Do you want better technology on your automotive plant floor? A simple methodology can help to justify the investment and accelerate implementation.
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If you’re searching for a solution to your latest automotive manufacturing challenge, you will find several potential options. You know the right one will save time and money, but you still need to justify the expense to management. Jeff Freeman, Regional Sales Director, West at Hexagon’s Manufacturing Intelligence division for North America, explains how to prove ROI prior to purchase.
Companies don’t buy capital equipment on impulse. Your experience and intuition are simply not enough to justify capital investments. If you want to buy technology, you need to prove the benefits gained from the investment. There are a variety of methods that can be used to determine if a technology is a viable option for an automaker or auto-parts manufacturer. One such method is the Return on Investment (ROI) Methodology.
The ROI Methodology is a systematic approach to evaluate programs and has been adapted through years of trial and error. The process includes several components:
- Knowing the time period (in years) your company uses to justify capital equipment purchases.
- Financially proving improved performance over present performance.
- When calculating ROI for a project or task, consider both tangible and intangible benefits.
- Consider your company’s budget cycle. Most companies have an annual budgeting process, which may or may not correspond with the calendar year.
Plugging in the numbers is the easy part; getting the numbers is harder. Don’t do this alone. It is important to involve all key stakeholders and colleagues who are accountable for the success of the investment.
Start with the right questions
Like many daunting tasks, the best place to start is by identifying opportunities for improvement. A natural place to begin is with your current technology. After all, no one knows your current processes better than you. Is the current process productive? Are there any bottlenecks? Is old technology getting in the way of productivity?
For example, at one time a company may have required a coordinate measuring machine (CMM) to meet a customer’s requirements or to acquire new business. The smallest investment was made, most likely a manual CMM, to satisfy the requirement at the time. Today the number of parts measured may have increased and manual measurement may cause a bottleneck in the process. Could a newer automated CMM do the job more efficiently? Is data being gathered and utilized effectively?
Most CMMs can add value throughout the entire manufacturing lifecycle, so there are many areas to include as part of any justification. Measurement is critical to launching new processes and programs by providing the needed detail data to determine process capability and validation. Once running, the role of measurement shifts gears to become the digital source of process-control information to make sure the processes are running optimally and to provide an early warning when they veer off track to reduce scrap and rework costs.
When issues arise, detailed measurement data is once again critical to shortening diagnostic efforts and re-validating the process before returning to full production. In each phase, CMMs can provide the needed measurement data to significantly reduce effort and costs.
Compare against current processes
Next, map the current process to establish a baseline by which all analysis and evaluations will be measured. Consider the experience curve and how it relates to your current process. Document to a level needed in order to exceed the justification of the purchase. Now that you have a baseline, choose the basis for comparative measurements. Select the parts to be documented as part of your baseline. Consider the size and complexity of the part, the quantity of parts, as well as part numbers, and document each step or task in the process.
Don’t overlook anything – often we know a process so well that we combine steps or skip them altogether. Now calculate the costs associated with each part, including recurring costs as well as non-recurring costs.
Gain a thorough understanding of how your current process affects upstream and downstream processes and their related costs. Document your findings. Compile your analysis and take a good, hard look at the data. What do you see? Do you have a complete picture of the process? If not, fill in the gaps. If so, it is time to compare other measurement technologies against the baseline for their suitability.
Evaluate the options
Benchmark each potential measurement technology against the baseline and against each other. Use the same approach that was used to establish the baseline, again considering how processes upstream and downstream will be affected. Rank the possible solutions by performance, price, capability and how each compare against your ROI requirements. Select those technologies that have the best suitability and ability for justification and repeat the upstream/downstream comparison process for each.
The role of the measurement technology suppliers is important here. Suppliers have the solutions and data needed for comparison purposes, while a supplier’s applications engineers have the knowledge to operate the equipment.
Select your preferred solution, as well as other options. Perform ROI calculations. Collect the information for your analysis and prepare the documentation and justification.
Finally, submit the ROI analysis and documents for approval.
Persistence pays off
Budget for new technology may not be approved at the first attempt. In smaller shops, where the owner runs the business, the process may be a bit less formal and move more quickly. The owner sees the immediate benefit to the business and decides to make the purchase. In larger companies, with formalized annual budgeting processes, it may take one or more budgeting cycles to procure the equipment. Metrology technology is often not the first priority, so you may have to work harder to justify the purchase.
Still, the data collected during verification can be used to improve manufacturing and verification throughput, eliminate scrap and reworking, and reduce material and design costs. All of this will improve profitability. To maximize the investment, incorporate what you have learned during the verification process and integrate it into all of your business processes.
Final Thoughts
How you acquire the equipment can also be helpful with your justification. Once again, your financial team can help to choose the best approach for purchase. There are three primary ways to acquire equipment:
- An outright purchase or capital investment using internal funding or credit lines.
- An equipment lease where payments are extended over years and can be treated as an operating expense.
- A new trend, purchasing the use of the equipment as a service (EaaS).
EaaS has the same advantages as leasing, but the better programs include added benefits such as annual services, certification and technical support making the support of the equipment more convenient and practically worry free. Each alternative needs to be considered to select the one most appropriate to each organization’s situation to maximize the ROI.
Hexagon’s Manufacturing Intelligence division provides solutions that utilize data from design and engineering, production and metrology to make manufacturing smarter. For more information, visit hexagonmi.com.
