Many manufacturers are finding that money is tight. No surprise, right? Especially during the times we’re currently working through.
When it comes to investing in a business, is spending up to six figures on an MES solution a wise move these days? What’s the payback period on one? How do you even know what you’ll be getting?
This article tackles the ways to determine the true value of an MES and if there’s a way to measure ROI when it comes to an MES solution.
3 “Musts” When Investing in Manufacturing
Before we explore an MES solution specifically, we need to cover how most manufacturers perceive an investment’s value, which usually influences their willingness to pull the trigger on one.
All companies must be selective. There are far more ways to invest in manufacturing than any one company can afford. Here are three criteria many use to scrutinize an investment, plus how an MES solution instantly becomes a compelling argument.
1. High Return — Dollars are precious, especially during tough times. A true “return on investment” is a must, plain and simple.
With its numerous functions and benefits, an MES is incredibly affordable when compared to other manufacturing investments (large infrastructure investments, ERP systems, etc.). That means a high return on your investment.
2. Quick Payback — A common financial measure is how quickly an investment gets its money back. Anything less than one year is considered an outstanding rate of return.
The benefits of an MES become visible between 30-60 days from implementation. An MES crushes the industry “gold standard” payback metric of one year or less.
3. Measurability — An investment that’s soft or subjective is hard to sell versus something that can clearly be measured. This form of lower-risk investing forces the selection to be tangibly measured.
This is how an MES really shines. Everything is documented and measured — an MES quantifies every second of every minute — so smart decisions can be made moving forward. Let’s get into that a little deeper.
3 Key Quantitative Measurements
1. Create Extra Capacity — Studying your operations can create capacity, which is typically measured in three steps: 1) quantifying your current value add ratio, 2) projecting your target value add ratio and 3) measuring the difference between current and target is used to quantify your benefits.
Once a benefit is realized, a manufacturer can choose to either a) save money by reducing labor costs; produce the same units with less labor, or b) produce more; same labor to produce more units.
Here’s an example. A company’s poor performance sparks an audit, either an MES trial (see below) or stopwatch/video time study. An unacceptable 35% value add ratio is discovered. Considering what MES analytics can do, a new target is set: 65%. That’s like a workforce producing “30% more time for free.”
That company now decides to “realize” that benefit by either producing the same volume while reducing workforce labor costs/hours by 30% or keeping labor costs steady and producing 30% more volume. Just multiply the added volume times a marginal gross profit per unit to measure the benefit.
2. Improve Quality — Quality improvements can be quantified by studying three things: 1) how much time is spent dealing with quality issues and/or 2) how much scrap is wasted and/or 3) how much warranty claims are experienced. An MES ensures the creation of a repeatable process, elevating quality to new heights.
3. Reduce Inventory — Using an MES, reliable planning and scheduling is easy, providing confidence in how much on-hand material inventory is needed. There’s no longer a need to have a large, unnecessary “cushion” of inventory.
To quantify the benefit, look at the average inventory currently carried. The right MES solution helps quantify how much less inventory is needed in the future. Then apply a typical “carrying cost” ratio (typically 10-15%) to that delta to make it quantifiable. Reducing materials inventory can save a manufacturer hundreds of thousands of dollars each year.
There are some additional, more difficult-to-measure benefits of using an MES solution:
- Employee enhancement and safety. Onboarding new people is faster and easier using an MES. Happier, more productive employees result in less turnover and enhanced morale.
- Producing more units has supply chain implications. If customers or business partners aren’t getting what they want, it sends ripples throughout the chain.
- Compliance to rules and regulations is also much easier to manage.
While guaranteeing a specific ROI isn’t feasible (manufacturers are too diverse to drive numbers or make blanket statements), it’s clear to see how an MES stacks up against other possible point solutions; tooling, for instance. Which has the better chance of covering the three investment “musts:” high return, quick payback, measurability?
Knowing the full value of an MES solution may be impossible. What is possible is seeing that, even during tough times, an MES makes the cut as a worthy investment for manufacturers.
Ready to improve your manufacturing even more? Our guide, A Smoother Road to Manufacturing Success, covers five common pain points of ineffective manufacturing and shows how an MES could be the solution to solve them all. Get your copy by clicking on the image below.