Building a Better Business Case and ROI

CFO’s Look for More
Much has been written about ROI. Books, trade publications, websites, and entire companies are dedicated to discussing ROI. There are loud cries of support for, and equally loud cries of criticism against, the use and effectiveness of ROI. What seems to be ignored is that, like any tool, ROI is subject to misapplication and misuse.

There are two chief defects with most "average" ROI calculations. First, they assume best outcome scenarios, and second, most average calculations lack comprehensive treatment needed to accurately predict ROI.

The problem with best outcome scenarios is that they predict a financial return which will be realized only under the most favorable of circumstances. The probability of a best outcome scenario is indeed possible, but it is low. There are risks inherent in every project, and it is neither realistic nor prudent to give casual treatment to such risks. Risk exists, and it is incumbent on all members of the project team to surface, analyze, and develop risk reduction strategies that improve the probability of financial and operational success.

Most CFO's will quickly discount - or outright reject - business cases and ROI calculations that do not reflect realistic projections. The greater the complexity, in terms of size and values of time duration, talent requirements, operational change, and cost the project, the more likely the CFO will significantly discount the returns and inflate the costs. Unless these items are properly discussed, the CFO's adjustment process may result in the project not being approved.

Conversely, the more detailed and explicit the calculations include company specific and project specific factors and risks, the more believable the projections will be to the CFO and approval team. This increases the credibility of the projections, and thereby, the probability that the investment in the project will be approved.

Use More Than One CBA Method
Because each of the CBA [cost benefit analysis] methods provides different insight, many organizations have opted to use more than one method as a second comparison to corroborate results, such as combining ROI and Payback Period. The first method provides the primary metric, with the second calculation used to corroborate or validate the results. When investment options appear to deliver similar value, the second calculation can serve as a "tiebreaker".

Existing Situation v. Proposal v. Alternate Options
For greater credibility and relevance, the body of the business case should compare both existing and proposed operational costs and benefits, as well as alternate options that were considered, but not selected. This analysis helps the author to explain in explicit detail the objective consideration of a broader range of options, and it further informs the reader - the decision team - that competing choices were given due consideration, and the rationale for why they were not the recommended course of action.

Risk Management
An important element of understanding the ability of a technology project to deliver value to the organization is the concept of risk. Risk defines the likelihood of success.

As projects increase in complexity, the complexity of risk increases as well. New risks may be added, which might range from having a team that understands all technical and business aspects, risk of cultural acceptance of new changes, risk of delays, risk of unintended and unexpected outcomes, and so forth.

Operational risks include failure of the new system to perform as expected. This can include outright system failures, or an ineffective fit of the system with the application requirements, or overly complex business practices. Changes in the boundary condition of what the project was proposed to address, otherwise referred to as project scope, can also affect the projects ability to meet expectations. Terms are used to describe the extent of the change range from minor - "scope creep" - to major - "scope leap".

Portfolio Management
A portfolio management approach which considers factors such as projected value, projected cost, estimated risk, and expected duration can help management teams apply focus and attention to a smaller, but better quality group of investments.

Portfolio management considers the value and status of each project on its individual merits. Interestingly, the portfolio management model and approach borrows its philosophy from none other than finance.

Evaluation Approaches
An After Action Report (AAR) is an exercise, borrowed from the US Military, which reviews the actual performance and results of a project with those that were expected. Positive and negative differences are used as learning experiences to improve future performance, such that the organization changes its institutional practices. AAR's are intended to be used as a training and developmental tool, and not punitive, unless required.

You Do That? - Southworth Products

A Leader in Ergonomic Innovation
When they began writing about Ergonomics more than 30 years ago, Southworth Product Corp. was simply attempting to bring more scientific perspective to a common sense issue. If you consider the capabilities and limitations of the worker in the design of the workplace, the worker will be more productive and that productivity contributes to profit.

Improvement in productivity from the use of ergonomic equipment is easier to achieve and more important than ever. Lean manufacturing requires minimizing material handling and any approach to their products do just that. Southworth leads the industry in product innovation. Check out some recently introduced products.

PalletPal Pallet Inverter / Rotator
With the ability to handle pallet loads measuring up to 48" x 48" x 60" high; the Southworth Product Corp PalletPal Pallet Inverter / Rotator is a simple, rugged machine designed to invert entire pallet loads. The pressure adjustable clamping mechanism easily secures loads up to 4,400 pounds and rotates them 180 degrees on a massive anti-friction turret bearing.

PalletPal Roll-In Level Loader
The Roll-In Level Loader features a unique low-profile design that allows it to be fed with an ordinary hand pallet truck. Simply pick up a palletized load, raise the pallet truck and roll the load into position. The pallet moves over the Roll-In while the pallet truck rolls between the outside platform and the center support beam. By eliminating the need for forklift trucks, costs are reduced and productivity is improved.

PalletPal Mobile Leveler (Straddle)
Perform multiple functions with one versatile machine. Use it by itself as a mobile pallet positioner or as the perfect companion to feed your other PalletPals. As a transporter it moves effortlessly throughout the plant. It's a lot less expensive than a ride on fork lift and it doesn't require special training or certification to use.

PalletPal Lift Truck
If you use open bottom containers or skids, you can now transport and palletize with a single unit. Loads can be adjusted up and down at the touch of a button.

The knowledgeable eyes of Morrison Company’s sales and engineering teams can identify trouble spots for you and in many cases help you to correct workplace problems that are robbing you of productivity and exposing you and your workers to the dangers and multiple costs of injuries. Contact Morrison Company today for an assessment of your needs.

Operations Best Practices

A Book Review of THE WMS Handbook
While Morrison Company does not offer WMS software solutions, our product line is used to transform many facilities into effective and productive operations. The following is a review of a very reputable resource that should be part of your company library.

The WMS Handbook will be your guide to selecting, purchasing, implementing and operating a warehouse management system for your facility.

The Handbook opens by providing an introduction to warehouse management systems, what they are and how they’re used in the warehouse to maximize efficiency, reduce errors and lead time, and optimize labor and space utilization.

This is followed by a thorough and complete discussion of how to develop an effective business case for your WMS, select the right system, and get it up and running. This material includes a 30-page vendor directory with details on system capabilities and functionality, along with full contact information.

In the event that you are integrating your WMS with other systems, you’ll find a wealth of information on systems integration with detailed sections on interfacing with transportation management systems, conveyor and machine control systems, voice directed systems and pick-to-light systems.

You’ll also find individual sections devoted to Automatic Identification Systems, Compliance Labeling, Electronic Data Interchange, and Radio Frequency Communications.

But no handbook would be complete without examples of these systems in use in a wide range of distribution settings. Six detailed case studies illustrate the best practices and principles described in the handbook.

Whether you are tackling implementation on your own or with a consultant’s support, you’ll find the knowledge and insights gained from The WMS Handbook will help you move smoothly from preliminary planning to post-implementation acceptance testing and beyond. To obtain your copy go to www.distributiongroup.com.

Material Handling Trends

Automated Replenishment
The following is a reprint of a FKI Logistex summary of their Automated Replenishment solution.

"Manually replenishing SKUs for less-than-full case picking is expensive and time-consuming for large retail and manufacturing operations," says Ken Matson, executive vice president, FKI Logistex North America. "The FKI Logistex automated replenishment system employs the efficiency of mini-load cranes to ensure that if inventory is in the building, it is available as soon as it needs to be picked."

By ensuring that pick faces are continuously restocked, the FKI Logistex system eliminates replenishment downtime that frequently occurs in manual systems. The use of dynamic slotting logic in the FKI Logistex system minimizes the number of flow lanes required to service orders. Fewer flow lanes mean lower costs and shorter pick paths for increased pick rates.

The ability of the mini-load crane to automatically reconfigure pick faces on-demand as SKUs change makes the system ideal for handling short-run and seasonal products and for large retail DCs that have more SKUs than pick faces. All SKUs - high-velocity and low-velocity items - are handled with the same system and replenished and stored automatically.

How it Works
When pallets are delivered in a typical FKI Logistex automated replenishment system, the trash and dunnage is removed and the product is immediately sorted and placed directly into plastic totes. A tote-based system eliminates the buildup of trash through the picking process and provides consistency when compared with systems that transport SKUs in their original boxes, which can vary in size. A conveyor routes the totes to the rack system, where mini-load cranes move the totes to static rack locations for storage as general inventory.

At the beginning of each wave, the FKI Logistex control system reassigns pick faces based on immediate demand to support customer orders or replenish store inventory. The mini-load crane automatically retrieves totes from the rack and fills up the necessary slots. The logic built into the system maintains a balance of static locations - fast-moving SKUs that can be changed to follow seasonality - and dynamic locations, which can be reassigned wave after wave to present SKUs needed for the next round of orders.

A combination of FKI Logistex EASYpick® GoKart(TM), pick-to-light, and pick-to-voice order fulfillment systems are used for picking totes, which are placed on a takeaway conveyor for routing to shipping and sortation. Empty totes are placed back on the same conveyer and are diverted downstream for automatic stacking, staging, and routing to tote filling for new SKUs.

The Versatile FKI Logistex Mini-Load Crane
The FKI Logistex mini-load crane is a rail-running crane designed for automatic storage of non-palletized loads such as cartons, trays and totes at elevations up to 71 feet. With up to 99.99 percent inventory accuracy achievable, the mini-load crane is used for automated storage and retrieval, automatic flow lane replenishment for order picking systems, load buffering between production cells, multi-elevation and multi-position load delivery, and fully dynamic load sortation and staging.

The top-guidance, all-electric mini-load crane offers curved-rail aisle changes and features direct AC-powered hoist and traction, a steel-cable-reinforced, toothed-belt hoist system, laser positioning, PLC control, and IR and RF communication. Available in single- or double-mast configurations with multiple load-handling devices, the crane can handle items up to 500 pounds.

A new FKI Logistex automated fulfillment system can be implemented in under a year and provides a high ROI by helping companies reduce square-footage expansion or greenfield construction costs. Contact Morrison Company today for an assessment of your automation needs.