Digital Factory ROI Calculator:

Estimate the Return on Your Digital Factory Investment

Whether a factory is just beginning its digital transformation journey or is advancing toward becoming a fully digital operation, estimating the return on investment (ROI) is crucial. Understanding the potential business benefits and the break-even point of such investments helps manufacturers make informed decisions and shape their digital transformation strategies effectively.

The SCW.AI ROI Calculator is designed with this objective in mind. It offers a realistic estimation of business outcomes, empowering manufacturers to gauge the potential impact of their digital factory transformation initiatives. The results are also downloadable where manufacturers can share with their teams as a valuable asset for the decision making process.

Key Input Variables for the ROI Calculator

To accurately estimate the business return on your Digital Factory investment, the ROI Calculator requires the following inputs:

Number of Production Lines: This input reflects the scale of the factory’s operations. The number of production lines significantly affects costs, as well as the overall business outcomes influenced by digital transformation.
Production Days per Year: This input refers to the number of calendar days the factory is operational. It plays a crucial role in determining costs, and business returns.
Production Hours per Day: This factor captures the scheduled daily production time, including both idle and productive periods. It directly impacts labor needs of a shop floor, including the number of shifts and workers required to maintain production, as well as energy usage and equipment wear.
Average Operators per Line: This input indicates how many workers are assigned to each production line. It helps estimate the labor costs associated with operating the factory.
Revenue $ Year: Input reflects how throughput increase affects profit.
Gross Margin: Calculated by dividing revenue minus COGS to revenue and then multiplying with 100. Gross margin is essential for estimating projected profits after digital transformation and evaluating non-labor expenditures.
Current OEE (Overall Equipment Effectiveness): OEE is a critical metric that reflects the efficiency of production by multiplying availability, performance, and quality percentages. Users must input these components individually, as improvements in any of these areas can have varying effects on cost savings and overall ROI.
Target OEE: This input estimates potential improvements in OEE by setting new targets for availability, performance, and quality. Manufacturers can use OEE benchmarking analyses, industry reports, and internal performance reviews to set realistic goals for OEE improvement.

For more detailed information on OEE and how it is calculated, refer to our A Simplified Guide to OEE Calculation: Methods and Examples article.

Advanced Settings

When users click the “Advanced Settings” button at the top-left corner of the page, a more detailed input variables page appears. The purpose is to help manufacturers fine-tune these variables based on their specific factory conditions, providing a more accurate ROI estimation for their digital factory transformation initiatives.

The Advanced Settings allow users to input details such as production days per week, number of shifts, labor overtime costs, management costs, maintenance costs, material costs, rework rates, and more.

How to Use the ROI Calculator

To use the ROI Calculator, users must decide how to allocate the additional productivity gains resulting from OEE improvements between two main options: increased production volume and decreased labor costs. These can be adjusted between 0% and 100%, with the total always summing to 100%. When you enter a value for one option, the calculator automatically adjusts the other. For example, if you allocate 60% of the productivity gain to increased production volume, the remaining 40% will automatically be assigned to decreased labor costs.

To clarify this concept, let us consider a few scenarios:

Scenario 1; 100% Decreased Labor Costs: If you allocate all productivity gains to decreased labor costs, this means that after the OEE improvement, the factory will produce the same amount of goods but in less time. This leads to reduced working hours, and therefore, lower costs.
Scenario 2; 100% Increased Production Volume: In this case, all the productivity gains are dedicated to increasing throughput. The factory will operate at the new, higher capacity. For example, if your OEE improves from 50% to 65%, this results in a 30% increase in production output, assuming other conditions remain the same. Direct labor costs would remain unchanged as workers maintain the same hours, but more products are being produced.
Scenario 3; 50% Increased Production and 50% Decreased Labor Costs: In this balanced scenario, half of the productivity gains go toward increasing throughput, and the other half goes toward reducing labor hours. This would result in a less increase in throughput —around 15 %,— while the rest of the gains are used to reduce working hours, lowering direct labor costs.

It is important to note that the ROI Calculator assumes any extra products resulting from increased production will be sold, implying there is sufficient market demand to absorb the additional output. For manufacturers with limited market demand, this assumption may not hold true. In such cases, carefully considering how to allocate productivity gains between increased production and reduced labor costs is essential for making accurate ROI estimates.

Another practical tip for effectively utilizing ROI Calculator is working with different scenarios for both OEE improvements and allocations strategy for productivity gains. This way manufacturers can simulate return of digital transformation for different demand and OEE improvement scenarios and be able to effectively evaluate risk factors.

Interpreting the ROI Calculator Results

The ROI Calculator presents business results in a comprehensive format, offering a clear view of your potential returns through a combination of a table, chart, and an overall evaluation. This allows manufacturers to assess how much return on investment (ROI) they can expect by factoring in both initial investments and ongoing subscription costs associated with the Digital Factory Platform.

Annual Return Table

The ROI Calculator generates a table that breaks down returns including:

Direct Labor
Indirect Labor
Material Cost
Maintenance Cost
Depreciation
Profit
And Annual Return, which is the sum of all these values, representing the total financial benefit generated for each year.

The returns are evaluated by comparing the current OEE level with five scenarios:

Fair OEE: Target OEE is 35%.
Good OEE: Target OEE is 50%.
Great OEE: Target OEE is 65%.
World-Class OEE: Target OEE is 80%.
Target OEE: The OEE value entered by the user, highlighted as a green column.

Cumulative Returns Over 5 Years Chart

This chart provides a visual representation of business returns over a five-year period. It offers a granular breakdown of returns across the same cost elements mentioned in the table, along with overall additional profit.

Overall Evaluation: Outputs and ROI Analysis

This section delivers an overall evaluation of your investment based on the calculated ROI, factoring in the cost of the Digital Factory Platform investment. The analysis will recommend one of the following courses of action:

Go All-in: If your factory’s ROI exceeds 10X, the recommendation is to fully embrace digital transformation across all production lines. This indicates a highly advantageous opportunity for significant business growth and cost savings.
Go With Select Lines: For an ROI between 5X and 10X, the recommendation is to begin with a selective approach. Start by digitizing a few production lines to pilot the technology before scaling the solution across the entire factory.
Maybe: When the ROI is lower than 5X but still positive, further analysis, such as a net present value (NPV), is suggested.

ROI Calculator in Action: A Step-by-Step Example

Let us walk through an example to illustrate how the ROI Calculator works. In this scenario, we will assume the organization is a contract pharmaceutical manufacturer.

Step 1: Site Parameters

We begin by entering the key site-specific inputs for the example company:

Number of Production Lines: 20
Production Days per Year: 250
Production Hours per Day: 16
Average Operators per Line: 5
Hourly Labor Wage: $25
Annual Revenue: $20M
Gross Margin: 40%

Step 2: Current and Target OEE

Next, we input the current and target OEE figures. Based on our World Class OEE in Pharma: A Benchmarking Analysis article, the average OEE for a pharmaceutical manufacturer is 37%, with the following breakdown:

Availability: 50%
Performance: 78%
Quality: 95%.

According to the our experience, a 16-percentage point improvement in OEE is quite standart for pharmaceutical manufacturers undergoing digital transformation. This improvement gives us the following target OEE values:

Availability: 61%
Performance: 88%
Quality: 99%
Target OEE: 53%.

Step 3: ROI Strategy

For this example, we assume the pharmaceutical market is mature, meaning that increasing production volume alone may not be the optimal approach. Instead, we allocate 70% of the productivity improvements toward cost savings, while the remaining 30% is allocated toward increased production volume.

Results

Based on these inputs, the ROI Calculator estimates the following results:

Total Annaul Return: $4.44M
Throughput Increase: 13%
Revenue Increase: 13%

For a more detailed breakdown of these returns, see the table below.

To learn the exact annual and one time cost of Digital Factory Platform you can contact us.

Why We Use OEE as a Key Metric for Estimating ROI

OEE is a useful KPI in manufacturing because it is directly tied to both revenue generation and the costs associated with production time. OEE measures the efficiency of production by holistically accounting for various losses. As a result, any improvements in shop floor activities are reflected in OEE.

Industry 4.0 technologies significantly impact OEE, either directly or indirectly, by enhancing visibility, control, and optimization of production processes. Here is how specific technologies influence OEE:

OEE Trackers: By monitoring productivity losses in real time, OEE trackers enable manufacturers to make data-driven decisions to address production bottlenecks. This leads to quicker identification and resolutions of issues.
Scheduler: Advanced algorithms, such as those used for minimizing changeover times, have a direct effect on OEE. As demonstrated by the Boston Consulting Group.
Predictive Maintenance: According to research from Deloitte, predictive maintenance models significantly reduce unplanned downtime and performance losses. These improvements directly enhance both the availability and performance components of OEE.
Labor Trackers: Guide manufacturers to efficiently schedule labors based on experience and skill levels reduces micro stops and shortens changeover periods.

4 Best Practices for Managers to
Maximize the ROI of Digital Factory Investments

Foster a Data-Driven Culture: Encourage teams to rely on data for decision-making. Otherwise, the value of having digital tools is not totally embraced. A data-driven culture ensures informed decisions and agile manufacturing that directly impact ROI.
Train Workers to Effectively Utilize Digital Technologies: Invest in training programs that empower workers to fully understand and leverage digital tools. Well-trained staff can maximize the benefits of Industry 4.0 technologies, improving efficiency and reducing costly errors.
Regularly Track Manufacturing KPIs for Continuous Improvement: Monitoring KPIs like OEE, first pass yield, schedule adherence, production capacity and more allows managers to continuously identify areas for improvement. Consistent tracking and adjustment lead to sustained performance gains and higher ROI.
Leverage End-to-End Digital Transformation for Higher ROI Through Synergy: Integrate digital technologies across the entire production ecosystem—from supply chain management to job shop scheduling. Full-scale digital transformation creates synergies between different processes, leading to exponential improvements in efficiency and higher ROI per PwC.

Discover Digital Factory Platform

The Digital Factory Platform is a versatile, modular solution designed to drive end-to-end digital transformation for manufacturers. Whether you are just beginning your digital journey or aiming to become a fully connected, future-ready factory, the platform adapts to your needs.

Thanks to its cloud-based architecture, the Digital Factory Platform delivers a high ROI while ensuring a scalable, fast, and simple transition.

Ready to see it in action? Book a demo now today and experience how it can transform your factory!