Gilles Fortin
Lead Senior Director | B.A.A. | Financial advisory

For businesses, the development of Industry 4.0 leads to the financial investments to adapt to these new technologies.

These investments are:

  • The acquisition of equipment,
  • Wages and fees.

In order to determine which financing sources are appropriate for your business, you must first identify your needs and define your financial structure.

Then, prioritize your needs and establish a reasonable timetable to complete the different phases for implementing these technological innovations.

Then, you will be able to finance an analysis of your situation and a 4.0 diagnostic . A considerable portion of this step could also be financed through a subsidy from the Ministère de l’Économie, de la Science et de l’Innovation (MESI).

Optimize your processes

Once you’ve determined your investment needs for additional equipment, you can then carry out a process optimization analysis processes. Up to 40% of the cost of this procedure can be subsidized by the MESI and Investissement Québec and the Ministère de l’Agriculture, des Pêcheries et de l’Alimentation du Québec (MAPAQ) for specific sectors.

Consequently, the business will also have to plan on making up the 60% difference from its working capital.

As for the financing for the equipment and technologies to be acquired, several sources are available:

  • Investissement Québec (marketing, equipment acquisition),
  • Banks and Caisse Desjardins (term loan on equipment purchased),
  • BCC, Roynat (term loan on equipment purchased).

If the business expects strong growth by upgrading with Industry 4.0, it could consider additional financing, e.g. a loan with repayments based on funds generated, known as:

  • Debentures,
  • Senior debt,
  • Royalty financing,
  • Cash flow loan.

Do you have questions about the best ways to find financing for your innovation project? Our experts can help!

04 May 2018  |  Written by :

Gilles Fortin is your expert in corporate finance for the Québec office. Contact him today!

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Annik Doiron
Senior Manager | LL.B., M. Fisc. | Tax

The owner of new or substantially renovated residential rental property has two years to claim a partial refund of the GST and QST paid. Did you know that failure to comply with certain obligations could result in major penalties?

 

30 Apr 2018  |  Written by :

Annik Doiron is a canadian tax expert at Raymond Chabot Grant Thornton. Contact her today!

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Nancy Jalbert
Partner | CPA, CA | Management consulting

Use Industry 4.0 technology to boost operational and financial data cross-referencing to determine production costs more quickly and be more competitive.

Production cost and measuring processes

Production costing could be described as cross-referencing operational and financial information that are often in separate systems together into a common structure.

The purpose of operational data is to measure a business’s various processes (speed, quality, satisfaction, etc.) while financial data indicate the cost of resources needed to operate these processes. The two data help determine the cost of the manufacturing process, distribution, sales, client experience, etc.

Individually, operating and financial data do not provide the same informational value or foster quick and efficient decision-making.

The operational data challenge for production costs

The level of corporate informational maturity varies greatly, and data collection methods range from notes on paper to integrated management systems (ERP), and the ubiquitous Excel spreadsheet. Until recently, we were rarely able to access structured, quality data. Instead, data compilation, validation and transformation exercises were required to obtain accurate data that could be used in costing. Today, organizations are facing two major revolutions:

  1. Easy access to digitization
    There has been an abundant supply of products and services in this field in Quebec for several years now, making it possible to quickly obtain accurate, structured operational data;
  2. The enhancement of existing data
    Many companies have an unsuspected information asset in their hands. They accumulate data in ERPs, machine tools or other systems without exploiting them.

With artificial intelligence et advanced analytical techniques, it is now possible to enhance these data and gain an important competitive advantage.

With the data acquired by digitizing processes or using existing data, the company can determine the production cost more quickly and often more accurately. It is also possible to exploit the benefits of costing and to analyse profitability by product, customer, order, etc., based on available information and the company’s objectives.

A practical example

A summary analysis provided the following information: 47% of the costs incurred are operating costs, 53% are selling and administrative costs. An analysis of the 53% production costs revealed that they consist of the following services:

Findings:
To support its distributors, for several years the company has been hiring more resources to prepare bids and technical drawings with no corresponding rise in sales.

Exploiting data to understanding how costs behave

By analysing six variables over time and adding qualitative data, it was possible to define measurements that characterized each of the distributors:

  • Measurement 1: Success rate (sales $/bid $);
  • Measurement 2: Bid cost per distributor;
  • Measurement 3: Technical drawing cost per distributor;
  • Measurement 4: Sales per distributor.

The above graph indicates that distributors 1 and 2 account for less than 10% of the bids and technical drawing departments’ efforts and 50% of sales. On the other hand, distributor 6 accounts for 50% of the bid department’s efforts and 25% of the technical drawings department’s effort.

Return on investment

On the basis of this analysis, the company drew up a clear portrait of each distributor’s contribution. Using this information and an analysis of the six underlying variables, the company:

  • Discussed potential improvements with distributors;
  • Targeted training efforts;
  • Identified the efficient distributors’ good practices and passed them on to the others;
  • Introduced fees for certain services;
  • Eventually, dropped the distributors that did not show any improvements, despite the measures taken.

Whether data come from an ERP, artificial intelligence or elsewhere, if they are not used, there is no return on investment.

Our consultants are available to help you initiate or continue your 4.0 transformation and support your projects, from the smallest to the most ambitious. Go for it!

Did you know?

The Ministère de l’Économie, de la Science et de l’innovation’s PME en action program offers subsidies to support the implementation of projects to boost productivity, including industry 4.0 initiatives. You could qualify for a non-refundable contribution of up to 40% of eligible project expenses.

30 Apr 2018  |  Written by :

Ms. Jalbert is a partner at RCGT. She is your expert in strategic and performance consulting for the...

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Pierre Laberge
Manager | Tax

Digital technologies such as artificial intelligence can help boost your business’s productivity. Join the 4.0 revolution and find out what financial assistance is available.

Industry 4.0 is not science fiction

When presented with examples of the results of shifting to industry 4.0, many people believe that the transition can only be accomplished with major technological infrastructure investments, a perception that, unfortunately, may lead to delaying the digital transition of processes.

Not only is the technology to achieve this transformation available, it’s also easy to access and integrate. For example, adding artificial intelligence solutions to better exploit your application data is no longer in the realm of science fiction. However, few businesses have the necessary knowledge to undertake such a project on their own.

One step at a time

As innovation financing and technological development experts, we have extensive knowledge of the manufacturing sector and we know that the initiative can build on existing technology infrastructures. Enterprise resource planning systems, production management software and automation service providers’ software packages are sources of information that can be exploited. The company can then test the new technologies by undertaking one project in order to become familiar with the process.

By initiating the transformation with minimal infrastructure investments, it’s possible to get an idea of the positive impact of the 4.0 transformation on a company’s activities. Projects could involve, for example, the client experience, energy efficiency, improved production cost calculations, reducing losses, improving security or employee engagement or efficiency.

SR&ED tax incentives to go further

Having worked with many businesses on technology projects, we know that, in the past few years, many of them have used such an approach to initiate a process digitization. Building on this experience, they are now ready to go further. They believe industry 4.0 is an opportunity to use more advanced technologies and to benefit from smart installations. However, some aspects of their projects could raise a number of issues.

Some innovative or larger-scope projects may come up against difficulties and technological challenges, such as having to work with technologies that are not at the same level of maturity, maintaining legacy systems or integrating components that were developed for another field. It is specifically for such situations that programs like the SR&ED tax credit, for example, have been developed with the objective of sharing the financial risks and helping to overcome obstacles. This requires maximizing the financial support and strategically planning each step to achieve strategic, financial, operational and employee objectives. Our team specializing in SR&ED and technological innovation tax incentives is familiar with such situations and has the requisite expertise to support your efforts and address the issues.

Did you know?

There are scientific research and experimental development investment tax credits available. The scope of these programs may have been curtailed in recent budgets, but they are still one of the most generous sources of financial assistance in the country. In some cases, combined Canada/Quebec credits can be as much as 70% of expenses.

20 Apr 2018  |  Written by :

Pierre Laberge is a manager at Raymond Chabot Grant Thornton. He is your expert in taxation for the...

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