Transform to Industry 4.0 Part 5

October 7, 2021

The quantitative benefit of return on investment is evident when we implement the process transformation up to level 2. Creating a process for using the information with business activities, or 3. Changing business models to increase efficiency and create an advantage,

All of which have to go through the development of process 1. Establish a digital record.

In this article, we will present a cost-effectiveness evaluation method including an example of a suitable tools.

*NOTE: This is just a sample of the benefits generated by general Industry 4.0 Transformation. Actual benefits depend on your organization and scope of development and may vary more or less.

1.      Benefit evaluation

1.1.   Increase Quality/Efficiency

1.1.1.       Increasing productivity by managing working resources, preventing problems, and speeding up production processes, etc. By collecting information from each activity and building a history of information, the data can be used to provide better ways to make decisions, improvements, increase productivity, and even forecast or predict.

1.1.2.       Improving quality by increasing the ability to monitor the production process that can identify the weaknesses/strengths of the production line in terms of quality to find ways to improve or setting up traceability in the system. Traceability, for example, is essential in the food industry or an integral part of the governance and audit activities of standards-driven organizations.

1.1.3.       Overall Machine Effectiveness (OEE) is the calculation of the working capacity of the machine by referring to various factors related and summarized in the form of a percentage. The transition to Industry 4.0 enables the ability to collect relevant data from machines to calculate OEE values or to increase the detailed information of the machine to be used in production planning to optimize machine performance in the most beneficial way

Calculating the OEE by the average proportion of the three components from the machine is

  • Availability
  • Performance Efficiency
  • Quality Rate

OEE = Availability x Performance Efficiency x Quality Rate


1.1.4.       Flexibility and agility of the organization since the market is constantly changing rapidly, which manufacturers must compete to respond to market needs. Flexible change capabilities and efficient resource management services are essential.

So advanced technology can increase capabilities following the example

  • Track increasing purchase flows to plan production
  • Comparative review of product demand market prices
  • Combining work orders that use the same material to increase bargaining power
  • providing a real-time view of various business aspects will increase your profits and advantage in the market.

1.1.5.       Improving customer experience because of the changing trading style, manufacturers can sell products directly to consumers. That makes us closer to end-users and enables the collection of data, using either the consumer needs to improve the product/services or create new products to meet the needs of various customers​​​​​​

1.2.   Reduce Process/Cost

1.2.1.       Employee cost has been reduced by using technology to help increase efficiency or reduce work that is not worth doing, if done by humans, such as

  • Preparing a report back five years on the consistency of productivity, production capacity, and market demand,
  • Compare raw material purchases from trading partners to plan negotiations and procurement.

In this case, if it's an older manual system, you may need to collect data from multiple departments.  This can take be a lengthy process to collect and verify the information and the data might be incomplete, which can make the information in the report unreliable and incurs a lot of labor cost to create.

If done by technology based on the concept of Industry 4.0, the process of data collection is automated and can be extracted from the Business Intelligence (BI) system which acts as the “single point of truth” to display reports updated regularly or near real-time.

1.2.2.       Reduce the cost of consumables and machine maintenance by collecting consumable materials used and production equipment usage data to analyze effective management practices and preventive maintenance planning.
Many industries are required to employ specialists to ensure production systems and have proper supervision due to maintenance of the machine and the replacement of consumables. If this is too low, it may damage and affect the production plan. If it's too many this can lead to unnecessarily high costs. So, for this reason, technology can play a role in supporting experts to make decisions more accurately and to follow the correct plan.

1.2.3.       Mistakes and Risks from processing to collecting data on Overall Machine Effectiveness (OEE) and processing costs for consumables and maintenance allows us to see the potential failures and risks to plan and implement these preventive measures.
However, if we can add more detail of failures and record the history of problems, this can be analyzed together for error and risk management planning in short-term and long-term scenarios.
For example, in the case of a production line stoppages, using the data captured and analyzing the trends over time, the cost of fixing/maintenance and losses caused by downtime vs replacing can be compared.

1.2.4.       Reduce redundant tasks by using technology to connect various working processes.
For example, In the case of receiving an order, it may be necessary to check with many departments, such as starting with the warehouse department, then next to the Production planning department, Production Department and Shipping Department. This can lead to the information to be inaccurate or causing some misunderstanding.
However, if the system can connect to information across every department automatically, it allows to operators collect the information they need for performing their role, thus the redundancy has eliminated.

2.      Cost evaluation

Assessing costs and expenses to transition to Industry 4.0, usually involves the following components:

2.1.  Hardware:  

a group of physical materials/devices such as machines, computers, sensors, IoT devices depends on the system model you want to implement in an organization.

2.2.  Software/Tools:

a group of systems and tools used to create digital processes for collecting, processing, and displaying data such as IoT controller, data storage systems (ETL), data warehouses, Analysis and report software (Business Intelligence), and other systems depending on the objectives and needs of the organization.

Currently, there are cloud service providers that can deliver services and applications in a Software as a Service (SaaS) manner that can reduce hardware and software costs as this eliminates the need for expensive installation and maintenance of on-premise hardware and software. These services can be provisioned and manages easily via a web-portal and charged on a pay-as-you-go basis or usage based model. This is an excellent option for those organizations starting their journey with limited budgets.

2.3.  Implementation/Operation is the development and application of technology for use in the organization and is one thing that many organizations have difficulty in choosing; either to develop the system on their own or hire experts from outside to help implement. There are different advantages and disadvantages, and different costing methods as follows:

2.3.1.       In House Development

Pros

  • No additional cost is required.
  • Understand the business and needs.
  • Able to continue maintaining in-house.

Cons

  • There is a limitation on the scope of development according to the number of the working team.
  • Must allow time to develop skills and study required tools.
  • Required building experience over time.

Cost

  • The time spent for an employee joining the development team but can be quantified cost by multiplied with the project time and the salary rate.
  • Implementation duration


2.3.2.       Outsource ​​​​​​​

Pros

  • Have expertise and experience in technology.
  • Reduced development time.
  • No resource restrictions.
  • No/Less impact on the normal operations of the organization

Cons

  • External expenses.
  • Must transfer the requirements and gain understanding of the business.
  • Organizations may not be able to maintain operation with their own

Cost

  • Professional services fee
  • Implementation duration

3.      Values Evaluation

3.1.   Evaluate of benefits can be done in two ways.

3.1.1.       Evaluation by creating benefit and urgency criteria based on the factors in Item 1, divided into high, medium, and low, and assessing benefits factors to define level they exist.

This has the advantage of developing quickly and see the overall framework of the organization's needs to define the scope and objectives of the system development.

 

Benefit level

Urgency level

Increase Quality/Efficiency

Increase productivity

medium

high

Quality Improving

high

high

Overall Machine Effectiveness (OEE)

medium

medium

Flexibility and agility

medium

low

Improving customer experience

low

low

Reduce Process/Cost

Employee cost

high

low

consumables and machine maintenance cost

medium

high

Mistakes and Risks

high

high

Redundancy tasks

high

medium

 

3.1.2.       Estimated in a quantitative form with a proportional or valuation based on a factor with the forecast of a minimum post-development performance increase.

This has the advantage of seeing quantitative data but has the difficulty of collecting and considering the data.

 

Current

Target

Increase Quality/Efficiency

Increase productivity

100%

+3%

Quality Improving

70%

+10%

Overall Machine Effectiveness (OEE)

85%

+5%

Flexibility and agility

50%

+30%

Improving customer experience

30%

+50%

Reduce Process/Cost

Employee cost

100%

-60%

consumables and machine maintenance cost

100%

15%

Mistakes and Risks

10%

-5%

Redundancy tasks

100%

-5%


In the case of a monetary evaluation, the estimation must be done quantitatively only then the percentage is multiplied by the cost of each subject which will make data acquisition even more complicated. For example, employee costs can be calculated from the salary of the person involved in the activity based on the hourly cost used for both present value and minus 60% post-development, resulting in a reduction in expenses that will go down.

3.2.   Cost Estimation Reference is the amount of spending in each part.

3.2.1.       Overview

2.1.        Hardware

sensor

10

X0,000

computer

1

X0,000

IoT devices

10

X0,000

2.2.        Software/Tools

 

 

 

 

 

 

2.3.              Implementation/Operation

 

 

 

 

3.2.2.       Separate investments according to areas that need improvement.

Increase productivity

2.1.        Hardware

 

 

 

2.2.        Software/Tools

 

 

 

2.3.              Implementation/Operation

 

 

 

Employee cost

2.1.        Hardware

 

 

 

2.2.        Software/Tools

 

 

 

2.3.              Implementation/Operation

 

 

 

Other


3.3.  Value Evaluation

Using this method, we can compare the benefit-to-cost to determine the cost-effectiveness or choose to do some of them as necessary, for example:

 

Benefit level

Urgency level

investment

Increase Quality/Efficiency

 

Increase productivity

medium

high

X0,000

Quality Improving

high

high

X0,000

Overall Machine Effectiveness (OEE)

medium

medium

X0,000

Flexibility and agility

medium

low

X0,000

Improving customer experience

low

low

X0,000

Reduce Process/Cost

 

Employee cost

high

low

X0,000

consumables and machine maintenance cost

medium

high

X0,000

Mistakes and Risks

high

high

X0,000

Redundancy tasks

high

medium

X0,000

Increase Quality/Efficiency

high

low

X0,000

This is just a guide to evaluating the return on investment, but each organization must determine its appropriate criteria and can add other factors suitable for analyzing the value or benefits of technology adoption

If you would like to learn more about how to improve the platform based on the industry 4.0 concept or would like to see examples of the technology's application in different areas, please contact BizOne for a free cnosultation!