Article



  • How do you measure ROI on manufacturing execution systems?

    Effective organizations have a positive Return on Investment, or ROI, for individual technology choices as well as their overall investment in technology. When you’re making a purchase decision, thinking about ROI can help you consider whether the product or service is worth your money. But that’s not the only time when ROI is useful. When you are looking at past investment choices, ROI analysis can help you evaluate those decisions and make more accurate projections of costs and benefits next time.

    The basic formula is: ROI = net gain/cost. Example: I spend $50 and make $75. My net gain is $25.--ROI = 25/50 = .5 or 50%

    In order to do this, you need to assign numbers to the costs and benefits. Many of your numbers will be guesses and approximations. Just make note of your assumptions as you go along, and consider running some alternate scenarios. Some examples of costs are money, staff time, disruption and frustration, and opportunity cost. Opportunity cost means the missed chance to do something else that might have saved or made money. In addition to the investment before you, think about the cost of other alternatives, including the option to do nothing. In the price tag for technology, don’t forget the costs of training and support, and disposal or recycling of your old technology.

     Some return on investment analysis falls short because it does not fully capture the benefit side of the equation. Think about what your organization is trying to accomplish in the world. Is it possible to quantify mission impact in terms of social ROI? For example, if a technology investment can be tied to increased wages, helping people off public assistance, or reducing carbon footprint, consider how you might factor that into your ROI equation too.

    A Manufacturing Execution System (MES) system can provide the right information at the right time to show the manufacturer how the current conditions on the plant floor can be optimized to improve production output.

    How much Return on Investment (ROI) should you expect from implementing a Manufacturing Execution System? It’s something that is often debated in the boardroom. The target itself can often be the key determining factor in business transformation.

    Manufacturing Execution Systems (MES) are a prime example of an investment that can truly transform a business for the better. However, the degree of potential business change can vary. How brave, committed and visionary are you? In the battle for competitive advantage, the manufacturers that come out on top see macro opportunities for transformation over and above micro successes from a single plant.

    Increasingly, manufacturing enterprises around the globe are looking for ways to streamline, increase responsiveness and become more data “smart.” With an investment on this scale comes an expectation of ROI. MES offers a wide range of cascading hard and soft benefits that accrue over time. However, businesses tend to be pre-occupied with traditional targets revolving around short-term cost cutting on a local scale.

    The temptation to rush development to meet an average ROI target of three times investment is significant. A quick and easy return may be politically alluring, but is ultimately short sighted. Businesses like the reassurance of seeing a dollar saved, but those that stop here might risk missing out on the larger savings that could impact strategic business outcomes in the future.

    MES systems work in real-time to enable the control of multiple machines in the production process.  They should be the highest priority project as it is more important than a capital equipment acquisition.  An MES solution creates the ideal conditions for high-quality and efficient manufacturing, increased reliability, and full global product traceability.  MES systems are one of the best strategic drivers to obtain a competitive advantage in the manufacturing landscape as it improves profitability, reduces waste, and ensures compliance with regulations.  You can improve your product quality while driving down costs at the same time with MES software. An MES system should be the highest priority project as it helps in obtaining competitive advantage, improving profitability, reducing waste, ensuring compliance with regulations

    When tasked with measuring the success of a project, three typical forms of measurement are scope, time and cost.

    Implementing a Manufacturing Execution System (MES) or other IT system is no different where success is often measured by the time, resources and cost spent to achieve a pre-specified result (scope). This approach to determining success is analogous to evaluating a trip from point X to X’ by how much time and gasoline was consumed.

    Let’s see if we can understand better by first digging deeper into what the criteria are for a successful MES project.

    For manufacturers, an MES implementation is about gaining certain (preferably tangible) benefits like lead time reduction, reduced scrap rates or improved efficiency.

    Does increased cost over budget mean a project failed if twice as many benefits were achieved? Most project sponsors would accept a budget overrun if they could see some intermediate benefits. This means that being “on initial budget” is not necessarily a requirement for project success.

    Cost overruns to accomplish the original project objectives should indeed be considered a failure. Under either of these scenarios, surprises are to be avoided at all costs. If budgets are being exceeded then communications are needed to evaluate business success achieved thus far. Flexibility of implementation is also needed to achieve necessary validation prior to the project continuing, enabling a divergent path that is mutually agreed upon by all stakeholders.

    It is not easy to implement a typical MES as an iterative process with frequent changes. MES solutions that are built on a BPM (Business Process Management) platform, however, can be adapted quickly and easily. Quick wins are therefore readily achievable, which then allow sponsors to justify further budget extensions and extract proportionally more business value over the long term, even if the initial project cost exceeded budget.

    Time is money, so projects that take longer than planned might be considered as failure. To this point I would suggest you expand your time horizon for a more accurate measurement of value, beyond the duration of your initial implementation. An MES project is not really a single “event,” but is part of a never ending journey towards manufacturing nirvana. Manufacturing Execution Systems must continue to adapt to meet the changing needs and processes of the business. Must goals and objectives be met? Absolutely. But, these objectives might be better measured by phases, such as initial implementation, sites 2-5, global collaboration effectiveness, etc. These objectives should be periodically reviewed as successive iterations, with accompanying Return on Investment and continuing impact on the strategic goals of your company. In some cases, short term goals may be missed in exchange for a company’s long term survival. Alternatively, quick “off-the-shelf” implementations might efficiently address some local needs but drive unnecessary costs associated with the long term maintenance of multiple MES systems on a global scale.

    It is often easier to work in the short term. “What IT project can I get approved and implemented this year?” might be a consideration that is top of mind for those tasked with an IT systems update. Similarly, those responsible for approving such expenditures are equally risk-averse to embark on a multi-year deployment. Projects get derailed, budgets cut and new priorities set, which can each have an adverse effect on a multi-year deployment.

    It is for these and other reasons that initial ROI to justify an MES implementation are often evaluated within the four walls of a single plant. Estimated benefits from cost savings, greater efficiency and expanded throughput can then be applied to the cost of an MES project. But why stop there? Success shouldn’t be derailed by a short-term business strategy or an impatience to see immediate ROI.

    The first phase of MES lays the foundation for even more cost reductions and performance benefits over time. If an MES is rolled out over multiple plants and embraced as a companywide initiative, an ROI way beyond the average three times is possible. The cumulative effects of near-real-time visibility of production processes, as well as an understanding of them, will surface the less easily quantified, but equally significant benefits.

     Manufacturers are increasingly operating in an information-driven environment. Increased visibility of processes across multiple sites offer manufacturers the tools needed to recognize and seize new opportunities that might not have been previously even considered. Don’t let your business invest in MES, and then fail to look beyond the first phase of benefits. Be patient, learn from the information generated, act upon the insights and reap ROI in the long-term. MES is truly the hidden weapon of manufacturing. It is up to you to enable it to transform your business for the better in a continuous improvement philosophy!