How Industry 4.0 will change the landscape of data from Operations to Finance

Shravane Balabasqer
May 8, 2021

Innovative managementpractices and capabilities have resulted from integrating intelligent and smartprocesses with emerging technology adoptions. Due to increased customer demandsfor value chains, adopting innovative opportunities through digitalized technologiesin the framework of Industry 4.0 will only become highly impactful if thebenefit flows up stream.

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

There is a growing need for a numberof asset intensive companies to accurately embrace Industry 4.0 in its truesense.

The Digital CFO - Finance function of the future

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

In this sense, the roleof the Chief Financial Officer (CFO), often viewed as the most conventional inan organization, now faces emerging requirements and expectations from variousstakeholders as a result of digitalization: new processes, new markets, newways of operating, and specific market challenges. The CFO of today must beable to accelerate digital transformation and effectively respond to anorganization's transitional needs.

Take the rapid growth ofIndustry 4.0. Our customers still say they are yet to realise the benefit ofIND4.0. While over 70% of a total cost of an asset is spent during itsoperations and maintenance life, financial decisions on the Assets remainarchaic.

For instance, CFOsreporting includes tangible assets. In principle, once an asset is procured andcommissioned into service, they are represented within sub ledgers. Followingthat they are assigned a book value along with an asset class and remaininguseful life for future financial reporting. The asset investment and associateddepreciation costs are used to help in translating the operational needs intofinancial value. Then the financial performance of these assets is measured againsttheir efficacy and shared with relevant asset owners and business units.

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

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