ROI Revisited

Dear Alison, I was going through a few of your answers when I came across these figures you had used to answer a question posed to you..... [From the previous post:] You wrote: ?The aggregated data I'm sharing here is from AMR ROI studies, but if you l`ook to the MESA organization, you'll probably find data that's of like magnitude.

• 3-7% increase in yields due to reductions in scrap, material savings ranging from $150,000 to $3 million annually on discarded products. Reduction in process defects of 20%
• E-signature tracking, headcount reduction, 25-75% reduction in signature review times, 30-55% reduction in rate of exception handling (closure)
• 58% reduction in idle time, 8-18% increase in productivity, 15-50% decrease in cycle time, 20% reduction in unnecessary equipment changeovers, reduced reporting latency from days to hours, daily to shift
• Reduction in finished goods inventories, product holds, 20-50% reductions in WIP, monthly inventory adjustments eliminated
• Improved inventory counts, number of exceptions, time-to-manage exception, batch reviews, data entry into ERP, unnecessary equipment changeovers, eliminates millions of entries and checks/year. Save 70,000 hours/year on batch reviews, 93% reduction in time-to-handle exceptions, reductions in G&A overhead of up to 90%? Can you please tell me what size of organisation are we talking about? And can you tell me how these figures fare with respect to a small scale, middle scale, and a large scale organisation? Timothy Rozario, Software Consultant, Frontal Software
  Timothy Rozario, chennai, india

Sure thing. The ROI data that we've got at AMR is from a study that looked at a mix of companies &mdash a couple were what I'd call large-scale organizations (they'd rolled systems out to 15 to 20 sites) while others operated only a couple of sites and were rolling their MES systems out a line at a time. Reflecting on the aggregate data, I think as one drills in, it becomes important to look at the specifics of each case ... We joke sometimes that every manufacturer likes to think "they're different," but in the final analysis, they actually are and where the ROI comes from will vary based on style of manufacture, regulatory environment, complexity of product, volume, mix, and a host of other variables including but not limited to whether the facility is a union shop and how production costs are accounted. In short, the ROI study data gives us an idea of how users justify the purchase and implementation of these systems (generally on measures that are easy to obtain and monetize) but they don't give us terribly useful insight into what the baseline was prior to implementing the project, nor do they help us understand the long-range benefits that accrue.

One of the smaller manufacturers that participated in AMR's ROI study was an SMB/box build contract manufacturer who claimed that because they could offer their clients a complete electronic "as built" record for every item they manufactured and shipped, they could command a premium over contract manufacturers who could not. Thus, the information that the system produced had value above and beyond any production efficiencies and cost reductions that were realized as a result of the implementation. Typically, ROI studies don't capture this kind of value, so my point is that when you're thinking about how you'd justify or build an ROI case for any size business, it's important to look at the business in terms of the larger value chain.

I hope you find this useful. If you want to chat further about this, send an email along via MA and we can continue the conversation.

Alison