Tag Archives: return on investment

Qualitative Considerations: How to determine ROI in Materials Handling, Part 3

In our first installment on ROI evaluation, we discussed the “hard” evidence and facts such as product cost, operating costs, space utilization and the like. Next, we looked at throughput and turnover as additional vital calculations. These are major factors in any capital expenditure evaluation, however they are not the only criteria to be considered – additional, more qualitative or “soft” evaluation needs to be considered, such as the following:

  • Customer awareness and perception. How do your customers view your organization? Do they see a leader? Do they see a vendor willing to go out on the line to protect their interests and invest in technology which will deliver them better products and services at more competitive pricing? It’s an important consideration and one that reminds us of the old adage that, “You only get one chance at a first impression”.
  • Employee Morale. Remember that advertisement for cheese… Great cheese comes from happy cows? The commercial works because of the human metaphor – study after study proves that if your employees feel you’re working with them to make their jobs more productive, safer and more fulfilling- they’ll return the same commitment to the organization. We refer to this as the Material Handling Golden Rule of Employees. Do unto others as you would have them do unto you. Want employees to go the extra mile for you? Show them you’re taking a stake in their success and provide them with the proper tools to do the job at hand.
  • The value of being a “show-off”! Let’s say you buy a new car. Your neighbor notices it and you invite him or her over to see your new car. They go home afterward saying, “Wow, Jim and Jane are doing really well; buying that car was a great decision”. Why not invest in technology to show off to your customers that you’re being the best you can be? Have an open-house, a meet and greet or a customer appreciation day, bring your customers and prospects to you and show them that, as an organization, you’re making good decisions to help earn their trust and their business.

ROI evaluation involves much critical thought, calculation and investigation. Safety, cost analysis, space utilization, worker protection, insurance, product maintenance and many other factors are rolled into the equation. But the softer side ­—the “sizzle” as we call it— is often times more important than the actual “steak”. Roll some good marketing into your capital expenditure plans. Use your organizational development to prove to your customers that their interests are yours and vice versa. That’s the best ROI evaluation one can think of, in drum handling or any other industry!

Throughput: How to determine ROI in Materials Handling, Part 2

The first part of our ROI blog focused on costs and cost reduction: labor, product damage, cost of space and ancillary products (pallets for example).  All of those items bear mentioning and scrutinizing when trying to establish a credible conclusion on return on investment of capital equipment.

There are other areas that need to be considered as well.  Throughput is a major player in the ROI discussion.  Let’s say you’re looking at two warehouses; both have the same size footprint, the same dock facilities, number of staff etc.  One of the warehouses has mechanized much of their material handling function, allowing for a 20% greater use of space, a damage quotient reduction of more than 5% and overhead savings of 10% in fuel, utilities and other costs associated with keeping the warehouse running.  We’ll call this warehouse A.

The other warehouse moves the same goods, but in a more rudimentary fashion. Everything is palletized, there is little or no mechanization, no cubic storage capacity and only minimal storage and retrieval equipment in the forms of standard forklift trucks.  We’ll call this Warehouse B.

A review of the two warehouses would seem to indicate that “A” performs better than “B” simply because their costs are lower.  This may be true, but very possibly only represents half of the story.  “A” can also receive, store and ship substantially more goods than “B” in a comparable period of time.  This is called “turnover”, and is a basic principle of ROI calculation.  If you can turn your inventory 3, 4, or 5 times faster than a competitor, you’re averaging your costs out over far more product, bringing the per-product costs down substantially and increasing cash flow at the same time.  Ask any accounting professional if they would like to take a facility from 5x inventory turns to 8x inventory turns and see how they react – we bet they’ll buy you lunch!

Product throughput is a vital element in the establishment of ROI calculation.  In the final installment of the ROI blog, we’ll review the human factor and “soft calculations” that will round out our argument that “The quality is remembered long after the prices is forgotten”.

Cost vs. Value: How to determine ROI in Materials Handling: Part 1

parrot-break-2We’re asked frequently why our Liftomatic “Parrot-Beak®” products cost what they do, or why they’re “so expensive”.  Our answer typically begins with “compared to what?”  The ensuing discussion usually explores cheaper products (in technology and manufacturing technique), the use of pallets, manual handling, and a litany of issues regarding material handling in general.

The primary way we answer this question is to say that if our customers are willing to take the time to talk to us to “truly” determine and investigate the issue of “cost”, we’ll show them how our products are not only inexpensive, but a true bargain.  The answer, you see, is more nuanced than simply reading the number on the price tag of a piece of equipment.  The true value lies not in the expenditure but what that expenditure returns: very simply, “ROI” or Return On Investment.  To study the ROI as it relates to Liftomatic drum handling products, a detailed analysis has to be undertaken to see what it costs you now to handle your drums, then compare it to what it costs using a Liftomatic product.

To determine proper ROI, we ask customers to consider the following things:

  1. The cost of their space (cubic utilization of space using Liftomatic is enhanced)
  2. The cost of operating lift trucks on a per-hour basis (we’re going to reduce it)
  3. The cost of labor (imagine loading 80 drums in 40 minutes instead of an hour!)
  4. The cost of pallets (we’re going to cut your pallet usage in half)
  5. The cost of damaged drums, labels and lost product (we can help here too)
  6. The cost of a single work-time injury or accident that can be prevented using proper equipment.

It is these (and many other) items that help with the development of a true ROI calculation when using Liftomatic products.  In the next issue we’ll describe more of the process and explain why we can back up the saying that “The quality is remembered long after the price is forgotten!”