3 min read

Making Your Case: The ROI of MES

I recently put together an article for Pharmaceutical Engineering, entitled Justifying Your MES Investment where I discuss how to make a case for a manufacturing execution system (MES) based on a disciplined economic analysis. This blog is an abstract for the article, so if you'd like to learn more, please read the article where I cover the full methodology. 

When considering an investment in MES, you may have to compete with other sectors of your business looking for investment. In these situations, making a business case for and demonstrating the potential ROI of investing in MES becomes especially critical. There are two primary areas where you need to justify the investment: operational and financial.

Making an Operational Justification for MES

Making an operations business case for the addition of an MES application is often much easier than making a financial business case. In some cases, the need for MES is desperate and obvious. In an existing manufacturing facility, investment in MES can be justified by quality issues, expansion plans, process updates, product changes or new products, or changes in demand. For new production facilities, investment can be justified by identifying risks that can be potentially be mitigated by implementing MES applications. This approach is known as failure modes and effects analysis (FMEA).

FMEA analyzes potential risks including:

  • Data collection risks
  • Raw material risks
  • Sample tracking risks
  • Manual operation risks
  • Compliance risks

An MES application can help to minimize these risks through features such as automation of data collection and contextualized data reports.

 

Making a Financial Justification for MES

Making a financial business case for the addition of an MES application, on the other hand, can be more challenging. You have to show that an investment in MES will be profitable. One way to calculate this return on investment (ROI) is through a net present value (NPV). An NPV analyzes the incremental costs and incremental benefits or a set period of time. The NPV is a calculation that is compared to the base case (i.e., the expected outcome if an MES is not implemented).

The incremental costs and benefits are made up of the costs required to implement and maintain the MES (outflow), and the quantifiable benefits of implementing the MES (inflow). Inflow can include reductions or revenue increases or both and can be “hard” (quantitative) or “soft” (qualitative). It can be challenging to determine whether an outflow is definitively incremental. If the expense is something that would have been an ongoing cost of the base case as well, such as maintenance and training, it should not be included as an incremental cost. Labor outflow and inflow can also be difficult to categorize as incremental – you must carefully consider whether a person would be employed in the base case and whether a labor reduction is truly a reduction in cost (e.g., you may be able to improve quality enough to eliminate one quality assurance inspector, but the addition of an MES manager would cancel out the cost savings of reducing the QA staff).

The value of inflow and outflow after the initial investment is discounted against the risk-free rate, which is an interest rate that causes the cost or benefit to decay with time. This is because an immediate benefit is more valuable to your company than a benefit realized years down the road. To accurately show the ROI of your MES investment, the NPV calculation should reflect enough time to account for future investments and benefits.

 

Considering All Outcomes

Implementing an MES application can be a significant investment for your company. It also has the potential to greatly improve your production. When calculating an NPV to make a case for investing in MES, there can be uncertainty. At ACE, we recommend calculating an NPV for the expected outcome, best-case outcome, and worst-case outcome. If all three NPVs are calculated to be positive, then MES is a good investment for your company.

Does your NPV look promising? Contact us to discuss how ACE can help you implement MES or learn more about our MES services.

For a more detailed look at Justifying Your MES Investment, read the full article we wrote for Pharmaceutical Engineering.