MES ROI - Making Money
November 04, 2014
IT applications are completely transforming the economic landscape of the world. It’s the powerful combination of the world-wide-web (and derivative technologies), IT applications and smart devices/machinery which make the new era of business. Manufacturing in particular or Industry 4.0, as we know it, is a challenging arena filled with opportunities and pitfalls. The winners in Industry 4.0 have already realized that they need to stay ahead of the competition, which is now truly global in nature, by embracing the change and its speed. The way to stay ahead is to embrace the power that the modern IT applications wield in the way they connect the operations of companies, customers and suppliers. As well as, in the way they provide analysis and data which could never be compiled manually, and in the way they provide real-time information and decision support.
Manufacturing organizations have the most opportunities in Industry 4.0 as they have the largest scope to incorporate better IT applications as opposed to service sector, which has always been dependent on technology, especially IT! IT applications have been around in manufacturing since the last 50 years or so, but mostly at the automation or equipment level, with little contribution to process and operations management. Even when ERP was the buzzword in the 80’s and early 90’s, manufacturing operation management through software was still a distant reality for most industries. Now however, with the advent and unprecedented rise of modern, web-based, modular and highly functional MES applications, manufacturers have the chance to fully automate their plant’s management and link it to their value chain, by connecting them with their ERP and their SCM or CRM applications.
We had earlier shared a write-up about how can an MES application be justified as a valid investment and why it is absolutely imperative to link the benefits which may be gained by adopting an MES applications to both qualitative and quantitative strategic objectives of the organization. In the coming weeks we will explore in greater depth how the MES application can be justified based on it’s ROI, or Return on Investment.
MES applications at their very core, are applications which collect data from the production process and provide it in real-time to process owners. This allows the process owners to take necessary steps to ensure production process executes smoothly and in the prescribed manner. It also creates history of events which forms basis of improvement and interacts with the process participants to provide them training, guidance and ensure regulatory and compliance standards are maintained. But the real question/s when it comes to making a strategic decision to procure and deploy an MES application is quite simple:
1) Will the application help us make money? or
2) Will it help us save money? or
3) Will it help prevent future losses? or
4) Will it result in process or service delivery improvement or all four or maybe a combination of the four?
These four questions make the basis of any strategic initiative and MES application is no exception. The ROI from an application purchase and roll-out is also directly tied to these questions.
So let us answer these questions one by one and see if the MES application is able to answer these concerns that strategic decision makers will have when considering the adoption of the IT application. First question first, will the MES application help us make money? Generally, whenever the MES application and its rollout is considered by a project team, they begin by finding out the areas where there would be an immediate improvement when the MES is rolled out. They also work on areas where there is a long term improvement, in both qualitative and quantitative sense. The MES project team first looks at the entire plant operations and finds out the avenues where there are real pain-points both in-terms of process execution and the cost centers, which may be benefited by the MES. At this juncture the team starts to figure out the ROI of the application, if deployed, as they can clearly gauge what needs to be improved and in what terms. They also figure out how urgent the need to improve is, which helps them derive the timeline in which the application needs to deliver. The team then selects a few applications following a detailed selection procedure to come to a point where they can actually run a pilot and see whether tangible benefits may be attained by the application.
Now let’s consider the case where an MES project team, say of an automobile plant that has reached a stage where they can deploy a pilot MES for one of their production plants. Where the question of making money is concerned, the MES project team needs to consider a few factors about the status quo of operations as the baseline. Does the new MES application increase productivity? Simply put, does the new MES allow us to make more cars in the same operation time?
Next, they need to understand whether the new MES allows them to make cars faster and supply them to various dealers in lesser time than they currently do. Reduction in cycle time is a very important consideration, especially when not being able to fulfill an order on time may lead to loss of business.
Third and most important, they need to understand whether the new application can, in any way, improve the rollout of new models by providing input to R&D and design, and also whether these new models can be prototyped and introduced in the market faster. It is important to highlight here that if the MES allows for improvement in developing new models or modifying older ones faster, it may help expand the company’s market share by allowing them to offer better more diversified product portfolio, faster than their competitors.
Having understood the three main criteria from the money making perspective, it’s critical that our automobile plant’s MES implementation project team, actually shows decision makers that money is being made and can be made by using the MES. It’s important that the team collects actual process data pertaining to productivity improvements and presents the facts such as output of paint shop improved by 30% in last two weeks or down-time for maintenance reduced by 22% in last one week. It is also important to note that these improvements should be directly tied to the MES being able to provide the decision-rich information which allowed for these improvements to take place. Similarly, where order fulfillment and cycle time reduction is concerned, it is vital to show that the MES directly contributes to these objectives and the claims made should be supported by data.
A good practice in such a scenario in this case is to compare the production of a line with and without the MES, It becomes clear to decision makers when they are able to see that their plant is now able to ship cars out faster with the MES than without it. Next, where R&D and design is concerned, a case study for improvements being made in an existing model could help win the management over. What needs to be done is to show how data collected from the MES, say related to the performance of the engine or transmission, has actually helped the R&D team and designers make improvements in the car and the new improved model can now be rolled out faster with the improved features.
For justifying all three aspects of making money, the project team needs to carefully collect data from the MES application, then compare it with their baseline performance and show how the MES application provides improved productivity, reduced cycle time and new product development. The trick here is to collect short term data from the pilot and then analyze whether this data presents tangible and future benefits and whether these benefits will be sustainable in the long run, considering the current and future technological and economic landscape. It’s easier said than done, but unless the ROI can be truly justified, it would be difficult to garner enough management support to successfully rollout the MES application. Without management support, the MES application even if rolled out, may not be able to fully deliver on it’s objectives, as it might not be launched in full capacity or may not be received well by process owners and plant personnel.
Today, we have seen how important it is to consider overall ROI of an MES application before gaining the top management backing to procure it. We have also review the first aspect of making the ROI case, which is making money or being able to improve the overall throughput, cycle-time and new product development using the MES application. In the coming weeks we will explore the other three aspects of the ROI case, which are cost reduction, reduction in risks/losses and qualitative improvements, we will answer all the four questions asked above and highlight the best way to make the case for ROI, when justifying the MES application for your plant.
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DOWNLOAD NEW WHITE PAPER:
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by Iyno Advisors and Critical Manufacturing