Return on Investment (ROI) for MRP software
Return of Investment is a critical indicator when deciding on investment in any asset. Especially in ERP/MRP software, where the direct result is not obviously calculating.
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Often, the success of MRP software is judged by the time, cost and effort to implement it. However, it is possible to calculate ROI based on average saving on labour cost, because the implementation of ERP/MRP system improves the production planning which could significantly improve the efficiency of the manufacturing process and reduce labour cost.
Minnesota based company “Business Automation Specialists” brings the following numbers from their experience:
- 16% reduction in inventory
- 19% reduction in operational costs
- 17% reduction in administrative costs.
- 17% of improvements in complete and on-time shipments.
For a small manufacturing company with 50 blue collar workers and estimated cost of production hour including salary and production overhead in $ 10/hour, which is typical for optimized cost countries, and 168 work hours per month the total direct production cost is $84,000.
Let’s assume the company will reduce the number of manufacturing hours by 5% due to better planning supported by the ERP/MRP system. This is equal to $4,200 improvement in bottom line every month.
This calculation illustrates the obvious benefit of implementing the cloud-based and easy-to-implement ERP/MRP system, like MRPeasy. The positive business case and short-term ROI is self-explanatory.