ROI and Payback in the Supply Chain Operating Network #1

June 8, 2017 Jerry Turner

Show Me the Money

Recently we have had many conversations with clients about the ROI and payback associated with implementing Supply Chain Operating Network (SCON) solutions. Obviously clients are interested in “What’s in it for me?” and “What’s in it for my company?” Elemica has developed some new tools to help measure these benefits and improvements, for each SCON solution.

It really comes down to 3 key benefits, each of which carry a lot of value for our clients. 

  • Automation speeds up the process and drives labor savings

  • Automation reduces errors

  • The combination of faster processing and less errors reduce Days of Sales Outstanding (DSO) and Days of Inventory Outstanding (DIO) - these are Working Capital Savings

On top of these core benefits of B2B automation, with our Logistics solutions, there are additional benefits:

  • Reduction in transport-specific expenses – DetentionDemurrage – Accessorial Overages

Having delivered these kinds of automation solutions and their associated benefits to our clients over more than 15 years now, Elemica has developed a comprehensive database of the savings and improvements reported over the years by our clients.  We have now captured those results in savings models, for each solution area of Supplier Management, Customer Management, and Logistics Management. 

The way it works is that, given input on our client’s annual revenue, order volume, average value of an order, average inventory levels for raw materials, and so on, our model calculates the expected annual benefits from implementing these solutions. The model also calculates the monthly cost of not moving forward with these solutions, which shows the ROI and payback period.

The model defaults to standard values, based on the collective experience of Elemica’s clients.  The standard values are actually quite accurate, given the depth of our experience in the process industries. Given just a single data point, the client’s annual revenue, the model can produce very good estimates of the expected benefits. Of course, the more we can fine-tune the model using the client’s actual values, the more accurate the model’s output will be.

So what does the expected benefit normally look like? We will cover that topic in our next blog.  Watch this space!

 

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