What is ROI? How is it calculated, and why is it important for production systems?

 

For entrepreneurs, measuring the Return on Investment (ROI) is a crucial factor in making business decisions aimed at generating profits and achieving long-term success. Especially in the highly competitive manufacturing industry, ROI serves as a key performance indicator (KPI) that provides executives with an overview of returns across various aspects, from production processes and machinery to modern technologies that enhance organizational operations.

Accurate and thorough calculation and analysis of ROI enable entrepreneurs to effectively assess the value of their investments, manage resources efficiently, reduce costs, and drive sustainable business growth.

What is ROI, and why is it important in manufacturing?

ROI (Return on Investment) is a financial metric that helps businesses evaluate the value of investments as a percentage. It is calculated by comparing net profit to total costs, providing a clear picture of potential returns and aiding long-term profit generation.

Importance of ROI

Understanding ROI is critical for entrepreneurs aiming to optimize operational efficiency and achieve long-term business profitability. ROI is not merely a financial indicator; it also serves as a strategic tool for analyzing investments and improving strategies across multiple dimensions, such as:

• Measuring business success: Helps executives monitor performance and align strategies with business goals, such as increasing sales, reducing costs, or improving product quality in manufacturing.
• Guiding investment decisions: Assists in evaluating the feasibility of software investments, calculating payback periods, and mitigating risks associated with unprofitable ventures.
• Improving production processes: Enables optimization of workflows, such as assessing machine efficiency, managing resources, advancing production technologies, and training employees to enhance competitiveness.

ROI Formula

ROI=(Revenue−Total Costs/Total Costs​)×100

• Revenue is the total return generated by the business.
• Total Costs are all funds invested in the project.

Alternatively, ROI can also be derived directly from net profit:

ROI=(Total Costs/Net Profit​)×100

Net Profit=Revenue−Total Costs

Analyzing ROI in Manufacturing

ROI analysis goes beyond evaluating business profitability. It highlights key factors impacting operations and allows businesses to adapt effectively to various market conditions:

• High ROI: Indicates profitable investments, often reflecting effective factory management, resource utilization, and strategic decision-making.
• Low ROI: Suggests low returns, potentially due to inefficient resource management or unresolved production issues.
• Zero ROI: Represents break-even or loss-making operations, signaling the need for significant improvements.

For production systems, the most impactful factor on ROI is investment cost calculation. Efficient production systems reduce long-term costs, ultimately enhancing ROI.

Example of ROI Calculation in Manufacturing

Before System Implementation

A manufacturing facility invests 500,000 THB/month and generates 750,000 THB/month in revenue.

After System Implementation

The facility reduces monthly costs by 50,000 THB using an operational system.

This example underscores how systematic improvements can lead to higher ROI, highlighting the importance of data collection for effective ROI analysis and informed decision-making.

If you would like to know how much ROI you can gain by investing in these operating systems, please contact us so that we can do some preliminary calculations.​​​​​​ Click

Enhancing ROI with MES and ERP Systems in Manufacturing

In the digital age, innovation and rapid development are essential for business competitiveness. Systems like MES (Manufacturing Execution System) and ERP (Enterprise Resource Planning) play a vital role in boosting ROI by optimizing manufacturing processes and adapting to market changes.

MES Benefits

• Cost reduction: Minimizes waste and errors with real-time monitoring.
• Increased productivity: Reduces downtime through preventive maintenance.
• Quality control: Tracks product quality at every stage.
• Digital transformation: Reduces reliance on paper-based processes.
• Customer satisfaction: Ensures timely delivery with consistent quality.

ERP Benefits

• Streamlined processes: Eliminates redundancy and integrates data from all departments.
• Inventory management: Reduces overstock and improves cash flow.
• Cost management: Digitizes operations, lowering management costs.
• Data-driven insights: Provides market trends and performance analytics.
• Accurate planning: Optimizes resource allocation and reduces errors.

Conclusion: ROI and Software Integration in Business

Implementing MES and ERP systems is key to enhancing ROI and advancing businesses in the digital era. By combining MES's real-time production monitoring capabilities with ERP's centralized data management, businesses can improve global competitiveness sustainably.

At ARES, we specialize in ciMES and Argo ERP solutions, designed to help businesses improve ROI effectively through cutting-edge technologies. Our team provides consulting and system implementation services tailored for medium to large enterprises, empowering sustainable growth and a competitive edge.

Contact us
For a demo, please contact us at Contact Us or for further inquiries:
Phone: 0633253640 or 02-6863000 ext. 3042
Email: support@aresth.co.th