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Recently, Drishti hosted a webinar on rethinking ROI in manufacturing. Steve Shepley, principal at Deloitte Consulting, and Brian Masse, strategy and operations manager at Deloitte, joined Prasad Akella, our founder and chairman, in the discussion. In the first part of the conversation, the team defined how many manufacturers have traditionally held an inflexible view of investment, especially as it relates to capturing value in new technology solutions. Here’s a recap of that section of the discussion; for the full conversation, watch the webinar recording.
The current equation
The panel started by addressing the basic assumption that manufacturers really prioritize two operational goals — increasing quality and productivity — and from those, we can see the story of ROI start to unfold. Key performance indicators (KPIs) measure one or both, so investment value is derived as a relationship between dollars spent to a simple metric.
Because of this way of thinking, the primary path to improvement after a certain amount of growth has been achieved defaults toward automating tasks and calculating the number of people replaced. This calculation includes asset value as well as the number of people it removes from the shop floor. This is a very straightforward and simple CapEx calculation that makes sense given a very narrow view of ROI. But this way of thinking is also very limited in Industry 4.0 and beyond.
The second option
There is a second path to improvement that may be far more effective, but perhaps less straightforward. In this path, we would use new technology to gain insights in order to let people make better decisions right at the site of the job and beyond. This is an “augmentation” model as opposed to the earlier replacement model. The old view of ROI will fail when attempting to capture the value of an augmentation model. In fact, when viewing new technologies in the old simple methodology of ROI, value is often overlooked if it doesn’t remove labor from the floor. But what about making existing labor significantly more productive? Or reducing the amount of scrap and rework that needs to be done on a weekly basis? This is when investment value becomes complex and spreads through entire systems, making it more challenging to capture, even though the effects are much greater.
Where the first ROI view fails
There are a plethora of new technologies available to help augment humans. Let’s look at those technologies through the lens of the two ROI models:
Steve suggested that the first model fails because of the narrow scope of investment decisions. These improvements are still being viewed and calculated as point solutions. Businesses tend to look at the solution as a singular point and take the value from it in a simple equation — one technician will be able to assemble x more parts per minute which will equal y dollars. This is especially true if the investment calculation is simply derived from removing the workers themselves.
In order to truly capture the value of these new investments, we need to attempt to widen our focus and understand the network effects of all the solutions together. In our example, we said that the technician would be able to assemble more parts per minute with a solution, but what if the solution made the whole system better? The latter is harder to calculate.
Many of the impressive technologies offered today, including Drishti, have the ability to control many of the variables in the manufacturing facility at the shop floor level and allow for the right information to be delivered to an individual, in real-time, at all levels of the business. That’s where the value is, not just being able to do more parts per minute.
Manufacturers need to take this deeper view of their investments; otherwise, an advanced technology could be viewed as little more than spending millions for a better report. It doesn’t make sense to do that.
Brian mentioned that there are many places where the old replacement ROI model also fails us, for example, that replacing people makes many assumptions, leaving a lot of value uncaptured. This model assumes that everyone does their job to the same level of expertise and is equally productive — which simply isn’t true. Turnover in manufacturing is high and no matter how standardized the work or how effective a training program, a lot of knowledge is lost when turnover occurs. Traditional ROI models completely miss that value.
The second thing that the old model doesn’t capture is the amount of value lost from the leadership of a manual task-intensive manufacturing facility. There is a lot of time lost and guessing as to what the right thing to do next is even under the best of circumstances and the best point solutions in place.
Solutions like the ones offered by Drishti also enable the proper flow of information between operations and engineering and design activities, giving justification for design changes or validating processes. Capturing the value of this information flow doesn’t translate to a straightforward point solution as in the old replacement model.
Flexibility, the third factor
Steve and Prasad agreed with Brian’s additional ideas about value capture and Steve articulated a lot of what is wrong with the old model by bringing up flexibility. The old replacement model yields repeatability and an easy equation to calculate, but sacrifices flexibility.
Humans are the most adaptable resource we have. Adaptability is an increasingly important factor (maybe even more so than efficiency) in business, but it is rarely. considered in the apparent cost of a new solution.
According to Prasad, this adaptability is especially important now, in times where all of our assumptions have been shaken in terms of long-term outlooks and rigid supply chains and the like. Flexibility and adaptability have real lasting value and can make the difference in the success and survivability of a business.
Even though there is more value in systematic solutions (rather than point solutions), and increasing adaptability of the workforce is a key factor of success, the investment metric is harder to conceptualize in the old ROI models. This needs to change, otherwise we run the risk of not capturing true value and overlooking potentially more valuable investment opportunities.
In the next recap, we’ll tackle how we begin to capture and think about the value that is missing from the old model. If you don’t feel like waiting go ahead and watch the full webinar here.
