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MES: ROI Calculation Supports Investment Decision

When does the investment in a Manufacturing Execution System (MES) pay for itself? Manufacturing companies can find the answer to this question by calculating the return on investment (ROI). The result shows that the investment is sustainable and not a simple cost item. However, before any expenditure is made, it makes sense to analyse the potential. Not only does it identify where costs can be saved and revenue increased, but it also analyses the Overall Equipment Effectiveness (OEE) for a holistic view of productivity – a decisive factor for calculating the ROI.

The ROI, i.e. the return on investment, shows whether an investment is profitable. In practice, this can look like this: before a production company buys a new system, it determines what optimisations are involved. The purchase can improve the quality of the products and thus minimise complaints. It is also possible that the new system will produce more parts in less time. Improvements in production generally lead to an increase in profits for the company.

There are different methods of calculating the ROI. However, the company’s profit is often set in relation to the total capital invested. This means:

ROI = profit / total capital x 100

If the result is 100 percent, the investment is covered. Total capital is the sum of equity and borrowed capital. Profit is made up of sales minus costs and taxes. It is also possible to multiply the profit margin by the capital turnover according to the Du Pont scheme:

ROI = profit margin x capital turnover

In practice, the ROI calculation can be quite extensive, as a large number of costs associated with the investment are taken into account. This means that in addition to the price of a new system, there are also fees for administration, taxes, transport, installation and maintenance.

After a certain period of time, the investment pays for itself and is therefore profitable: the costs for the purchase of the new system are ultimately covered by the additional profit generated by the optimisations in production. This state can be reached at different speeds.

Use of OEE Quickly Becomes an Indispensable Value and Control Instrument

Various factors can be taken into account when calculating the ROI. One of these is Overall Equipment Effectiveness (OEE). This is a key figure for evaluating the productivity of a machine, system or line. This allows all equipment losses, i.e. potential, to be systematically identified, analysed and subsequently eliminated. However, many manufacturing companies do not yet measure productivity systematically. The number of units produced in relation to the time required often serves as an indirect indicator of productivity.

Producing according to gut feeling is not an exact method, as this is at best suitable for comparison: if it works as usual, it works well, otherwise not so well. In reality, however, only what is measurable can be permanently improved.

Marc Ehls, Team Manager Consulting at FASTEC

The OEE value results from the product of availability, performance and quality level. When calculating the OEE value, losses due to unplanned downtimes, deviations from the planned number of units and defective parts and parts that need to be reworked are included:

OEE = Availability Level x Performance Level x Quality Level
Various aspects are taken into account in the OEE calculation

OEE is therefore a kind of speedometer for production management. Behind these figures are facts – collected information about all processes and faults that are stored in a database. It becomes clear where optimisation is necessary and reasonable. And the success – or failure – of implemented measures can be seen immediately. OEE makes it possible to analyse the potential of production. As a control instrument, it can be used to monitor individual machines, complex systems or the entire factory in real-time.

The OEE key figure offers great benefits for manufacturing companies from various industries. By uncovering the sources of errors, malfunctions can be avoided, which leads to higher productivity, while operating costs remain the same. The maths is quickly done.

Edwin Schott, Project Manager for the Potential Analysis with easyOEE at FASTEC

If OEE is included in the ROI calculation, this offers a decisive advantage: OEE reflects the productivity of a machine in its entirety and therefore also shows the losses, i.e. the potential, in full. If, for instance, companies were to use only the availability of a machine as a basis, other important factors would be ignored.

easyOEE Enables a Quick and Cost-Effective Start to Digital Manufacturing

FASTEC has developed the easyOEE productivity measuring device to analyse potential and determine the OEE value with minimal effort. It uses digital signals to record machine data on the performance, availability and quality of a system and calculates the OEE value.

The configuration is based on the production master data. At the start of production, the staff register a production order on the device. easyOEE then automatically records quantities and production times. As soon as there is a downtime, employees select the reason for the malfunction from a preconfigured list and can refine it using user texts. The recorded data is conveniently available in live dashboards and various reports. The project is scheduled to run for a period of three months.

Timeline for Analysing Potential with easyOEE

By using easyOEE, companies realise the potential for their production before having to make a large investment. It is a cost-effective introduction to the world of OEE. The fact that companies can lease easyOEE means that the ROI is achieved quickly.

Edwin Schott,
Project Manager for the Potential Analysis with easyOEE at FASTEC

Using the Results of the Potential Analysis is Key

However, recognising the potential of a production alone is not enough. In the further course of the process, the way it is handled is crucial. CIP is the keyword here: continuous improvement process. The greatest challenge is to maintain continuity. Once a company has ultimately decided to introduce an MES, educating production staff about its purpose and benefits is another prerequisite. Training ensures that the required data is recorded correctly.

 

Trained lean managers who use the MES on a daily basis as part of the CIP make a significant contribution to the success of the project. They are responsible for analysing the key figures, deriving measures from them and ensuring successful implementation in order to achieve lasting improvements. OEE recording therefore provides a suitable basis for a Lean team or the Operational Excellence (OPEX) department.

Experience has shown that the introduction of lean production in connection with an MES brings a high ROI after a short time, as analysing the data from the MES effectively reveals weak points and allows targeted measures for process improvement to be introduced. The more and the better the data from the MES, the more effectively weak points can be analysed.

Daniel Kierstein, FASTEC partner for OPEX Consulting

OPEX consulting supports companies in realising efficiency increases in production on the basis of data. Through training and project support, companies can recognise and leverage potential. The range of services includes identifying and implementing optimisations, embedding key performance indicators in meeting routines (shop floor management), setting up meeting routines, increasing acceptance among internal stakeholders and setting up interactive analysis dashboards using Power BI.

Expertise and Tools for Data Basis are Necessary

Practical examples show: If companies succeed in identifying the potential of their production and implementing optimisations, they can increase their productivity and minimise costs. For example, the pharmaceutical company Sartorius saved 300,000 euros in one year by reducing its waste. Medice, a manufacturer of pharmaceuticals and medical devices, was able to achieve an OEE increase of 20 per cent within 12 months.


The results of the potential analysis and the ROI calculation based on it therefore justify the investment in an MES. The better the results of the potential analysis are implemented, the faster the ROI is achieved. This requires expertise and a tool for the data basis.

Author: Alexandra Hain

PR & Content Specialist
Experience in B2B communication and target group-specific copywriting in print and online since 2019.

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