We’ve all seen great examples of products that deliver a step-function impact to everyday work – companies like Toast and Uber have done an incredible job of taking sunk time on common activities and turning it into more time and more revenue for all involved parties. Companies that get this formula right reap rewards on several dimensions, as their customers become rabid advocates, unable to contain how valuable they find the product, and in turn the company earns the right to grow faster, keep innovating, and build more rabid followers.
When thinking about these companies, and others we have been part of that have delivered that “wow factor”, a few things jumped out about what they have in common. Of course, there is some basic algebra that proves the ROI, but beyond that, there are tangible daily tasks where relief from the painful way of doing things is obvious, and the benefits compound quickly. Here’s what we think the winners have in common:
- Task Compression – The winning products gave back to their users very significant chunks of time. Measured in hours per day and days per week. People truly experienced a release from doing things the old way.
- Meaningful Insights – Intelligent products are designed to reshape the way people think about their business and deliver information quickly and concisely to a person who can act on it in the moment. No further processing or augmentation of the data is required. Seamlessly intuitive and elegant in design; it’s as if an expert were standing by your side.
- Cost Reduction – In addition to task compression and speed of information, the best products reduce overall costs by turning the problem on its head and presenting a solution that is cheaper and more efficient. So much so, that it appears obvious to users.
- User Experience – The developers of the best products got into the heads of their customers and did the mind meld to the point where the product experience has the same logical construct as the user’s daily thought process. It’s seamless, intuitive and comfortable. This is where customer loyalty goes through the roof.
- Consumption Model – The unit economics of a winning solution allow the customer to expand product use in a grow-with model. While other products require an all or nothing game to see real value – seamlessly scalable, modular products that just install and run always beat the competition. The cash flow model allows for bite sized chunks of consumption. Small wagers versus bet the business.
Here at Datanomix, we work with some pretty large manufacturers, including several that are private equity owned. Hard ROI calculations are a prerequisite in such environments, where every dollar poured into the business needs to produce a multiple out the other side. This is more complicated by the fact that conventional monitoring solutions don’t have great ROI, as telling you your utilization % is a nice starting point, but it doesn’t really pay residual dividends. Needing to make this case to their ownership and management teams, and knowing that the conventional way of justifying monitoring solutions doesn’t really apply to us, some customers of ours collaborated to build a really interesting ROI calculator that shows where and how our Production Monitoring software saves time and creates opportunity for more revenue.
The model revolves around two key ideas – time saved by type of employee for key areas of responsibility, and how much of that time is unlocked to direct towards net new production opportunities. The model starts with inputs for the amount of time spent by Operators, Admins, Supervisors, Middle Managers and Executives on the following tasks:
- Production Results
- Machine Utilization
- Factory Capacity Planning
- True Machining Costs
- General Problem Discovery & Solutions
The model then requires users to assume a percentage of time by which the software will reduce the task. In most cases, our software is already providing fully baked answers on these areas, so the impact percentage is very high. Combining those percentages with factory machine quantities, labor rates and the average shop rate for the company, the ROI is calculated.
Furthermore, the model uses the shop rate to assume that a percentage of time returned to the staff that is then applied to generate new revenue opportunities for the business on a weekly and annual basis.
Using the calculator, a typical shop of 30 machines spends 347 hours across 22 employees on the activities of tabulating production results, improving machine utilization, factory capacity planning, understanding true machining costs, and general problem discovery and solutions.
With our Production Monitoring software, we are returning 254 hours per week to employees to spend on value added activities.
These results yield a payback period of under 4 weeks and an incremental revenue opportunity for the company of over $350K annually.
Even with the most conservative estimates on time invested in production management and the impact of our software on task compression, the payback period is impressive. What’s more impressive is what happens on the production floor when our product is featured in TV mode for the entire cell to see. Production scores rise and everyone feels good about their work because it is visible and on target. Outcomes are known in advance and problem solving becomes the new pulse on the floor, replacing hunt and peck. It’s palpable.
We want to thank our customers for helping to assemble this analysis, and we look forward to continuing to innovate on your behalf to bring real time and real money back to American manufacturing!