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How to finance automation if your growth is unpredictable

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Companies need solutions that allow them to expand seamlessly while adapting to market swings. However, equally important are methods through which to finance an automated solution. This requires careful attention. What ways are there to finance automation if your growth is unpredictable?

Author

Eddy Veenstra

Customer Finance Director

Recently, I worked closely with my colleagues to create a new white paper. In it, we looked at how warehouse companies could keep pace with unpredictable growth. I was delighted to be asked to contribute, because my background is in (export) finance, and this is a topic that does not often surface where systems and solutions are concerned.

Allow me to set some context. We argued that – in meeting unpredictable future demand – scalability and flexibility will remain crucial. With this in mind, companies need solutions that allow them to expand seamlessly while adapting to market swings. All very well in terms of their technical capabilities.

However, equally important are methods through which to finance an automated solution. This requires careful attention because – alongside selecting the right technology – dealing with unpredictable growth may also make it difficult to obtain an optimal financial package.

Retaining flexibility

Growth is an area in which a financing company can offer flexibility in structuring the required cash flows. In a high-growth environment, companies can request a lower portion of repayments in the first year of the arrangement, but later augment their cash flows by increasing repayments, better fitting expected cashflows.

So far so good if predictable growth can be guaranteed. However, where unpredictable growth is concerned, it can be beneficial to select a leasing option due to the higher levels of flexibility on offer. It is also advantageous to have the material handling supplier involved in brokering a tailor-made financing or leasing package.

The supplier can help to initially attract a bank or a leasing company, as well as ease the execution of the credit risk assessment. With the warehousing company, the bank or leasing company and the supplier as joint stakeholders, the supplier can play its part in structuring cash flows during project execution, for example.

Taking a holistic view

Although this type of financing or leasing is not common with automated systems, an increasing number of banks and leasing companies now take a more holistic view of a warehouse company’s interests. So, not only looking at the system and its residual value.

This is beneficial when considering a solution such as FASTPICK, which is in a continuous state of optimisation. Leasing can offer the flexibility to change the asset, and for a fast-growing company, short-term leases allow system upgrades to be pencilled in.

In an ever-changing world, it is sensible to look at types of financing that offer as much control as possible. Being able to take action when things do not go (as positively) as planned has tremendous value, especially in unpredictable circumstances.

Understanding the financial ‘value’

There is also much more to consider than ‘price’. While ‘cheaper’ options exist, the real value of any financial package is located far beyond its price tag. The real value for warehouse operators is in securing a financial partner that can grow alongside it.

If a company’s strategy revolves around being able to scale up its operations within a certain timeframe, it makes sense to take along partners who understand the market and can offer the appropriate response to individual requirements.

Although self-finance is another option, this takes away a company’s total CAPEX or OPEX capacity. Even if a company is ‘cash rich’, it can be a good idea to keep this in reserve for other investments in anticipation of growth, because a solid platform can be set for the future.

Having this flexibility also permits RMR (revisions, modifications and retrofits) projects to be carried out in subsequent years. These ensure that increasing – or changing – demands can be processed seamlessly with the same system.

The right level of support

Building in added flexibility to any financial agreement may result in a higher price, but this is entirely surpassed by the long-term value derived from keeping the cash at hand, control and decision-making.

This can be further supported by a supplier that knows the market and can work with a warehouse operator to ensure that both the system and the financial arrangement keep pace through any period of unpredictable growth.

More information about Customer Finance possibilities at Vanderlande

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