How Industry 4.0 will change the landscape of data from operations to finance

Shravane Balabasqer
May 8, 2021

Innovative management practices and capabilities have resulted from integrating intelligent and smart processes with emerging technology adoptions. Due to increased customer demands for value chains, adopting innovative opportunities through digitalized technologies in the framework of Industry 4.0 will only become highly impactful if the benefit flows up stream.

While Predictive Maintenance is one such benefit in a bigger opportunity landscape of IND4.0,there is still a huge gap in process transformation and benefit realisation of understanding the true cost of assets in becoming more cumbersome andincreasingly demanding for activities to be cultivated and leveraged on technologies in a vastly growing Industry 4.0.

There is a growing need for a number of asset intensive companies to accurately embrace Industry 4.0 in its true sense.

The Digital CFO - Finance function of the future

The future of finance functions will be redefined through technology by enabling people, process, and data – not as you know them, but rather a cohesive unison of functions between Operations and Finance.

In this sense, the role of the Chief Financial Officer (CFO), often viewed as the most conventional in an organization, now faces emerging requirements and expectations from various stake holders as a result of digitalization: new processes, new markets, new ways of operating, and specific market challenges. The CFO of today must be able to accelerate digital transformation and effectively respond to an organization's transitional needs.

Take the rapid growth of Industry 4.0. Our customers still say they are yet to realise the benefit of IND4.0. While over 70% of a total cost of an asset is spent during its operations and maintenance life, financial decisions on the Assets remain archaic.

For instance, CFOs reporting includes tangible assets. In principle, once an asset is procured and commissioned into service, they are represented within sub ledgers. Following that they are assigned a book value along with an asset class and remaining useful life for future financial reporting. The asset investment and associated depreciation costs are used to help in translating the operational needs into financial value. Then the financial performance of these assets is measured against their efficacy and shared with relevant asset owners and business units.

Historically depreciation doesn’t take into account a perceived condition of an asset. Therefore, the Remaining Useful Life of an equipment or asset is linearly deducted as supposed to the true condition of the asset and its Actual Remaining Useful Life. This is creating unreal financial expectations on assets and their true asset value and cost. This gap is ever so widening with Industry 4.0, as Operations including Manufacturing, Maintenance, Supply Chain & Logistics, organisations are becoming more data driven on a real-time basis, Finance functions still rely on forecasts based on estimates rather than true value. This causes capital to be tied up in WIP thereto impacting OPEX and inaccurate CAPEX estimations. With Prognostic finance modules of Asset Intensive Organisation can be incredibly data driven to drive their working capital and OPEX lower.

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