Nulogy Smart Factory ROI Calculator

Every business wants a return on investment, and an investment in manufacturing analytics is no different.

But, success with manufacturing analytics doesn’t look the same for everyone. If you were to ask ten of our clients what they were originally looking to accomplish with Smart Factory, you might receive ten different answers.

In some companies, the focus is cost reduction while for others, it’s increased revenue. It’s easy to assume that machine availability will contribute to increased revenue, but maybe it’s scrap, or maybe it’s throughput. Machine data analytics can help you get to the bottom of it..

What we find is that our customers use our solution to drive all sorts of different outcomes – just because we have a customer that was able to increase their throughput by 30% doesn’t mean that every customer achieves that outcome, or is even focused on that metric. It’s all relative.

You may find yourself asking, “What is the ROI for my company, specifically?”

If you know manufacturing analytics is the solution for the problems you’re facing on the floor, and you know it will prove to be successful for continuously improving, how do you prove ROI?

Below, we will look at each component in detail and determine how to calculate ROI in your factory. With formulas and examples, you’ll have that answer in no time.

ROI calculations can get very complex when trying to model exactly what happens in the business. As you go through the ROI calculator, remember that the formulas and examples serve as guidelines and are not conclusive.

Reduce downtime, increase utilization, increase availability; these are the most common, and easiest, places to look for cost savings, but there are additional components that manufacturers tend to overlook. There are five different areas included in the ROI calculator where companies can see cost savings or increases in production which can allow for increased sales:

• Soft Costs
• Downtime & Availability and Utilization
• Changeover Time
• Throughput or Performance
• Quality

Determining how to improve one or more of the parts above contributes to the ROI and overall justification for implementing manufacturing analytics. The formula for this is very simple to calculate. Before we jump into the ROI calculator, you need to understand and think about three things:

• Increased flexibility – What I can run, when, and where?
• Increased throughput – If I can sell everything I make, can I increase revenue?
• Cost savings – How can I produce a part in less time and with fewer resources? This can mean not wasting direct and indirect labor, resources, and costs. For example, paying for utilities, maintenance, etc. when machines are not running.

Those three questions help you evaluate your particular situation. While calculations vary from manufacturer to manufacturer, knowing in the back of your mind the answers to the questions above will help to frame the issues your facing and concentrate on the ones that will be most relevant and deliver the highest ROI. For the sake of the examples given throughout the page, let’s assume:

• Machines/lines/Cells using Smart Factory: 10
• Software Cost: $10,000
• ROI Formula: (Gains – Costs)/Costs = ROI
  • Cost in this formula is the cost of Nulogy Smart Factory

Soft costs are things like labor required to collect and process the data from the plant.

For example, if the operators write down production totals and downtime on a whiteboard each hour, then a supervisor collects that data on a clipboard and gives the clipboard data to someone in the office who then compiles that data into an Excel spreadsheet, and emails the spreadsheet to the team.

How much time does that take for each one of these people each day or week? What is the effective hourly rate for each person including benefits?

It’s likely time consuming and costly. There’s ROI just in automating data collection because employees are now given the opportunity to focus on their specific role, not transport data throughout the plant. Any minor improvement you make on top of that is just an added bonus. Even for people that aren’t collecting data, hiring a specific person to do what Smart Factory does is costly. Either way, data is needed. It’s how you collect data that will deliver a positive ROI.

We’re leading the ROI calculator with soft costs because frankly, they are a constant for every manufacturer. These costs are also a surprisingly important pain point for many companies; they feel very frustrated by their inability to focus on solving issues because of how long they feel they have to spend getting the data in the first place.

Soft Costs ROI Formula: (Gains – Costs)/Costs = ROI

Assumptions:

• Operator
  • Hourly Rate: $15.00
  • Time Spent Reporting per Day: 30 mins
• Supervisor:
  • Hourly Rate: $25.00
  • Time Spent Collecting Data per Day: 1 hour
• Office Staff
  • Hourly Rate: $25.00
  • Time Spent Summarizing and Distributing Data per Day: 3 hours
• Daily Software Cost:
  • $15,000 / (52 weeks * 5 Days per week) = $57.69

Soft Costs ROI Calculation:

85% return on investment might seem low in this example, but that is only for one shift. If you had two or three shifts, your savings increases by two to three times while costs remain the same.

When you combine cost-savings with all the other gains outlined below, it makes for a very compelling ROI. Consider soft costs a baseline you can add additional savings on top of.

Reducing downtime and increasing availability and utilization are relatively the same, but companies often think about them differently.

For example, machine shops are interested in utilization. If they can increase utilization, they increase direct labor absorption, paying employees to add value by making parts, which lowers their costs. It also gives them more flexibility about what they can run, when, and where.

A quick note before we move on to the calculation:

Many software companies talk about reducing downtime by 10%, but there’s 1 major problem with looking at it that way. Most companies without systems like Nulogy Smart Factory have no idea how much downtime they really have. If you don’t have a baseline value of downtime, how do you know what reducing machine downtime by 10% would really look like?

This is why, in this case, manufacturing analytics is important to gauge increases in performance. (And, why proving ROI is simple.)

Our take is to look at it in two ways:

1. You can start day 1 with manufacturing analytics by setting up alerts or getting visibility into when a machine goes down. Both allow you to reduce your response time, effectively reducing downtime.

2. The other is looking at how much downtime would need to be eliminated per machine per day. For example, after looking at the contextualized data, you realize you spend 30 minutes per day waiting for the glue to get to temperature, and making that process faster has saved a ton of money.

Both reduce downtime and are much more real and concrete, than trying to reduce downtime without any tracking system in place.

Here is how to use the ROI calculator to determine downtime ROI:

Downtime ROI Formula: (Gains – Costs)/Costs = ROI

Gains calculations:

• Minutes Saved per Day per Machine:
  • How many minutes of downtime can you eliminate per machine?
  • This is an input to the formula.
• Hours Saved per Day:
  • (Minutes Saved/Machine/Day * Number of Machines)/60
• Daily Savings:
  • Hourly Cost * Hours Saved Per Day

Putting it all together: (Daily Savings – Daily Software Cost)/Daily Software Cost = ROI

Assumptions:

• Scheduled Days per Week: 5
• Shifts per Day: 1
• Hours per Shift: 8
• Hourly Production Cost: $75
  • Include labor and Overhead
• 10 Machines
• Yearly Software Cost: $15,000
• Daily Software Cost:
  • $15,000 / (52 weeks * 5 Days per week) = $57.69

Downtime ROI Calculation:

Example 1: Let’s calculate the ROI when we eliminate 7 minutes of downtime per machine.

(7 * 10)/60 = 1.6667 Hours saved per day
$75*1.6667 = $125.00 saved per day
($125 – $57.69)/$57.69 = 116.67% ROI

Example 2: Let’s calculate ROI when we eliminate 12 minutes of downtime per machine.

(12 * 10)/60 = 2 Hours saved per day
$75*2 = $150.00 saved per day
($150 – $57.69)/$57.69 = 160.00% ROI

Reducing changeover time is very similar to reducing downtime because changeover time is a type of downtime. The formulas are the same, but the one difference is the input in the number of minutes on average you can reduce your changeover times.

Changeover Time ROI Formula: (Gains – Costs)/Costs = ROI

For example, if you can reduce changeovers from 45 minutes to 27, the formula would look like this.

Reduce Changeover Time ROI Calculation:

((45 – 27) * 10)/60 = 3 Hours saved per day
$75*3 = $225.00 saved per day
($225 – $57.69)/$57.69 = 290% ROI

This ROI calculator looks at what the cost savings would be if you could produce X number of parts more per day or per hour. The idea is that you’re producing more while also absorbing more of your fixed costs so each part costs a little less.

Increase Throughput or Performance ROI Formula: (Gains – Costs)/Costs = ROI

Assumptions:

• Cost to Run a Machine with Labor and Overhead: $80 per hour
• Typical Parts Produced per Hour: 2
• Software Cost per Day per Machine: $5.76

Increase Throughput or Performance ROI Calculation:

Labor and overhead cost per part: $80 / 2 = $40 If we increase the number of parts per hour to 2.5: $80 / 2.5 = $32 That is a savings of $12 per hour or $96 per day per machine.

($96 – $5.76)/$5.76 = 1,567% ROI

Quality improvements are typically easy to calculate. If you can reduce scrap by one or two parts a shift, what would that cost?

In the example below, we use the cost of the part at the time it finished on a certain operation. If you’re making a part that takes 3 steps to complete, the cost of scrap at step 1 is less than the cost of scrap at step 3. If you can catch scrap earlier in the process, it will reduce your costs.

Quality Improvements ROI Formula: (Gains – Costs)/Costs = ROI

Assumptions:

• Cost of the Part at the End of an Operation: $21
• Reduction in Scrap: 11 parts per day

Quality Improvements ROI Calculation:

Savings: 11 * $21 = $231
($231 – $57.69)/$57.69 = 300% ROI