ROI for MES

ROI for MES

“As you decide which metrics to use to measure payback from your digital strategy, keep it simple and don’t overlook the basics. Seek to improve sustainability goals—reducing energy use, waste, impact on the environment, as well as quality goals. Also, measure the cost of risks, recalls, and compliance. Plus, measure and the benefits of offering better customer service and reducing complaints.’

eBook: Finding the ROI in Industrie 4.0 Projects, MESA International May 2019

ROI: Return on Investment. It’s a standard measurement criteria used for most complex or costly endeavors, where the factors of time, funds and people are involved: buying a new piece of capital equipment; investing in a new production line; or buying a software product which has vast organizational impact, such as an ERP or MES.

For IT projects, an ROI exercise is a given. Even back in 2002, Ernst & Young estimated that 79% of companies required an ROI analysis to be performed on IT investments.

Why calculate an ROI? Some of the reasons are:

  • It’s a great selling technique for senior executives.
  • It allows you to set investment screening thresholds (e.g., considering only projects that deliver ROI of at least 190 percent).
  • It enforces an understanding of the top/bottom-line business impact of the investment, since it is impossible to complete an ROI analysis without understanding the potential impact on cost and revenue generation.
  • It facilitates investment prioritization by making a project-to-project comparison between investment options, letting stakeholders focus on the intangible benefits separately.
  • It brings discipline on the part of vendors and decision makers to support business impact claims by taking a more quantifiable approach to business justification.
  • Lastly, it enforces accountability on the part of the project executive (or sponsor) for the success or failure of the project.

For MES, it is especially complicated, as you have cross-functional roles that are involved with the decision. As MESA shows here, there are multiple stakeholders in the different areas that MES touches, so any MES ROI project needs to reflect both the needs of these stakeholders and means of measuring the specific area or departmental investment returns.

Conventional methods of calculating ROI are simple: how much you pay; what the time period is before you get payback equal to your investment; and the ‘opportunity’ costs of not doing it, and leaving the money in the bank (or where ever it’s being held). If the investment return is greater than the opportunity costs of just leaving the funds alone, it should be a go, and you can proceed with your project.

But what if ROI isn’t readily apparent? If there are other means and other areas which can be positively impacted that aren’t included into the calculations? Then you have to use both the ‘hard’ ROI numbers, tempered with ‘softer’ numbers such as employee satisfaction, engagement, cultural map, etc.

There are thousands of articles that you can read on ROI for MES, and millions of mentions online. 

How can you get to the ‘truth’ of what it means to achieve a return on your MES investment, and what should it look like?

Starting with the Basics: MES Impact

Both MESA International and Gartner Group have good, foundational content on MES ROI.

In 2013, MESA published a study, Metrics That Matter, the ROI of MES in partnership with Gartner Group; the study was recently updated in May 2019. This study goes through key aspects of ROI, including impact, guidance and expected outcomes.

MESA identifies numerous benefits, looking at both operational impact as well as cultural, or workforce improvements, and both quantitative (throughput, supply chain and NPI) and qualitative aspects (employee satisfaction, improved decision-making).

As we see it, the Impacts and Benefits of MES can be grouped into four categories:

  • Agility
  • Productivity
  • Quality  
  • Regulatory Compliance

The categories that we show next are a framework that you can use for your ROI calculation, although you should tailor it for your specific use case. The benefits we see are cumulative—and therefore, recurring—once the MES is implemented.

ROI: Agility Improvement

This category includes benefits associated with the time and cost to introduce new or modified products and processes.

TIME AND COST TO INTRODUCE NEW OR MODIFIED PRODUCTS AND PROCESSES

Improved through:

  • Flexible master data configuration
  • Flexible business rules definition and implementation
  • System enforcement and execution of business processes
  • Rapid personnel training via intuitive user interface screens

Benefit calculation: Cost of introduction of new or modified products and processes without using MES + Value of additional time saved (in terms of time-to-market)

ROI: Productivity Improvement

Productivity improvement benefits are associated with production volume; cost; WIP reduction and cycle time.

PRODUCTION VOLUME

Improved through:

  • Increased degree of automation
  • Scheduling and Dispatching
  • Real time status and visibility
  • Proactive actions and alarms (e.g. Inventory levels, expiration dates, maintenance tasks)
  • Industrial engineering (incl. Overall Equipment Effectiveness – OEE), data analysis, benchmarking

Benefit calculation: Value of additional volume

COST

Reduced through:

  • Paperless manufacturing
  • Increased degree of automation
  • Manufacturing cost data analysis, benchmarking

Benefit calculation: Cost Savings

WIP REDUCTION

Reduced through:

  • Increased degree of automation
  • Scheduling and Dispatching
  • Real time status and visibility
  • Industrial engineering data analysis, benchmarking

Benefit calculation:  Value of interests on saved working capital +  Value of saved physical space and buffer/storage locations

CYCLE TIME

Reduced through:

  • Increased degree of automation
  • Scheduling and dispatching
  • Real time status and visibility
  • Industrial engineering data analysis, benchmarking

Benefit calculation: Value of shorter lead time for the customer + Value of earlier revenue realization

ROI: Quality Improvement

Quality improvement benefits are associated with yield and product performance improvements and an increase in customer satisfaction.

PRODUCTION YIELD

Increased through:

  • Analysis of process and equipment data, as well as benchmarking
  • Online process control (using SPC or other type of monitoring)
  • Enforcement of business processes (e.g.: sampling, maintenance)
  • Increased degree of automation
  • Reduction of manual errors
  • Early containment of process or equipment excursions (with full traceability to affected WIP)

Benefit calculation: Value of the Yield improvement x Volume

 PRODUCT PERFORMANCE

Increased through:

  • Analysis of process and equipment data  
  • Benchmarking

Benefit calculation: Value of Product Performance improvement x Volume

 ON-TIME DELIVERY

Increased through:

  • Scheduling and dispatching
  • Real time status and visibility

Benefit calculation: Value of customer satisfaction for on-time deliveries

 CUSTOMER PRODUCT RETURNS

Decreased through:

  • Online process control (using SPC or other type of monitoring)
  •  Enforcement of tests and inspections

Benefit calculation: Avoidance Cost of each evaded Product Return + Value of customer satisfaction and retention

ROI: Regulatory Compliance

This category includes benefits associated with mandatory compliance to country and/or industry regulations (such as FDA 21 CFR Part 11 for medical devices in the USA, or the EU MDR regulations for Europe).

 COMPLIANCE

Enforced and Improved through:

  • Business process and regulation enforcements
  • Electronic Tracking and Traceability
  • Digitization of paperwork
  • GMP enforcement
  • E-signature capture

Benefit calculation: Cost of compliance without using MES

ROI Costs

For a believable ROI exercise, the cost of the solution and any new or expanded infrastructure needs to be taken into consideration. For MES, this includes costs of the hardware, software as well as people and project costs:

Hardware Costs

  • Cost of net new hardware for solution
  • Cost of hardware depreciation (recurring cost)

MES Software Costs

  • Cost of software licenses (if outright purchased) for the MES, and any software infrastructure (databases, integration, client licenses)
  • Cost of subscription (if SaaS) or other pay-per-use model
  • Software maintenance (recurring cost, after project implementation, for access to new software versions and product support)
  • Cost of training

MES Implementation Costs

  • One-time cost of implementation
  • Ongoing costs of third party support
  • One-time cost of internal employee’s time during implementation project

MES-related Operational Costs

  • Recurring costs
  • Costs related with the operation and administration of the MES system
  • Upgrades, new licenses

The Payoff

So you’ve done your due diligence, secured your funding, selected and aligned your teams and implemented your first MES. What next? How can you fulfill your expectations of ROI?

Let’s look at some external research for what to expect.

A MESA report shows that implementers of MES systems have improved Total Cost Per Unit by 22.5%, Net Profit Margins by 19.4%, and On-Time Delivery by 22%. Improvements for MOM users were generally double the average among all respondents.

Another survey by MES with Gartner in 2017 provides an even more detailed outlook:

Conclusion

MES provides the foundation and infrastructure for continuous improvement. In a Gartner 2018 study, they show continuing returns:

Your MES project needs to be considered as a continuum in your journey towards Industry 4.0.  Not only will you receive initial improvements—in areas such as production, quality, cycle time—but your overall visibility will improve, as insights into the behavior of your operations will become much clearer, thanks to the analytics and reporting that’s a critical component of most modern MES solutions. 

A MES, once properly configured and deployed, can provide alignment and direction, enterprise integration and coordination, and employee empowerment, due to its comprehensive footprint and functionality. An MES is your path to digital transformation.

Maryanne Steidinger
MaryanneSteidinger@criticalmanufacturing.com

Maryanne is an industrial software veteran with past executive roles in companies such as Rockwell, Camstar, Siemens, Wonderware and Schneider Electric. She is Head of Partner Management at Critical Manufacturing

No Comments

Sorry, the comment form is closed at this time.