The 2024 State of the Digital Decade report by the European Commission highlights concerns regarding the EU’s digital transformation efforts as the EU has yet to achieve full convergence on most targets and objectives. Thus, it calls for urgent actions to accelerate progress, especially for the areas with ample unexploited potential, like manufacturing.
However, research also shows that managers in industrial companies often doubt the financial benefits of digitalization and question how long it will take to recoup their investment.
This makes the question of how to assess the financial benefits and ROI of digitizing production more relevant than ever.
What is production digitalization?
Production digitalization can be divided into two key areas.
The first area involves the introduction of paperless operations, replacing traditional paper documents and records with a digital environment. The second area involves processing large volumes of production data and converting it into actionable information, enabling managers to monitor and effectively manage production in real-time as well as to plan and implement improvement measures.
Seven financial benefits of production process digitalization
While there are many benefits, these seven measurable factors contribute most to the positive (financial) benefits of digitalizing production processes.
Reduced production costs. According to a study by the World Economic Forum (WEF), digitalization reduces production costs by 15% to 30% in most industrial companies. This is primarily due to improved overall equipment effectiveness (OEE), shorter production cycles and faster, more efficient problem detection and resolution.
Increased plant productivity. The WEF study indicates that many manufacturers have more than doubled productivity through digitalization. This is achieved through better utilization of production lines, shorter changeover times between work orders or batches and more efficient elimination of brief line stoppages, improving production flow.
Increased worker productivity. According to a study by McKinsey & Company, digitalization significantly reduces manual tasks, allows for monitoring of each worker’s performance and enables task scheduling based on their competencies. This leads to fewer production bottlenecks and errors, potentially increasing employee productivity by over 20%.
Simplified production organization. According to McKinsey, advanced production planning and scheduling systems powered by artificial intelligence and machine learning improve efficiency by aligning order execution with production capacity (raw materials, machines and workers) by up to 85%.
On-time and complete delivery. Many manufacturers incur high penalties for late or incomplete deliveries. The on-time-in-full (OTIF) indicator measures the ratio of orders completed on time and in full. Digitalization ensures that at least 90% of orders are completed on time and in full, reducing penalties.
Predictive maintenance. This modern approach monitors machine data to schedule maintenance before unexpected equipment failures occur, preventing production stoppages. A Deloitte study found that predictive maintenance can increase production uptime by 10% to 20%.
Reduced energy and water consumption. WEF reports show that digitalizing production reduces energy and water consumption by an average of 15% thanks to the use of energy management software that provides managers with actionable insights for improving operational efficiency.
Calculate your ROI for production digitalization
Although ROI is most commonly used to calculate the return on investment as a percentage, the concept can also be applied to determine how long it will take to recoup the initial investment.
ROI is calculated by dividing the expected investments by the financial benefits of digitalizing production, including cost reductions and potential revenue increases. These benefits may include higher production throughput, lower rejection rates and reduced labor, product, energy and spare parts costs. On the investment side, all necessary activities, software and hardware, are accounted for.
If the result is less than one, the investment is recouped in less than a year; if the result is 3 for example, the payback period will be approximately three years.
How can Metronik help you?
Contrary to popular belief, production digitalization involves much more than simply implementing software.
Its foundation lies in capturing, storing and processing production data into clear actionable information for monitoring and decision-making.
At Metronik, we offer our clients all the necessary services needed for effective digitalization, from planning to implementation of both technical and organizational measures, in addition to advanced software solutions from the MePIS family. This ensures that our clients can achieve their desired results more easily and quickly.
For more information on improving efficiency through production digitalization, please contact Vanja Tomažič, Director of Automation and Digitalization in Industry, at vanja.tomazic@metronik.si.
