How to calculate ROI from your industry 4.0 investments
Calculating the gains from your industry 4.0 roadmap is a pain in the ass.
We studied 21 plans and found seven had no clear goals and 11 had miscalculated gains. This is a key issue because a robust plan for measuring success sets you up for… well, success. Meanwhile, a bad plan (or no plan at all) puts you at a critical disadvantage. So to get you started, I’ve put together a few principles to guide you in creating a realistic and effective measurement plan for your industry 4.0 implementation.
First principle: Start with a vision and metrics, not projects.
A good 4.0 plan should start with an understandable and clear vision which is tailored to the specific industrial sector. For example, one of our client factories, specialized in chocolate, chose to A) augment production by 20% while increasing costs only by 5% over the next three years, and B) diminish production time by 25%. We recommend starting with operational metrics and not purely financial ones, because industry 4.0 is operational and should be treated as such, with clear operational goals.
Second principle: Calculate global Return on Investment (ROI) from industry 4.0 by site
Typically, industry 4.0 plans consist of user-facing, gain-inducing projects (think hardware to calculate machines usage), but also of infrastructure projects (like the database that captures the hardware’s signal in order to calculate usage of machines). Our most mature clients profited from site-wide global ROIs, as opposed to calculating them globally or by project. The risk in not calculating site-wide ROIs are A) under-investing in technical infrastructure, B) having an infrastructure sold by vendors along with the Industry 4.0 features, and paying repeatedly for it and/or having it badly done, C) having bad fit between a given site's solutions and overall plan if the plan is done "too globally."
Third principle: Manage a portfolio of possibilities, "must-haves," and a gift card fund
From our experience, the most successful plans have three tiers. The first tier includes "must-haves," i.e. the structuring projects that need to be company-wide, the second tier comprises "on demand," a catalog of use cases available to a factory (with competing solutions prohibited), and a "gift card" fund which is managed directly by each site, which gives sites the freedom to experiment with solutions.
Fourth principle: prioritize speed and scale before perfection
Ask any of your colleagues what they think of the two-year, V-cycle deployment types of software. You'll get funny responses. To successfully manage at-scale transformation by industry 4.0 and not get stuck in proof-of-concept hell, prioritize the scaling of solutions over implementing new ones. A manufacturer from the OSS community put a simple rule in place: Only three projects at any given time are allowed, and only start a new project if one is killed or deployed in more than 80% of addressable perimeter.
Implementing industry 4.0 technologies can lead to significant gains, but if no one knows they happened, did they really happen? Happily, if you follow these principles, you’ll never have to answer that question.
Interested to talk more about industry 4.0? Contact us!
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