The stimulus checks have been cashed, the stock market is on fire, millions of COVID shots have been administered, what’s next? In your spare time, you need to get your company set up to be lease compliant in the next seven months, meaning – reviewing all your existing leases, auditing their compliance properties, migrating them to a systematized solution, analyzing your EBITDA impacts of lease compliance, renegotiating post covid market rates and getting lined up on a managed service to maintain your lease portfolio. ASC842/IFRS16 Lease Compliance – Industry 4.0 Impact – is a strategic overview of what is on the horizon from both a compliance, but also a business transformation perspective. The opportunity to solve your compliance mandate, while improving your business performance and increasing your business agility, is the opportunity. If you’re going to make the sacrifice to achieve compliance, take the time to extend your business capabilities, as part of your overall integrated business process – that is what visionary leaders are doing, and they are leveraging Industry 4.0 to get there.
What is Industry 4.0?
Most people working in the process industry have heard the term Industry 4.0. But what does it actually mean? Why should anyone be interested in it? Industry 4.0 has been claimed to be the fourth revolution of the manufacturing industry. The humankind has already seen three major revolutions in manufacturing industries:
- 1st was when mechanization and steam power changed the whole concept of manufacturing.
- 2nd revolution happened when mass-production assembly lines and electrical energy took place and enabled a giant step in production efficiency.
- 3rd revolution brought automation, computers, and robots to production.
It is easy to imagine how this evolvement changed the competitive landscape of many industrial processes.
Industry 4.0 defines a new data-rich manufacturing world powered by the output from capital equipment, sensors, scanners, customer reviews, suppliers, etc. This data is being used to enrich techniques, tools, and insights possible in manufacturing today. Big data, dark data, unstructured/ structured data, biometric, geospatial, and many other kinds of data are being utilized by new powerful analytic tools, machine learning algorithms, augmented reality tools, and much more.
Data is being analyzed by smart machines that are directing the actions of other machines and people. As a consequence – plants, warehouses, machine tools and more are becoming fully automated and connected.
Industry 4.0 technologies and data are changing how manufacturers design, prototype and produce new products. These technologies are dramatically shortening development cycles and helping to bring manufacturers closer to suppliers and customers.
Industry 4.0 technologies and data are changing how manufacturers design, prototype and produce new products. These technologies are dramatically shortening development cycles and helping to bring manufacturers closer to suppliers and customers.
The digital exhaust produced by the Industry 4.0 devices and their data, provide a new revenue model for businesses – who can package this information to create new information/access to information – to help partners/suppliers and trading connections to build on your data – to create new monetization opportunities themselves with their customers. The Plex.com
How does Industry 4.0 affect ASC842/IFRS16 Compliance?
Industry 4.0 technologies and data are tied to assets – specifically Equipment and Buildings. Each asset has a part number changing how manufacturers design, prototype and produce new products. These technologies are dramatically shortening development cycles and helping to bring manufacturers closer to suppliers and customers.
Industry 4.0 technologies and data are changing how manufacturers design, prototype and produce new products. These technologies are dramatically shortening development cycles and helping to bring manufacturers closer to suppliers and customers.
The digital exhaust produced by the Industry 4.0 devices and their data, provide a new revenue model for businesses – who can package this information to create new information/access to information – to help partners/suppliers and trading connections to build on your data – to create new monetization opportunities themselves with their customers.
Industry 4.0 affect -Equipment Lease Example:
You are the General Manager for a mining company – you lease all of your heavy equipment, which is cash intensive and critical to fulfilling your pipeline of customer orders. You leverage a 7M piece of equipment as the cornerstone of your mining operation. You have integrated an industry 4.0 data feed for advanced awareness on equipment diagnostics. You get an alert that there is an issue with the device controller and immediately request a replacement part, service technician and schedule the repair, prior to part failure.
Or, you unknowingly go about your day, have a major part failure, scramble to get a part delivered from overseas, send all your resources home, notify all your customers of your delay (so they have time to call your competitors) and you end up in another line of work, perfectionizing the ‘would you like that super-sized line.
Industry 4.0 affect – Real Estate Lease Example:
You are the CFO of a global manufacturing company – you lease all of your office spaces and warehouses globally. You have integrated an industry 4.0 data feed for advanced awareness on climate, carbon dioxide, temperature conditions. You get an alert that there is an issue with the carbon dioxide levels at a warehouse in Des Moines and immediately request a replacement part, service technician and schedule the repair, prior to an environmental crisis, contaminated workspace, and potential for human illness or worse.
Or, you unknowingly go about your day, have a major environmental incident, scramble to get the situation rectified, send all your resources home, notify all your customers of your delay (so they have time to call your competitors) and you end up in another line of work, perfectionizing the ‘would you like that super-sized line
Hidden Cash Monetization Opportunity
The diagram below is the Leaseology service funnel, and we will use this model to help identify areas of hidden cash monetization opportunities, as the pace of change is breakneck and we are raising awareness, so that these new revenue opportunities do not expire on our watch, at our customers. It is a fantastic time for visionaries – let us help you drive your transformation:
- Immediate Lease Compliance – Multi-faceted benefits: ‘Packaging’ Achieved, so that you can be part of investor strategy discussions. Evergreen leases identified and rectified, so you will not waste any future spend on obsolete or non-existent leases. Data – Industry 4.0 benefit – speed, predictive/operational analytics are all components that partners/suppliers and vendors want – and will pay for, as it helps their planning cycle and helps them to reduce inventory/cost. Lastly, compliance fines, penalties, and unnecessary audits can all be avoided.
- Critical Date Notifications – Automation and Industry 4.0 integration provides advanced exposure to equipment malfunction, materials depletion, and building security/operational issues – so that you can plan and not respond to issues in a reactive way.
- Lease Administration – Ensures ongoing compliance, security, process efficiency in addition to avoiding any unplanned disruptions of business operations, thanks to Industry 4.0 data visibility.
- Disclosure reporting – Assures financial reporting accuracy, supports the compliance mandated requirements, and can now tie into real-time, device-specific status/performance – so disclosures can roll up into a more sophisticated asset trending report – further optimizing planning cycles.
- Technical Accounting – this is where the biggest risk lies, EBITDA ingestion and SOC1 reporting. While you still need a technical lease accounting expert, visibility into lease analytics creates a potential tiered approach to asset value as well as provides depth and scale to amortization and depreciation schedules.
- Lease negotiations – On the equipment side of the equation, this is simple – as you can leverage asset performance and proactively massage terms you’re your partner/supplier/vendor – based on actual performance metrics. On the real estate/building side – now is the chance to innovate and create automation around building security, energy efficiency, staffing – leverage industry 4.0 to maximize your lease expense investment and reduce your insurance/utilities, security costs.
- Document Management – An organizational checkbox. The opportunity to add in workflow and automation around the lease the management of the lease as a service – providing lease accounting customers with layered lease depth and visibility, delivered through automated data capture and analytics. Leaseology can help you to ‘know your business at a more intimate level.
Why are Solution Architects looking at ASC842/IFRS16 Lease Compliance?
We are in a time of great change. Although Covid is an unwanted influencer, we are going to see the significant product and solution evolution because of the new way of doing business. Designing enterprise solutions around lease compliance requires a deep understanding of the upstream/downstream impact – which is why customers are reaching out to Leaseology to help identify automation opportunities as part of an overall lease management approach.
ASC842/IFRS16 Lease Compliance – Industry 4.0 Impact
Key Takeaways
- Smart Factories, Smart Manufacturing Plants, Smart Buildings, Smart Equipment providers are the future. The data gathering capabilities and Predictive Analytics delivered through AI will create information that will be highly desirable around Equipment/Building Lease performance, which vendors/suppliers can then leverage to extend business offerings
- Businesses looking to achieve ASC842/IFRS16 compliance, need a partner to help design solutions that provide guidance around enterprise architecture, to help transform not only the lease portfolio but who can help generate monetization opportunities to pay for your transformation
- Winning organizations understand the opportunity at hand. At Leaseology, we can take the sting out of this complex compliance obstacle, and create a modernized approach towards evolving your business
Leaseology understands what internal lease accounting teams are up against, and has architected an end-to-end solution that allows customers to divert resources, remove cost, increase accuracy/locate cost savings opportunities – all while achieving compliance via an outsourced lease management process. The seven service pillars are the core of the Leaseology service offering, and we are confident that our combination of industry expertise in lease accounting, compliance, reporting, and automation can help you meet the ASC842/IFR16 compliance requirements.
Leaseology, Inc is a North America-based business advisory services firm committed to accelerated marketplace adoption of digital technology, financial management innovation, and business operations practice excellence. These core competencies apply to real estate and equipment portfolios.
