Measure – and measure again. Without solid benchmarks, you cannot determine the return on investment (ROI). But too many times organizations make rushed purchases only to discover the product did not live up to the high expectations. That’s because the investment sometimes is treated as a “cure it all” even though there is no diagnosis.
Perhaps the company purchases a system that requires too much customization, goes out of date too quickly, or fails to integrate with other systems. Instead of solving the problem, more are created. And if no benchmarks were identified prior to the purchase, the company will be at a loss.
“The biggest mistake [companies] make is they implement a solution without even beginning to measure what they were doing before they implemented it,” Beth Peterson, president of BPE Global and an expert in trade compliance software, tells SupplyChain 24/7.
The same article points out: “The experts…uniformly stated that without the baselines in place, any subsequent measures of ROI will be deficient—and maybe even meaningless.”
Before the investment is made, you need a compelling business case. The technology is the enabler of your goals and objectives. As tempting as it may be to quickly fix specific pain points, projected cost savings in one area may lead to unintended increases in others, especially if a silo mentality rules. In short, you need to answer: What exactly do you want the technology to achieve? How will it help your organization to become more profitable?
While companies tend to focus on the “cost-inventory-reduction aspect,” reputed supply chain educator and software analyst Larry Lapide recommends broadening the scope. If the investment can yield benefits in three key areas – efficiency (mainly cost reductions), asset utilization (faster inventory turns, for example), and customer response (perfect order fulfillment), the better positioned you will be to capture ROI.
It’s also important to remember that users need to be invested in the product and understand the value it will bring to the organization. As one expert observes, “if they view it as ‘just another task they’re adding to our to-do list’, they are more likely to resist.”
In the end, it comes down to getting the most out of this equation:
Simple ROI = (Gain from Investment – Cost of Investment) / (Cost of Investment)100
Most IT-projects have ROI of <3 years while capital projects naturally take longer (<10 years). TotalTrax customers typically see payback in <2 years.
If you need to justify additional purchases, TotalTrax can help you measure performance. Keep in mind: The path to maximizing ROI starts with benchmarking.