Many companies wonder where the inflection point will be for their paperless manufacturing project. Let us show you how you can design a project that gives you control of your ROI.
By Kristin McLane, President of CIMx Software
I spoke to a group of prospects about the inflection point in an ROI – the point where project costs (in licensing, services, training, support, and internal resources) equal the cost savings generated by the paperless manufacturing system. As we talked, I realized there are many misconceptions about ROI, misconceptions that lead to more frustration than certainty.
Unraveling the ROI Conundrum
ROI is a tricky thing. The term is so overused some believe it’s more like the accounting
Easter bunny than a data point. Despite that, ROI is more important than ever to control project cost.
Over-engineering is prevalent in the MES industry… some vendors want you to add one more feature or capability, because it adds to their bottom line. These vendors design fancy, flashy demos, post pretty YouTube videos, host elaborate conferences, with fancy marketing collateral, and even pay bloggers to help sell their services so they can offer module after module and entice you into buying more. Let’s be honest, none of that will provide you the cost savings to justify the investment. Without a clear ROI, you can’t be sure if the additional costs will offer a return. You might be the poor customer with a bloated service bill helping to pay for the YouTube videos and marketing collateral.
With enough time and money, anyone can build anything, so vendors make promises that can’t be achieved except through costly custom services, even as they promise their system is “configurable.” The higher the final cost, the more difficult it will be to achieve an ROI. Don’t be fooled. If extensive services are required – it is not configuration. Configuration is done by the software itself – not by the expensive implementation team you are renting.
Here’s a tip for discovering how “configurable” your potential software solution really is – ask the vendor what percentage of the installation services are related to configuration. Ask them how configuration changes are made. Do you need the vendor to make changes? If the configuration services are a large portion of the total service cost or an expensive line item on the itemized proposal costs (you should ask for those, too), then you shouldn’t expect an early ROI. As you start adding up the costs, the inflection point may not even be visible.
An Honest Look at Projected Savings
Some vendors will offer “suggestions” on how to calculate the ROI, but you need to be careful. We do not sell, nor do we recommend, customers rely on reduced headcount to calculate ROI. It is tempting to build a business case on a reduced number of resources, as they are the most costly line item on your production P&L. But that’s not really what happens…
Take your most experienced Quality Engineer. In many cases, this is an employee with a hectic schedule, and yet is underutilized for their training. Manufacturers need QEs to implement Continuous Improvement initiatives, but if your QE is running around the shop floor, fighting fires and trying to stay ahead of the next problem, then they aren’t being utilized efficiently. A well-designed MES system will greatly improve the efficiency of the QE, allowing them to implement improvement plans and build new, more efficient processes for your shop floor operations. The net effect is an entire production team that’s more efficient and more accurate. You may find that you don’t hire to fill spaces as operators leave (and the least capable may leave as the system begins tracking shop floor efficiency), but it isn’t common for MES customers to see large gains from reduced headcount.
Maximize the Inflection Point
So, if reduced headcount is not a key factor in projected savings, how do you maximize the inflection point and increase your ROI?
At CIMx, we focus on generating ROI for our customers through understanding their workflows and providing value in more efficient work. Our system is behavior-based, not template- or module-based. The software provides value through your workflows and best practices, enhancing behavior rather than changing the shop floor to adapt to a new system. This is possible through the use of our architecture. Unlike modular or template-based systems, workflow or behavior-based MES utilize a system architecture that gives customers the flexibility and tools they need to implement automatic and ever-increasing efficiency improvements to their workflow and processes – changes that have the greatest impact on your shop floor. By not focusing on isolated, individual requirements, capabilities or functions, which can drastically increase the cost of the system, customers manage the inflection point and ensure an early ROI by focusing on the total workflow process and the largest gains.
The key is to manage what you spend on the project, and focus on items with the greatest ROI – your workflow. Complete the installation in manageable phases that provide a planned and measurable return, and identify future expenses for the system that could impact the ROI. The next time you have an improvement event in your business, will the system support the improvement, or must you purchase expensive assistance with customization? If you can perform the necessary business improvements without an expensive services contract from the software vendor, then you can maximize the inflection point and your ROI.
This doesn’t mean it’s not tempting to create a massive requirements document that resembles a manufacturing wish list. You should identify key capabilities, but make sure there is an expected ROI attached to each. Then take a look at the workflow using the system, and identify improvements and benefits there. It’s those benefits that will generate your greatest ROI.
If you want to see how we can deliver savings and increase profit through workflow efficiency, contact us or give us a call – we’re happy to help.