Calculating the return from Net Contents Control?

The biggest problem when implementing a Net Contents Control system that “everyone knows you need”, is putting together the business case for management to release the funding.  This is where the financial people have an advantage – it is easy for them to obtain funding for the new ERP system – assume a n% reduction in inventory, n days faster collections, n% efficiencies in logistics, etc.  All numbers they are accustomed to working with that can add up to millions.

But justifying an operational system is harder: the people doing the business case are not as comfortable in doing so, and data is harder to find.   So for net contents, here is the quick and easy justification… and the really nice thing is that it happens almost immediately after installing the new system… not months or years later.  Simple visibility to real time Net Contents information results in immediate improvement, and consistent visibility maintains the new level.

The visibility reduces the over-pack, without reducing the average to below label.  This is done by tightening up the curve, not just shifting it down.

From this

 

 

 

 

 

to this

 

 

 

 

 

to this

 

 

 

 

 

 

 

The math:

Total raw materials cost last 12 months:                 $

(Average net weight / declared)  – 1                         %

Reduction by 50% of overpack                                 %
Reduction * Total = Savings Year 1                          $

Almost always the savings will exceed the implementation costs by orders of magnitude. An example, with small numbers:

Annual Raw materials cost:                                          $1,000,000
Average overpack  (450 gr / 410 gr) – 1                          9.75%
Reduction by 50%  (9.75 /2)                                            4.875%
Reduction in Raw Material cost 1M *4.875             $48,750 per year.

Most of our clients have much larger numbers, but this just shows how little it takes to justify a pretty significant system!

There are a number of ancillary benefits like: improved accuracy of records, passing regulatory audits with less preparation , reduction in fines, less paperwork for operators, less storage costs for the paper, etc., .. but these are less directly quantifiable and the numbers can be disputed.  A pure reduction in material cost is easy to quantify and track.  Frankly, the hardest part of the justification is that financial people tend to be skeptical when presented with a payback period of less than 18 months… but it is the absolute truth.