4 min read

A Final Count: A Numbers you need to know series

A Final Count: A Numbers you need to know series

We’re hearing from the customers we serve that there’s no good way to calculate a return-on-investment (ROI) that they will truly believe in and can make happen. In the software industry, we talk about a minimally viable product (MVP). This is entirely different than the MVP in sports. In that case, it’s the person that you may most rely on to make the big play, take the big shot. In software, the MVP is a shadow of that.

F. Donaldson Brown sold explosives for DuPont in 1908. Later, he was recognized for work he did as an administrative analyst at the company and, in 1914, he authored a report on the performance of the company that got the attention of Coleman DuPont, the company’s President. While there, he “developed a formula for monitoring business performance...that later became known in academic and financial circles as the DuPont Method (or Model) for Return on Investment.” (taken from the Hagley Library citing in the link.

An ROI is meant to tell you how much money or time you can save by making some decision. Usually, a vendor will use this to justify the proposal they’ve just put in front of you, and you are right to worry about that. Of course, they are using the number to justify their own price, so the number must be high enough to pay for itself over some period that you think is acceptable. And, perhaps, your period differs from theirs a bit, as well as the numbers they used in the calculation.

PRODUCTION OPERATIONS MVP

A software MVP (minimally viable product) is the minimal set of features that a software vendor thinks you need to have to purchase their tool. It could be a first release. Or a new SAAS (software as a service) package launch. It’s the smallest amount of work that they can do to grab the biggest share of the market. If this doesn’t sound great, it’s not. Unless, of course, the set of features that they have selected is an exact match for what you need. Chances are, however, slim that this would be the case.

In Production Operations and manufacturing software, we see this in module-based platforms. They offer a series of modules or a base platform with lots of bells and whistles to add. If you need them.

You will always need them. I have a great example of this that still buggers me. There is a software platform currently on the market in our space that sells a module to do data collection separate from the rest of the manufacturing suite. As if data collection is not something that you will need. How else will you know how you’re doing?

These vendors sell their platforms as pieces so that you “only pay for what you need.” What they fail to achieve is that the services that are required to tie all these pieces together and make them work for you – either by you or by them – takes precious, additional time and money (often lots of it) to make it work in your environment. Not a strong ROI there, although it looks good on the surface.

Real ROI

To get a real ROI, we suggest going the MVP route. Establish what the minimal return could or should be for you. For our part, we usually suggest that our customers start with a simple equation for this. What if you could save just 15 minutes a day per person in your organization? Would that make the use of a digital tool worthwhile? From personal experience, just one thing going wrong in someone’s day is going to take far longer than 15 minutes.

For every 10 people in your shop, that’s 2 ½ hours per day or about 650 hours a year. Using an average shop salary, I’m calculating that at about $20,000 per year. At just 15 minutes per person per day. I’m guessing that if I could not show you how we could save your team 15 minutes each, it probably wouldn’t be worth it for you to continue the conversation. Rightfully so.

Let’s take it a different direction and try the same calculation – just in case that one didn’t feel right. Let’s say you have 2 critical people on your production operations team: your scheduler and the person that “fixes things.” The first person is responsible for making (and remaking, if you don’t have a digital tool doing the work) your schedule, daily or weekly. It is rare that a person like this could do this work monthly, because things change so often, even in process-driven manufacturing, that the schedule is wrong too quickly to count on a full 30-day turn. The second person may be running around your shop right now trying to find, solve and fix things. A machine is down for maintenance and the team doesn’t know where to move the work. Someone didn’t show up for their shift and they need to know how to cover for them. Someone is short materials and don’t know where they are. Something’s gone wrong and the team needs direction – continue on or stop working?

Both roles are found in almost every shop we visit and, sometimes, there is one unfortunate person who does both. Experience tells me that we save about ½ of this person’s time but let’s take a more sensible, MVP-approach, to the numbers. Let’s say we save 1 hour of their time each day. Again, I’m going to the single-issue calculation here and a single issue can take an hour, easily, to figure out. Sometimes it comes in 15-minute segments throughout the day, but issues like these really do take time.

I calculate this one at 10 hours a week and, with the higher salary that someone like this commands, I’m at the same $20,000 per year savings.

YOUR ROI

Do your own calculations. Think about the absolute minimum amount that you could save in each period and start using that as your ROI. Can the tools you’re looking at to help you beat that goal? I’m going to suggest that you need to see those savings in year 1 to have it make sense. Things move too rapidly to push it much further than that.

We don’t often talk specifics of our own product platform here. We’re really pushing into an educational blog and don’t want to cloud things up by being salesy. I will, however, jump into this for just a minute. When we look at the markets we do business in, I know that these numbers above are conservative. We expect to save people hours of time. Some daily. All weekly. The variability of manufacturing processes in our customer base tell us that there’s a lot of savings available because paper-based processes fail where there’s variability.

It was no rocket science, therefore, to know where our price point needed to be. We needed to support the minimum ROI possible so that people could know that there were savings there for them. Curious to find out more? Just reach out and ask us.

Support and empower your team with a system that gives you the data you need to know.  Production Control is not something an ERP can do.  You need a system that gives you visibility, productivity, and flexibility - typical financial systems cannot handle this.  Push the Connect button to learn about how we help teams with this.  Or, if you have a question, reach out to info@cimx.com.  We are here to help you save money, time and get your Production under Control

Contact CIMx Software to see how a Manufacturing Execution System can improve production control for you.

 

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