How to Evaluate an Investment for In Premise Enterprise Mobility Part 3
In our previous two pieces on in premise enterprise mobility we discussed how many companies evaluate a project of this type and how some simple maths models can help us understand the profile of an investment.
Now let’s look at the most common cost savings from an in premise enterprise mobility project and illustrate how to quantify these savings and access the results.
After the cost of your investment has been determined you can start coming up with some projected savings figures.
Labour savings include direct and indirect. This includes worker time involved in the warehouse and on in the logistics area. Two common areas where savings are found:
- More efficient and improved use of time time through technology such as using barcodes to generate invoices for shipments and warehouse locations locations and levels.
- Reduce administrative time which covers savings from less in-house paperwork more accuracy fewer keying errors
Labour not involved in production itself also stands to benefit from implementing a system. These areas include: smarter production control, more accurate payroll fewer management meetings and better quality data entry that does not need to be re-keyed.
Inventory savings are those other than direct labour costs associated with keeping inventory. For example obsolescence including the cost of unsold inventory due to time, and spoilage. Further rework and scrap costs arise from modifying old inventory.
In either case, to determine cost savings calculate your current annual costs for these subcategories and the expected annual improvement from your enterprise mobility system. Multiply your current costs by the expected improvement to derive annual savings. The current annual cost of these categories should be a statistic known to the business and the expected annual improvement will depend on your current efficiency and nature of your the operation.
Carrying costs refers to the total costs associated with maintaining inventory. These costs include interest taxes and storage. Such costs are generally estimated to range from 25% to 33% of average inventory balances. Use 25%, to come up with an estimate of cost savings.
For example, you currently average £200,000 in excess inventory each year. You also throw out £40,000 in inventory due to obsolescence, and spend another £10,000 on rework and scrap. You determine that a 10% reduction in these two items is reasonable.
Your calculations would look like this:
Obsolescence £4,000 x 10% = £ 4,000
Rework and Scrap £ 1,000 x 10% = £1,000
Carrying Costs £200,000 x 25% = £50,000
Total = £55,000
No matter what your industry improvements can be generated.
In part 4 we will look at some other areas where savings can be made. Meantime get in touch to learn about how we can help you with your in premise enterprise mobility project.