MES ROI - Saving Money
November 10, 2014
In the article published last week, we viewed how MES justification is tied to the ROI considerations and how vital it is for the MES implementation project team to demonstrate to the top management how the MES may deliver value in terms of improved profits, reduced costs, reduced risks and improved performance qualitatively. We saw how an automobile plant can justify MES by showing it can help make more money and why it is important to portray improvements in terms of metrics easily understood by management and process owners and other stakeholders. Today, we will consider how the MES may help reduce costs incurred by a manufacturing plant and try to answer the second question from our previous article, which is, will it help us save money?
Right from the advent of industrialized and organized manufacturing process, cost and its reduction have been arguably the most important considerations a plant’s management has to make. Most of the management theories and process improvement techniques are based on the premise of cost reduction. Although these theories and practices may entail more than just reducing costs incurred by a production facility, their primary focus is directly derived from the old English saying- ‘A penny saved is a penny earned’. Lean, Six-Sigma and even TQM concentrates to a large extent on reducing costs by various techniques, ranging from use of techniques like SPC (Statistical Process Control) to implementing practices like Kan-Ban/Poka-Yoke. In terms of MES justification and its ROI, it is important for the MES project team to collect data from the process which testifies to the fact that the MES has actually made a difference to the overall costs incurred by the plant, be it operational costs, infrastructure costs, labor costs or material costs.
Let’s go back to our automobile plant example from the last article and try to fathom how our MES implementation project team will prove to the management that the MES may really be able to reduce the costs incurred by the plant, and that the application if and when deployed has the capability of providing sustainable cost savings, which will only improve in the future. As we had discussed in the previous article, the team has deployed a pilot project in one of the plants of this automobile company. Their objective for the current week’s project meeting is to demonstrate the cost advantage which is to be gained with the MES deployment, using data from the process for the last month, considering the data without MES as baseline. To begin with, the team collects data for the labor costs which may be saved when the MES is used. Let’s say when the MES is used to provide training and certification for the machining/welding/painting room operators, it eliminates the need for having 3 dedicated personnel for each shift whose primary task was to ensure that the operators for these operations are qualified and have been trained to perform the said operation. As the MES is fully equipped to check whether the operator is certified for an operation and is capable of providing training to operators, new or old to perform their tasks correctly, the number of personnel required for monitoring this activity may be reduced to one third.These savings in labor cost are tangible and can be used to make the ROI case for MES justification.
Next, the project management team may provide a study of how the MES has been able to reduce material costs for the plant. A simple data set maybe used to demonstrate this by showing the reduction in the number of welding strips used per joint made as compared to when the MES was not used to control the activity. The improvement may result from the ability of the application to provide clear instructions to the operator, by demonstrating to them the right way to perform the task through audio-visual aids. Also, by providing them the optimum amount of material needed to perform their job, or by simply monitoring consumption of material and then reporting to the supervisor, the material consumed by personnel vis-à-vis their production achieved in units. The data collected regarding the material being saved after the implementation of MES may also make a strong case where the ROI is concerned. Here aspects like reduction of process waste, better resource utilization, etc., may be presented in quantified form by the project team.
Since the MES applications communicate with the process equipment, they can be used to control the environment of the production plant. Our team in the automobile plant may actually be able to show how it allows savings in energy and utilities related costs. Say in a paint shop the MES application monitors the consumption of power during operation and provides the optimum level of energy supply to perform the operation. This metric might reflect that the previous practice was wasteful and there are chances of reducing the consumption of power by say 12%. Similarly, the project team may find that with the application of the MES even costs of consumables, which weren't even regarded as a major cost center may actually decrease considerably. The team may find that after the pilot project was rolled out, and since all instructions pertaining to the operations are now conveyed by the MES, the use of printing paper has reduced by 70%. Thismakes a good chunk of consumable cost considering the fact that reduction in use of paper also impacts the cost of other consumable items, ranging from printer cartridges to say stapler pins.
As modern MES applications are now generally web-based or even cloud-based, the project team may also demonstrate how the new MES pilot will help reduce IT infrastructure costs in a three pronged manner. First, the personnel costs by eliminating the need to have an internal IT team just for the plant. Then secondly, the IT physical infrastructure or hardware costs. And last, but not the least, the software costs, such as the one being incurred to keep a legacy system alive just for the assembly lines, which may no longer be required after rolling out the MES. It is important for the project team to note here that, whatever present or future IT cost reductions are shown, these should also be accompanied by the report clarifying that the reduction of cost does not cause any operational disruption or loss of current functionality for process personnel.Rather, it improves the status quo and provides long-term cost benefits with improved functionality. A simple example our team may provide is the elimination of desktop personal computers to shift operators in the quality inspection division, as they may access the MES and gain all the information they need to perform their jobs using tablets or smart phones. A figure of say, 40,000 dollars in saving may be presented in the management report, making a case for cost reduction in IT infrastructure.
Only when the MES can provide a 360 degree cost reduction, ranging from labor to material and from energy/utilities to IT infrastructure, it can be considered a truly beneficial application. Modern MES applications are fully equipped to reduce costs and optimize the process of a plant, depending on the strategic perspective of the organization. However, it is important that the team responsible for the implementing or even justifying the project, follows a fact based and realistic approach towards establishing its ROI from the cost reduction perspective. Having answered two of the four questions concerning the ROI, in our next two articles we will address the concerns over risk reduction and qualitative benefits which may be gained from applying the MES application.
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