Real-World Example From a Medical Device Company
Potrero Medical reported their ECO (engineering change order) cycle times were shortened by 30% using Arena’s cloud-based quality management system. For product and quality management processes, you can see more benchmarks in these customer stories. Let’s look at how you might build a financial case for this business need.
Identify Processes to Improve
Automating ECOs, like Potrero Medical did, impacts business in three ways.
- Increased revenue: faster ECOs means faster new products and features to market. The better the product—the more products you can expect to sell.
- Decreased costs: faster ECO processes means correcting product or quality problems faster. Often, products built with errors or other issues cannot be sold, which often results in recalls, mandatory rework, or scrapped product. This expense is a direct bottom-line hit. So, finding and fixing product problems faster reduces that cost.
- Ability to scale: more product types or increased production volume often requires more employees and partners to collaborate throughout ECO review processes. The ability to get everyone’s feedback and input into the change without slowing down approvals is key to meet demand.
Target Improvement Metrics
- Expected: looking at the vendors’ case studies (such as Arena’s), improving ECO cycle time by 30% is the average improvement.
- Best case: given that the team uses email and spreadsheets now, with a lot of manual inputs and serial signoffs, we think best case is 45% improvement.
- Worst case: we recently re-engineered our ECO process by redesigning the form and using ad hoc tools that we already have in-house. That improved our ECO cycle time by 12%. So, we may only get 15% improvement.
Translate Into Financial Benefits
Ideally, you would model expected, best, and worst case. For the purposes of this example, we’ll use worst case for target improvement metrics, which is 12% ECO cycle time improvement.
- Sales reports that they could sell 0.2% more products with 12% faster new feature releases. And, they added that a more predictable release schedule would improve that even more.
- Manufacturing reports that they could reduce scrap and rework costs by 7% for 12% faster ECOs.
- Engineering can speed approvals of cost-reduction ECOs in their backlog that represent $80,000 in cost of goods sold.
- Both engineering and manufacturing agree that an online, connected system for ECOs would better support the planned growth to develop, test, and ramp production of new and improved products.
Return on Investment (ROI)
For our scenario, assume the favored solution costs $95K annually, plus $15K startup costs in the first year.
ROI = (Gain from Investment – Cost of Investment) / Cost of Investment
3.14 months = (456,000 – 110,000) / 110,000
If the numbers above are valid, you will easily make that investment back within a year—in fact, in less than four months, and your cumulative ROI over five years will be 444%. You can calculate out your yearly costs against continued investment gains and build a sophisticated ROI model if necessary with this template.