In the last post of the OEE series, it’s about money and the question: How can the financial added value of an OEE software be determined?

 To do this, we use a well-known instrument from finance, the Return on Investment (ROI) calculation.

You can find more on the topic of OEE software providers and how to compare them here.

What is an ROI Calculation?

The Return on Investment (ROI) is a metric that measures the economic success of a project or activity. This involves comparing the capital returns - savings or additionally generated profit - to the necessary investment costs.

An ROI of over 100% means that the investment amount is recouped, i.e., the implementation of the project makes economic sense. The return corresponds to the percentage above 100%, an ROI of 115% thus generates a return of 15%.

ROI Calculation for OEE Software

The ROI of OEE software arises from the systematic uncovering and elimination of losses in the three areas:

• Availability

• Performance

• Quality

A reduction of losses in any of these areas leads to a reduction in costs or enables additional production through freed-up production capacity, thus resulting in additional profit.

The ROI is now calculated by comparing the savings from the three areas of availability, performance, and quality to the costs of the OEE software.

Since the ROI calculation is performed before the introduction of an OEE software, it is still based on assumptions. Therefore, the goal of an ROI calculation is not to calculate the savings down to the cent, but rather to demonstrate the potential. This allows for the possibility of running through various scenarios and their associated savings to enable a risk assessment for the investment in an OEE software.

First, let’s consider the calculation bases for costs or savings for the individual loss categories.

Costs of Availability Losses

During the time when the plant is idle, despite production being planned, no end product is produced. Thus, revenue is lost for the products that could have been produced during this time. This is referred to as the lost gross margin. Additionally, for this time, the personnel cost component of the machine hourly rate is incurred. Because the workers are still on the shop floor but not producing goods.

Additionally, the machine hourly rate would also apply, at least a reduced portion, since the machine often remains switched on despite a standstill, consuming energy and operating resources. To keep the calculation simple and to safely estimate the savings, we will not consider these savings.

Moreover, additional costs for extra shifts, overtime, and special allowances can arise if the production schedule needs to be adjusted at short notice due to a standstill. These costs will also not be considered in the further course. 

The same applies to the distinction between planned and unplanned downtimes. Planned downtimes are always preferable to unplanned downtimes because they incur lower costs. The reason for this is that planned downtimes can be scheduled so that the effects on upstream and downstream process steps are minimal, and no new startup occurs.

All in all, the costs calculated here for a standstill are lower than the actual costs, so an estimation on the safe side is thus ensured. 

Costs for Performance Losses

There is often the least transparency regarding performance losses, so the potentials are significantly underestimated here. The reason is the high effort required to capture these deviations. 

With manual data management, recognizing performance fluctuations is only possible with significant effort. Because the manufacturing speed must be constantly monitored and additionally grouped by a product identifier. 

At ENLYZE, this runs automatically in the background. Performance fluctuations across different orders of the same product are then displayed as follows:

The performance fluctuations become directly apparent. The causes of the fluctuations are attributed to different machine settings. The optimization potential now lies in reducing the variations in production speeds and consistently manufacturing at the higher, previously achieved speeds.

In the present case, the product was produced in the past at a maximum speed of 318kg/h. However, a large proportion of the orders are produced at a throughput of less than 300kg/h. With a small safety margin, it can be assumed that the product can be produced without issues at 315 kg/h. This, in turn, means an average performance increase of 15kg/h or 5% for this product.

This increase of 5% also corresponds to the expected optimization value that we can see across the product portfolio of all our customers. Below, you can see the performance fluctuations across the product portfolio of all our customers:

A total of 1,328 different products from 12,413 manufacturing orders were analyzed.

Performance fluctuations average at 8.9% for the same product on the same machine. For a safe estimate, when introducing ENLYZE, we assume a performance increase of 5%.

These performance increases lead to a more efficient utilization of the available capacities. 

Now either the same quantity can be produced over a shorter period, saving time and costs. Or the gained time is used to produce more goods, thereby increasing the total produced quantity.

Savings in the area of performance increases thus enable the following two scenarios:

1. Minimizing costs

2. Maximizing output

Let’s take a closer look at these two scenarios now.

Minimizing Costs

Performance increases result in a more efficient use of available capacities. The same production quantity can be produced in a shorter time - thus saving expensive production time. The savings are thus based on the saved machine hourly rate for the saved production time:

Increasing Output

If the freed-up capacity is used to produce more goods, additional gross margin is generated with the additional quantity produced:

Cost of Reject Production

Rejection is often the most expensive type of loss. When rejects occur, most value-adding process steps have already been taken, and machine capacities and raw materials have been used without producing a marketable end product.

The costs for rejection production thus amount to the lost gross margin for the rejected quantity, the raw material costs for the produced rejects, as well as the machine hourly rate for the time needed to produce the rejects.

The costs for rejection production are calculated as follows:

Rejects can also incur further costs like disposal costs, recycling costs, etc. These costs will also not be considered in our ROI calculation, to keep the ROI calculation simple and to ensure a safe assessment. 

The ROI Calculation

For the ROI calculation, the following information from the manufacturing process is now required (in black-highlighted boxes):

Based on this information, necessary key figures like gross margin, gross margin percentage, machine hourly rate, etc., and ultimately the costs are determined based on the above-mentioned calculation methods. 

The savings for different scenarios can now be calculated with just a few clicks. For this, for the different scenarios:

• The expected reduction of downtimes in hours

• The increase in performance in %

• The savings from existing rejects in %

must be specified.

Good reference values for an expected scenario have proven to be the following numbers:

• Reduction of downtimes by 3 hours per month per plant when operating 24/7

• Increase in performance by 5%

• Savings from existing rejects by 2%

The reference values are estimated on the safe side. The values are based on data we have gathered across our entire customer portfolio.

With our Excel template, you can quickly calculate the OEE with just a few inputs and thus uncover the potential of your manufacturing process. Request it for free and without obligation now!

What Enables the Savings?

Reduction of Downtimes

The reduction of downtimes occurs through increased transparency and uncovering and preventing the causes. Additionally, continuous monitoring allows for reduced reaction time to downtimes and thus reduces the downtime itself. 

Increase in Performance

The main driver for increasing performance lies in optimizing process parameters using the Co-Pilot feature. The Co-Pilot is a digital setting data sheet that suggests the ideal settings of the plant for each product to the operator. The settings are based on manufacturing history. Deviations from the target are directly recognized through a live comparison with the current values of the plant and reported to the operators. This way, each product can always be manufactured optimally.

Reduction of Rejects

Due to the use of the Co-Pilot, products are manufactured reproducibly and stably, leading to less rejection. Additionally, unplanned downtime due to unstable processes or process defects decreases. This reduces start-up rejects that occur with each new start after a downtime.

The data foundation also enables a systematic analysis of the causes of rejection, which allows for targeted implementation of countermeasures.

Challenges in ROI Calculation for OEE Software

As described in the introduction, the major problem is that before the introduction of an OEE system, the ROI calculation can only be performed based on assumptions. Thus, only individual scenarios can be played out, while real achievable savings only result after implementation. 

Additionally, the introduction of OEE software is often associated with high investments and long implementation cycles. Particularly, the costs for the infrastructure, just to initially make the data accessible, can be expensive.

How Can These Challenges Be Tackled?

The ENLYZE solution is offered as a monthly cancellable subscription model or Software-as-a-Service (SaaS) model. This subscription model reduces the initial hurdles and significantly lowers the financial risk.

Instead of high investment costs, only a monthly fee is incurred. Thus, the system can be tested without substantial risk. If the expected successes do not materialize, the subscription can be canceled monthly.

Another challenge in digitizing the shop floor lies in bringing in the internal resources for implementing the system. Especially the IT department is often highly stressed. To keep the hurdles as low as possible in this area, we have been working since the beginning on an integration of the system into the existing IT infrastructure that is as simple as possible. 

The effort for IT typically lies under one person-day. The integration is carried out by ENLYZE during an on-site appointment, and the system is then ready for immediate use. One of our latest customers said:

"[We have] never experienced such a fast and smooth implementation of a digital solution. ENLYZE came to us and was able to connect directly to our controls without issues. Within a few days, a functioning solution was in place."
- Mathias Striese | CO.DON

Read the whole story on our blog.

With ENLYZE, long and expensive digitization projects are a thing of the past. Digitization can thus be tested in practical operations with low costs and effort. This allows for the real savings to be evaluated quickly. If the hoped-for successes do not materialize, the subscription can simply be canceled monthly.