Manufacturers’ all important bottom line. Return on investment (ROI)

All the internet is a blaze with talk of “the internet of things” (IoT) and “big data” for manufacturing. If you are not implementing things like OEE, MES or SCADA equipment you are falling behind the curve, but you have to stop and ask, what is the pay off? And more importantly, what will it cost?

Let me start out by clarifying IoT data has been available in the manufacturing domain for many years but is rarely analyzed to the degree now being touted. I have not personally seen an ROI to justify the cost to log and store every photo-eye flicker in hopes of a predictive maintenance program (motor and VFD information sure). I have on the other hand seen numerous studies on root cause analysis via OEE, MES or SCADA systems that have a 90 day ROI or less!
These are the type of projects that need to be taken from the abstract and put into hard facts but this has its challenges. Industrial Control System integrators are rarely eager to throw ballpark numbers at these topics because of the ambiguity and risk, often the conversation between a manufacturer and the integrator starts out like buying a car.

Manufacturer: “How much does this type of system cost?”

Industrial Systems supplier: “How much do you have to spend?”

From a supplier perspective this is a legitimate question but framed rather poorly, this can lead to undue frustration right out of the gate and I am sure you have witnessed similar transactions. When initially scoping a project for ROM pricing the first question(s) should be goal oriented, “what are you looking to accomplish? Tell me about your goals for this project?”

Once the goals are outlined the scope may be established to determine cost allowing for case studies and ultimately the ROI. The return on investment may be calculated using many different contributing factors, be sure not to overlook any of them when determining this value.

·         Labor savings: rework, operations, defects, time study savings

·         Material savings: scrap, defects, expired product

·         Operating costs: Utilization, energy consumption, labor, storage, downtime costs

·         Maintenance costs: preventive maintenance, parts storage and management

If you find yourself in a chicken or the egg situation, meaning without already having MES (or OEE, SCADA, etc.) you cannot break the data down for ROI purposes. In this situation you may be able to use a low ball defect estimate to get the number, here’s how it works:

• You have 22% defects and everyone has a pretty good idea that 14% is due to failure “A” but the fix must be justified.
• 22% defects cost the company $846,000 annually.
• Estimate is 14% due to failure “A” = $538,363
• MES cost = $182,000, so if you are able to reduce failure “A” by just 5% it will pay for the system in 1 year, furthermore if you are able to completely eliminate failure “A” it will pay for itself in less than 6 months.

So in the ROI document use the 5% required to cover the cost because it is plausible and does not overstate the expectations. Also agree to provide an update to your stakeholders on the data 90 days after implementation.  

Manufacturing Directors, Managers, Accountants and Controllers all love a sure thing, it’s like fixing a horse race. Give them undeniable data to support your improvement requests and they will get behind you. Be prepared and stay focused.