Insider Tips on Calculating ROI for Your Shop Floor

CIMx Software offers simple tips that take the fear out of calculating ROI for your next paperless manufacturing or shop floor software solution project.

By David Oeters, Corporate Communications with CIMx Software

Calculating ROI for your next paperless manufacturing or MES project is easy with our insider tips.  Illustration by www.colourbox.com

Calculating ROI for your next paperless manufacturing or MES project is easy with our insider tips. Illustration by http://www.colourbox.com

Calculating ROI is a dreaded task for many shop floor solution and paperless manufacturing committees.  The final ROI estimate is an uncomfortable marriage of budget, estimate, faith, conjecture, arcane formula, and (sometimes) chicanery – among other things.

We all know it, which is why many committees are stymied when it comes time to create and present an ROI.  For most companies, there is no right or wrong answer, and most times there is no “auto-calculate.”  The final result comes down to a “reasonable” guess based on a mix of fact and estimate, which leads many to question how to even begin the process.   

Never fear, we’ve collected tips, thoughts and ideas on how to get started with a common-sense ROI that will win over the most critical judge.

Calculating the cost of a Paper-based Shop Floor

Start your calculation by looking at your present shop floor.  Consider it a baseline for your calculation.  In every paper-based production shop we’ve encountered, the following is true:

  1. There are employees involved in preparation, distribution and then collection work instructions, work orders, travelers and quality data collection forms.  Many times, these employees are better used in important production tasks;
  2. Change is a way of life on the shop floor. ECOs (Engineering Change Orders) happen, and are approved and distributed – sometimes long after production is complete.  ECO’s distributed after production often require rework or scrap;
  3. Poor instructions, missing information, and misunderstanding about work to be done result in costly errors;
  4. Audits by regulators or customers to certify quality processes in a paper environment takes (significant) time and resources away from production.   Missing information, misplaced records, and data collection errors results in inadequate and costly audit results;
  5. Record keeping – the shuffling, organization, and storage of paper records – is labor-intensive especially in a shop that is growing and expanding.
Where are you leading your shop floor?  Illustration by www.colourbox.com

Where are you leading your shop floor? Illustration by http://www.colourbox.com

All of these activities take time, resources and money.  Often, these costs increase in direct proportion to increased production.  None of them directly impact or improve production.  These activities, and many others like them, are costly.  For each issue you identify, calculate or estimate a cost.  Even if the actual cost is not known, you can begin with an estimation.  For example, if 5 employees were involved in collecting data for an audit, then determine the cost in manpower for the audit.  Look at the effort and cost of record keeping, and begin assigning costs (including paper storage, manpower, and mistakes).

 Estimate the Savings of the Solution

The items and issues above are directly addressed (in various ways) by a paperless manufacturing solution.  Most times, a company researching a paperless manufacturing solution will have one or two key issues as the focus of their search.  They seek a simple, low-cost, low-risk solution to eliminate a problem, save time and money, and gain better control and visibility of production.

Don't let fear hold your shop floor back.  Photo by www.colourbox.com

Don’t let fear hold your shop floor back. Photo by http://www.colourbox.com

When calculating an ROI for a potential paperless manufacturing solution, look at the issues the system solves.  For example, does the solution offer:

  • A technology proven to eliminate the need for paper work flow, and the cost and errors that occur using paper.

If the solution eliminates the need for paper, then add the savings you gain from eliminating paper distribution, and the errors you incur from using paper on the shop floor.

  • Creation of automatic as-built and a digital record of production.

A solution that offers automatic record-keeping will eliminate the cost, frustration and errors of record-keeping.  This should also eliminate the cost (in both time and work) and stress associated with audits and assembly of production records for customer services.  Add these savings to your ROI.

  • Improved digital work instructions, work orders, and shop floor data collection.

Digital work instructions and shop floor control and visibility are the heart of paperless manufacturing.  Look at the improvements the system will make to work orders, and determine the mistakes, error and quality escapes that will be eliminated.  Calculate the cost in scrap and rework to the ROI.  Also, digital work instructions should significantly improve production overall.  Add this savings to the ROI. 

  • Change management and shop floor visibility.

Look at the costs incurred by change management, including scrap and rework.  Look at the cost of job tracking.  A system that successfully manages change and offers real time visibility will save on these costs.

Once you’ve matched the solutions provided by the system to the expenses you’ve identified in the previous step, you’ve begun assembling your ROI.

Other Considerations
Take the confusion out of building an ROI estimate with these insider tips. Illustration by www.colourbox.com

Take the confusion out of building an ROI estimate with these insider tips. Illustration by http://www.colourbox.com

There is more to be considered when calculating ROI.  Look at the costs and expenses that you may incur with the new system.  Beyond the base cost, maintenance and any license fees, consider other potential high cost features of the system, such as:

  • Can the solution be easily installed?  Look for systems that can be installed in phases.  This will minimize the installation time, risk, and the disruption and changes to production.
  • Does the solution offer simple options for integration into other systems to share data or files?
  • Does the solution use non-proprietary hardware and software?  This will allow self-support if desired, and minimize service charges.
  • What is the cost of upgrades to the software?  Free lifetime upgrades allow the shop floor to take advantage of new technology and avoid obsolescence.

Study the system for other potential costs, and consider these as you calculate the ROI.

Summary

With most paperless manufacturing research projects, as the solution is uncovered and the features and the functionality are revealed, there is a flush of excitement.  But, as the work of calculating and creating an ROI begins, the excitement fades.  But it shouldn’t be that way.

Creating an ROI should be a simple matter of identifying issues on the shop floor, calculating the cost of the issue, and assigning a savings to the solution.

Want to learn more, or see how we can help your shop floor create an ROI for a shop floor solution, let us know!  We’re happy to help.

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