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Robotics and AI: Modelling the way to better investment decisions

14 Nov 2017

Engineering capacity news posted by Andy Sandford

With productivity in the UK’s manufacturing sector lagging behind that of other European countries, emerging technologies such as robotics, AI and 3D printing could help to close the gap and ensure businesses are better placed to compete for global supply contracts after Brexit – writes Phil Wright of Menzies LLP

In the current climate of uncertainty and concern about reduced access to labour, such innovations could also help SME manufacturers overcome skills shortages. When deciding whether or not to invest in these technologies, integrated cash-flow modelling can help businesses to plan ahead in confidence.

According to a 2016 report, the UK had just 71 robots installed per 10,000 people working in the manufacturing sector. Using this figure as a benchmark, the UK is significantly behind other global manufacturing nations such as South Korea, which boasts 531 robots per 10,000, and Germany, with 301. In order to boost productivity and remain competitive post-Brexit, it is essential that UK manufacturers accelerate uptake of AI and robotics. These technologies will also help businesses meet an increased demand for highly-personalised products by introducing greater flexibility into the manufacturing process and facilitating greater supply chain transparency.

While the increased affordability of robotics, AI and 3D printing has made them a more realistic prospect for SME manufacturers, it is essential that investment decisions are made on a case-by-case basis. As well as the initial capital outlay involved in purchasing equipment, business leaders should consider the costs involved in employing and training new staff to work in an automated environment. In order to ensure that technologies are implemented effectively, accurate data analytics will also be required. This will allow manufacturers to assess critical factors such as how quickly they will be able to react to a requested change from a buyer. This will help to drive maximum return on investment.

Early adoption can also help manufacturers to achieve faster and cheaper rates of production; helping them to compete in global markets and justify higher prices. Another reason to consider ‘getting in early’ is that as these technologies are used more widely, there will also be a greater demand for the skills of individuals who are trained to work alongside them, making top talent even more difficult to come by. On the downside, there are potential risks to consider. Emerging technologies are prone to flaws which normally decrease over time. Additionally, with developments in 3D printing not yet placing an emphasis on strong network security, SMEs looking to incorporate additive manufacturing into their supply chains will need to have a robust IT structure to protect against cyberattack.

For many small and medium-sized businesses, investing ahead of the curve requires a significant leap of faith as they can’t be certain whether it will pay off, or simply leave an irreparable dent in the balance sheet. Integrated cash-flow modelling can help manufacturers to make a well-informed decision by making use of current and predicted trading data to decide whether an investment is likely to benefit an organisation in the long-term. This process involves capturing diverse sources of financial and non-financial information including sales pipeline, current production costs, available capacity and stock ageing in order to create a reliable cash-flow forecast for a given period. By changing one factor, for example, volume of sales or supply chain disruption, the model can then be used to assess the impact this could have on the company’s cash position. Using the cash-flow model in this way means businesses are better equipped to make investment decisions based on data. However, it is essential that the data inputted in the first place is accurate and employees from all areas of the business should be asked to feed in relevant information.

 As well as giving early movers a competitive advantage, investing in emerging technologies now could mean Britain is better placed to secure global supply contracts after Brexit. By allowing manufacturers to paint an accurate picture of the likely impact of any investment decision on an organisation’s overall finances, integrated cash-flow modelling can help business leaders to reduce risk and develop a truly future-focused plan.

 Phil Wright is a manufacturing sector specialist at accountancy firm, Menzies LLP.

www.menzies.co.uk

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