Due to current COVID-19 pandemic and digital technology innovations, all businesses are moving towards digitization. Thereby, Every day you are bombarded with a lot of information on Industry 4.0 concepts such as IIoT, Big Data, Analytics, Augmented Reality or Cyber security. But your is still struggling to start a project or stuck in planning and implementation phase. As Industry 4.0 and Digital Transformation has become so popular, from one freelancer to companies with millions of workforce are pitching their platforms and solutions to you. So definitely it is going to be a tough task for your team to choose one partner out of thousands of solution providers.
Also, another big challenge for your team is calculating Return on Investment(ROI) and payback period of these projects because without these numbers, you will not be able to request for any budgets from your management for implementation.
After working for more than 10 years with manufacturing plant teams and implementing various MES and Industry 4.0 projects in more than 50+ factories, I would like to share with you key points to focus on while selecting factory digitization projects.
First, Understand what exactly is Industry 4.0 ?
Industry 4.0 is basically about having interconnected machines or systems whose real-time and historical performance data is accessible from any location in the world and this information is presented in such a way that humans, even with an average IQ can understand and take quick actions to reduce downtime and improve efficiency of the plant. Now with Artificial Intelligence and Machine learning models, most of these actions can be taken by systems itself based on past events captured by these systems. So with transparency and historical database storage, you basically make a knowledge-base like google specifically for your factory.
Prepare a business case for Industry 4.0 project
As there are thousands of solution provider in this space, many factories are doing POCs either paid or unpaid based on the solution provider. But without a problem statement, all these POCs go in vein. Most of these projects are done as a fancy project just for presenting to the top management that factory is ready with Industry 4.0. But when they actually go into a meeting with top management and when they discuss ROI, these projects fail miserably. So picking a right problem statement and benefits should be thought prior to these POCs because POCs will consume time of your team as well as your solution providers. And, Everyone knows time is money.
Choosing a right Industry 4.0 project to start with
With currently available technologies in the market almost everything is possible, it’s only up to us to have an intent to execute it. As digitization projects provide transparency and lots of data to analyze, you should first see which are the areas of your operations you have minimum visibility but are very critical for your plants. Also, which operations are consuming more time of your employees, and these are mundane repetitive jobs. For example, your maintenance team spends time in printing, writing and maintaining paper based records of maintenance operations of machines and have hourly meetings just for having better collaboration and task allotment. What if you digitize all these operations and connect this system directly to machine controllers for real-time feedback. In this business case, you can save thousands of paper work, storage space of these papers and man-hours of maintenance team in retrieving and maintaining these records. So pick a right project for your plant and calculate cost reductions and additional revenue generation with such projects.
Now present this problem statement to solution provider and get a cost for implementing a system for solving this problem. With the project cost information provided by solution provider, you can immediately calculate ROI for this business case and take a decision whether to move forward with this project or not.
ROI of Project = ( Financial Gain or Loss – Cost of Project) * 100 / Cost of Project
Payback Period (in days) = Cost of Project / Financial Gain per Day
Example: ROI and Payback period calculation
Let’s say, by implementing Industry 4.0 project your machine uptime increased by 10 minutes per shift and your machine cycle time is 15 bottles per minute. Per bottle profit is $0.10 and project fixed cost is $10000 and maintenance cost is $2000 per year for digitization system then your ROI for the first year would be
Financial Gain or Loss in first year = (10 minutes * 3 shifts * 30days * 12months * $0.10/bottle) * 15 bottles/minute = $16200
Project Cost for first year = $10000 + $2000 (maintenance) = $12000
ROI for first year = (16200 – 12000)*100 /12000 = 35%
In two years, ROI of this project will be = (32400 – 14000) * 100 / 14000 = 131%
You can also calculate payback period in days = (Project Cost / Gain per day) = $12000 / (10minutes * 3 shifts * $0.10/bottle * 15 bottles/minute) = $12000 / $45 = 267 Days (Approximately). So in 9 months, you will recover your project cost and start generating additional profit.
This is how you should present a business case with ROI and payback period numbers for Industry 4.0 projects. These projects usually have a payback period between 3 to 6 months. As project cost is also a critical parameter of ROI, selecting a right partner having expertise in delivering such projects with cost-effective solutions is crucial for the project success.
We at Logicon Technosolutions can help you in selecting your first profitable Industry 4.0 project and also delivering it. You can contact us today to know more.