The simplest ROI calculation is often the best
ROI is easy enough to calculate. It’s simply the …
(Gains from your investment - Cost of your investment) / (Cost of your investment)
The problem is future gains are unclear before an investment is made, which is when ROI calculations are most important.
That’s why quick returns on investment get the most attention from decision makers. They’re the most certain. Long-term returns are fuzzier. And there’s no guarantee they’ll ever materialize.
The further into the future you project, the more assumptions you have to make.
So when I talk with customers about the ROI of a laser gauge, I focus on the immediate impacts.
The easiest and most compelling way to get your money’s worth with a laser gauge is to use it to first make plates more consistent. That will allow you to apply less paste to each plate.
So the ‘gains’ in your ROI equation are simply:
Units made * Dollars saved per unit
Let’s look at a simple example.
Let’s assume that, with precision gauging, you can reduce average plate thickness by 25 microns (0.001” or 1 thou). This is a conservative estimate based on what I’ve seen. And let’s say you produce 1 million batteries a year and you need 72 plates per battery.
You apply 1 thou of lead-oxide paste to each 125 mm x 125 mm plate. At current prices that will run you about 0.44 cents (as in $0.0044, or less than half a penny). Multiply that cost by 72 and you get $0.315 per battery. Multiply that figure by a million batteries and you get $315,000 – that’s about how much you can expect to save in direct material costs alone per year.
(Email me if you want more info on how I came up with these numbers.)
The calculation is simple. Of course, it doesn’t include other important benefits like the avoided costs of handling scrap. Nor does it include the cost of out of spec plates affecting your process downstream, sometimes leading to jams and downtime, but most often negatively impacting battery performance.
These ‘quality’ returns are harder to calculate, but in our experience, they amount to about the same dollar figure as the direct materials savings. So if you were to include them in your ROI calculations, your gains from investment would go up to about $600,000.
More often than not these quality benefits are left out of the ROI equation and looked at as ‘bonuses’.
That’s one reason why quality experts don’t like talking about ROI. It doesn’t capture the true costs and benefits of quality. And you and I know quality benefits can be challenged by key decision makers. Simple ROI calculations can still be challenged, but they provide the quantitative black-and-white numbers that make business decisions easier.
The lead-acid battery industry is all about high-volume production. So even small reductions in material use of 1-2% can add up to huge amounts. By doing a simple ROI calculation, it becomes clear that tighter process control (through the addition of a laser gauge) can produce a significant positive return on investment (and fast).
And the quality improvements down the line? Those are just icing on the cake.