Calculating ROI for an MES can be a MESS
But it doesn’t have to be. Avoid the mess with a few simple tips!
The other day I was playing Go-Fish with my son. The entire game, he seemed more interesting in Going Fish than finding pairs. Finally, I dropped my last card, while he held an entire stack of cards clutched in his hand. “Ha!” he laughed. “I win, Daddy!” Arguments about rules didn’t matter, because we weren’t playing the same game.
Calculating ROI for an MES has the potential to be a lot like playing cards with my son.
ROI is an important step in planning a capital investment like an MES solution. Businesses go to great lengths to draft criteria and benchmarks for their ROI, which becomes a key piece of evidence in justifying project expense. MES vendors make claims about their customers achieving ROI. But, like playing cards with my son, trying to compare ROI can be frustrating when everyone uses different rules. Different manufacturers and different industries use different criteria for their ROI analysis, making claims appear untrustworthy.
But calculating ROI is not a meaningless exercise. Start the process by looking at why you are implementing a new MES. For most manufacturers, there is some business “pain” motivating the project. Study the value or savings achieved if the MES is implemented successfully and the pain removed. Use this as you calculate ROI.
Many times there will be “soft” savings which are hard to quantify but have a significant impact on business, such as increased productivity. They may require estimates. Market data can help create a more accurate estimate.
During the planning stage, you will find many internal users see the MES as an opportunity to make their job easier. This leads to calls for “additional” functionality in the MES beyond the original scope. Added functionality often has a negative impact on ROI. One solution would be to implement the MES in phases, with the original pain becoming the first phase. Additional phases address other pains. Before you implement each phase, calculate the cost and adjust your expected ROI to justify the new functionality. This will give you a more accurate view of ROI.
The secret to accurately calculating ROI for an MES isn’t a magic algorithm or formula, it’s being aware of the challenges facing your plant, assigning a value to the solution, and being disciplined in your approach. How many times have you been involved in a project in which the final ROI was never achieved or even measured? How many companies use ROI to justify the project, but never expect it to be achieved, and what does this say about the business? Use your ROI calculation and be disciplined to avoid lower profits or cost overruns. Share any best practices or experience you have in the comments below. We’re happy to answer questions.
Next time, we’re going to look at Manufacturing Best Practices and consider if it’s time to re-evaluate what makes a practice “best.” See you then!