don’t want to touch the project because too much can go wrong in the project, they don’t understand all the complex engineering jargon, and there are lower risk projects with a better return on investment available.
Typically, manufacturing equipment is funded either through internal cash or debt arrangements tied to the value of the asset, amortized over its useful life. This is transferred at a contractual arrangement from the customer to the vendor. For common equipment with a high resale value, the equipment itself can be used as collateral on a loan. However, with very custom equipment with a low resale value, due to its niche use or complexity, this becomes challenging.
The next challenge comes with insuring that same equipment against failures that can disrupt operations. Highly custom contracts made with insurance firms with technical specialists in that specific domain are required to even understand the risks, let alone model and quantify them. Visibility into the maintenance and operations of this equipment can better enable insurance companies to do this and can provide the company leverage in negotiating lower rates. This is how it is currently done in the renewable asset management industry.
There is too much friction in every step of the custom automation lifecycle. This results in stifled economic growth against high international competition and increased operating and financing costs. The burden of these risks and frictions are born by the stakeholders, including public financing institutions who want to promote economic opportunity and employment.
Digital commissioning offers a way to mitigate this risk through the applications and engineering process of the project design cycle. Building on open standards instead of proprietary or overly custom standards also enables interoperability between firms, reducing frictions in handing off a job or equipment from one firm to another. It would also improve the viability of building on and repurposing existing solutions. Similarly, digital dashboards that abstract out technical data into metrics that can be readily understood and benchmarked between firms across an industry can enable financial stakeholders to better quantify and model the risk in their investments, resulting in a healthier capital market for economic growth.
More data produces better models. This enables more capital, more growth, less risk, and a lower cost of capital to all stakeholders.