11 Sep ROI for MES: The Pursuit for Profitability
‘A person is born with a liking for profit’ – Xun Kuang
We will begin today by stating the obvious- businesses operate for profit; while there are other community and sustainability related initiatives that most businesses have started to include in their strategic vision, unless the business itself is profitable, other social and environmental initiatives become increasingly difficult to sustain.
The pursuit for profitability is as old as the practice of trade and commerce, and it has only intensified since the very first industrial revolution took place. Every single industrial step change since has focused on generating more profit, via a combination of supply chain management, or more production-focused practices of reducing cost/waste and increasing productivity.
The current industrial revolution is no different. Industry 4.0 is also focused on reducing process waste, reducing costs related to business operations and service delivery, while increasing profitability; the only difference is that Industry 4.0 is deeply entrenched in the ability to harness large amounts of data, process it into actionable intelligence and leverage this intelligence to create profitability.
This is a revolution, of, by and for information!
As the new industrial revolution is all about information and its use, it is imperative that information technology takes the center stage in ushering in this phenomenon for businesses around the world. Manufacturing companies in particular will need to adopt a wide array of Industry 4.0-related technologies, through IIoT such as AI or its subset Machine Learning; AR; 3-D printing; Big Data and Analytics; Robotics and Cloud among others, to realize the benefits this new revolution brings, following other industries which are already using these technologies to boost their profits.
MES is the epicenter for change
At the center of it all for manufacturers is the MES application, which is the backbone of the digital transformation necessary to unleash the benefits of Industry 4.0 in their value chains.
MES, or Manufacturing Execution System, is the application which harnesses, manipulates and shares the very information needed for a successful deployment of Industry 4.0 technologies in the manufacturing landscape. Simply put, the technology and data which are needed for Industry 4.0 already exists; the data resides in the process, in the systems, in the supply chain and in the technologies. The challenge for manufacturers is to combine this data and technology, through the use of IT to create the cyber-physical environment that enables the Industry 4.0 landscape.
But why is the MES the solution? Well, MES is an IT application which basically integrates the entire manufacturing supply chain, forming a layer which communicates with both the process-level equipment applications and the enterprise-level applications, allowing the seamless transfer of data between these applications and the MES to determine status, activities, and outcomes. The MES ‘loops’ actionable information in real-time back to the process, which is delivered to the right person at the right time to create a manufacturing data platform, which enables technologies like AI/ Machine learning, AR and other Industry 4.0 pre-requisites to manifest. The MES data platform forms the backbone of the intelligent manufacturing process, transforming the organization from a reactive to a proactive state and ushers in a predictive process mode, allowing for increased productivity, reduced costs and therefore higher profitability.
While we have established that the MES actually holds the key to enabling Industry 4.0 for manufacturers, we also need to acknowledge that most manufacturers today remain somewhat circumspect when it comes to the digital transformation of their value chain. Their inability to determine the ROI for MES is cited as one of the main reasons for this hesitancy. This is an understandable predicament to say the least; most manufacturing companies which perform well do so by investing in their core competencies, so to delay the foray into Industry 4.0 delays both the benefits and returns.
Decisions taken that are related to investments for such companies include expanding operations to other locations/countries or increasing output through improvements in equipment, or the overhaul of existing manufacturing process to add new production technology. Since most of these investments made are one-dimensional in nature, the ability to ascertain the ROI is straightforward in most cases.
The investment in an enterprise-wide IT application, like MES, is multi-dimensional. It touches both operations and IT; it has both short-term and long-term returns, making it a challenge to baseline and measure; and it assumes a stable ‘starting place’ from which to conduct the measurements.
A New Way of Measuring ROI
We believe MES and the ROI pertaining to it should be looked at from a different perspective, given that the MES implementation is an organizational-wide endeavor and needs involvement of personnel from the shop floor to the top floor. The first and foremost decision to be taken should be whether or not an MES is needed for the organization, the next would be its ROI and we will get to it as we move ahead.
One quote from a manufacturing consultant says: “If you need to do an ROI study, then perhaps MES is not for you …!” when positioning to management the benefits of Manufacturing Execution Systems (MES). Although this may be said tongue-in-cheek, there’s a certain core of truth to this statement.
The senior management of any manufacturing company reading this needs to look at the MES from an opportunity cost perspective, since the need to implement an MES initially, more than anything, has to be a strategic decision. So, the first question becomes what if we don’t have an MES (or said otherwise, what if we do nothing)? This is a critical question and one that all manufacturers (who do not have an MES) should be asking themselves right now. The answer is both look at what you gain and what you may lose from a competitive advantage perspective.
Industry 4.0 Starts with the MES
The new industrial revolution is all about information, as we established earlier, the MES is one of the only applications which can provide intelligent information in the shortest possible time to create a sort of ‘intuitive’ manufacturing, which acts rather than reacts based on scientifically verified and analyzed data, flowing seamlessly in an integrated IT infrastructure. If you choose to not implement the MES you are leaving your operations and supply chain to operate as separate information siloes, which are either loosely connected or not connected at all, thereby failing to incorporate the very crux of Industry 4.0, which is to be fast and resilient.
Competitors who implement an MES successfully may, in a year or two, be so far ahead that catching up with them might become next to impossible. The word ‘successful’ here is the key, which needs the combination of the right implementation team (internal), right consultants and right MES vendor, who offers the appropriate MES for your industry and process.
Industry 4.0 enables a complete digital transformation of the existing value chains, and the MES holds the key. The go/no go decision for an MES implementation has to be a strategic one, as the process of selecting the right people, external change agents and the application itself is a complex process. An enterprise-wide application implementation may take a few years for a completed project (especially if it is multi-site) and unless there is a vision endorsed by the top management, any such implementation will be difficult initiate, let alone make it successful.
The decision to go for an MES is a strategic one that entails not only the cost of the solution, but the infrastructure and other programmatic aspects. Let’s address MES and the determination of ROI from the investment made in it. It is possible to determine an ROI if done methodically.
Starting the MES ROI Process
Oftentimes, when an MES application is shortlisted, the project team implementing it would run a pilot project or ‘proof of concept.’ If the application is a good fit, the benefits it brings become quickly evident.
Many manufacturers and their teams who have successfully instituted an MES cite that they begin to see improvements in productivity immediately as they start to organize the data which will be needed for implementing the application. This happens because they start viewing data in an organized manner, which results in the team seeing patterns and correlations they never knew existed; all of this happens, even when the MES is far from being deployed.
There are two scenarios for MES implementation. The first is a single site or single location. The impact and benefits are more apparent, since there are less systems, processes, people and equipment to work with; reporting is done on a localized basis, and the impact can be more easily ascertained on productivity, quality or yields in a single site.
When an MES is implemented across multiple plants dealing with multiple applications, processes and stakeholders, it is critical to view it as a multi-dimensional project, with multiple threads of impact in different functional areas. Improvements made in various areas individually can compound to provide the overall picture of the returns the MES implementation is providing.
The Final Return
An MES, if well-chosen and well-implemented, inherently reduces decision latency from the operation, which allows for decisions to be made faster and more definitively, as the MES relies on verified and analyzed data.
Time saved is money saved; a good example of this is a comparison between two lines in the same manufacturing plant, one with and one without an MES.
Imagine if an event happens which leads to overheating in a particular curing oven. In a traditional process, there might be a few batches cured before the event is discovered, resulting in material that falls below the set performance thresholds. The result is a loss of material, production time and increased costs due to the waste created and rework needed.
However, it goes beyond the simple material loss—to make the process ‘Industry 4.0’ compliant, after the event is discovered, it needs to be determined why it happened, make sure the necessary changes are enabled and ensure that production resumes with the curing oven operating at the requisite temperature.
In a scenario where all this is done manually, the losses incurred are considerable; however, in a similar scenario including MES, the MES would immediately alert process owners as the oven starts to perform out of spec—as the temperature exceeds or is about to approach set thresholds, the MES can compare other occurrences in the past and suggest to process owners possible causes and course of action. The response to a quality event happens in real-time; this results in lower waste, lower costs and lower downtime. The reduction of decision latency when applied across the organization can lead to productivity gains and improvements which are unprecedented and impossible without the MES.
The MES provides many productivity boosts and cost reductions, such as the reporting of failure events and ensuring non-compliances are captured. The MES actions are reported and corrected in real-time; the cost of poor quality is reduced, which in turn boosts sales and reduces the inventory of faulty products.
Additionally, through process orchestration and set adherence to recipes, OEE and productivity are increased and waste reduction is achieved across manufacturing plants, through implementation of AR which allows process owners to view process equipment, material and activity on the shop floor with MES-provided context and take decisions to change parameters instantaneously. MES contributes to loss reduction and productivity gains, with the ability to relay information from a customer to modify a spec at the very last moment. If the MES is connected to the CRM, it allows the design and production teams to inculcate changes in the spec as requested in the nick of time, to prevent waste or out of spec products.
The benefits then realized through the MES are quite evident. The challenge is to quantify these benefits, which result from time and money saved, risks averted and productivity boosted. Ideally, at a macro level the improvements will start to reflect in the company’s bottom line.
Process owners however can begin quantifying improvements as they move ahead with the MES implementation to build the MES ROI case. The key here is the approach; every single improvement experienced, which will be unique to the organization due to the various complexities at play, must be documented, analyzed and showcased in the project report.
Initially, when the MES project team and MES vendor set the goals for the implementation project, it is imperative they keep productivity gains and other performance improvement objectives at the very core of the project. As the project progresses, the gains experienced across all plants (single or multiple) should be reviewed in a quantified manner. We believe this is the best way to determine the MES ROI.
The need for an MES is strategic and its returns multiple and span across the entire value chain. Capture each gain individually, and then view as a whole to truly determine the benefits the MES application brings.