Return On Value vs Return On Investment (ROV vs ROI)

1. Considering the laissez-faire origins of modern capitalism, it makes sense that Milton Friedman, a prominent economist during the latter half of the 20th century, claimed the only social responsibility of a business was to increase its profits.

2. His view favored the Return on Investment (ROI) which is still a popular way to measure the profitability of an asset.

3. However, ROI only looks at financial benefits of a business decision and ignores things like:

a. Customer satisfaction

b. Employee retention

c. Regulatory compliance

d. Environmental sustainability

4. However, the return on value (ROV) considers a venture’s monetary and non-monetary benefits.

5. Like how an increase in the production of goods to meet a quarterly financial goal, will affect employee productivity in the following months.

6. Let us look deeper at ROV and how businesses can use it to make investment decisions that grow customer and employee loyalty – without exploiting humans or the environment.

Making Strategic Sourcing Decisions Based on Total Cost of Ownership

1. You make a product in China. You went it alone. You found someone on the internet and they promised they could manufacture your product to your standards in the time required for the lowest price. Unfortunately, they also made an absolute hash of it.

2. If that wasn’t bad enough, you spent so much time on the phone sorting out quality issues and shipping problems that the “low cost” of the product skyrocketed because of the extra costs of fixing the quality problems (which were stopgap at best) and air freighting your product to customers (an unsustainable solution).

3. You’ve run into a perfect example of what happens when the lowest cost is the ultimate goal rather than looking at the whole picture.

4. As you probably guessed, we certainly aren’t bashing sourcing from China or anywhere overseas. There are great, quality manufacturers and suppliers to be found in China, Vietnam, India and elsewhere. We are, however, believers in approaching sourcing decisions, whether overseas or domestically, from a total cost of ownership (TCO) point of view. Properly used, TCO is a tool that can serve as a vital layer in the decision-making filter of choosing a contract manufacturer or supplier.

Predictive Maintenance

Predictive maintenance (PdM) is an increasingly popular strategy for facility management leaders. Learn why and learn how to set up a successful PdM strategy.

ROI for Industry 4.0 use cases

1. No factory can risk being left behind in the transition to smart manufacturing. If a factory fails to innovate its product and production process, it risks incurring a Cost of Inaction (COI), which is the cost of the lost opportunity. Deploying dedicated cellular-enabled industry 4.0 solutions can generate an operational cost savings ROI of 10x to 20x over 5 years. Learn from Industry 4.0 uses cases on how to move ahead wisely.

2. A recent study from ABI Research outlines the “intelligence” in a smart factory and how it is underpinned by cellular connectivity, which plays a business-critical role. Applications of cellular technology are exemplified with concrete Industry 4.0 use cases, providing business justification and initial steps for how manufacturers can move their digital transformation forward.

3. Calculating Return on Investment (ROI) and Cost of Inaction (COI) by weighing operational costs and savings demonstrates the business impact of Industry 4.0 applications and solutions running on dedicated cellular networks.

4. According to the report, “Over 4.7 billion wireless modules will be deployed across smart manufacturing factory floors to enable over USD 1 trillion in production value by 2030.” Manufacturing executives need to understand why and how to develop the right connectivity strategies to unlock this value.

What’s shaping CCUS project costs?

1. A better understanding of carbon capture, utilisation and storage (CCUS) costs is needed before the technology can become a commercial reality on a truly global scale

2. Carbon capture, utilisation and storage (CCUS) looks set to become a key element of net zero future. A combination of factors is prompting new project announcements: carbon taxes, government subsidies, operator and/or investor desire to reduce emissions, consumer willingness to pay more for carbon-abated products and the ability to sell carbon removal as an offset.

3. Based on risk analysis of current global projects in development and view of future growth, global capture capacity to increase more than sevenfold over the next 10 years, from 50 Mtpa to more than 370 Mtpa. Over US$150 billion in capital expenditure is required. Accelerated Energy Transition (AET) 1.5 °C scenario calls for 2 Btpa of CCUS, almost six times those projections, with roughly commensurate capital costs.

4. So, while the world determines whether and how to incentivise carbon capture to meet climate objectives, CCUS project developers are beavering away, designing projects that maximise the abatement per dollar of cost. Without improved clarity on these costs, development stumbles and capital does not flow freely.

Industrial Product Price Index (IPPI) and Raw Materials Price Index (RMPI)

 DEFINITION
1. The Industrial Product Price Index (IPPI) reflects the prices that producers ireceive as the goods leave the plant gate. 

2. The IPPI excludes indirect taxes and all the costs that occur between the time a good leaves the plant and the time the final user takes possession of it, including the transportation, wholesale, and retail costs. 

3. The report also contains a measure of domestic producers' Raw Materials Price Index (RMPI)  which can be seen as a very loose leading indicator of the IPPI.

Employment Multipliers for the U.S. Economy

1. When it comes to the ripple effects that spread to the rest of the labor market, one lost dollar of economic output or one lost job is not the same as another.

2. Each industry has backward linkages to economic sectors that provide the materials needed for the industry’s output, and each industry has forward linkages to the economic sectors where the industry’s workers spend their income. 

3. Therefore, in addition to the jobs directly supported by an industry, a large number of indirect jobs may also be supported by that industry. The subtraction (or addition) of jobs and output in industries with strong backward and forward linkages to other economic sectors can cause large ripple effects.

4. This brief calculates employment multipliers by industry to illustrate the importance of these linkages, updating earlier work by Bivens (2003) and Baker and Lee (1993). Employment multipliers measure how the creation or destruction of output or employment in a particular industry translates into wider employment changes throughout the economy.

Robotic Process Automation (RPA) Costs & Return on Investment (ROI)

1. As of 2020, 72% of companies surveyed by Deloitte had already implemented RPA tools. Improved compliance and quality topped the list of benefits reported by RPA pioneers. At the same time, 59% of enterprises registered a significant RPA-related cost reduction, with the median payback period for RPA projects spanning less than 12 months. 

2. However, only 3% of companies succeed in scaling their digital workforce, while up to 50% of initial RPA projects fail. Given that robotic process automation costs for a single software bot may range from $5,000 to $15,000, your business might end up spending millions of dollars to achieve company-wide automation. 

3. Before making the investment, most production and operations managers will need to provide sufficient evidence to company leadership and stakeholders that automated machinery would be a profitable venture throughout the lifecycle of the equipment.

4. What are the key factors behind the presumably high robotic process automation cost? Most importantly, what should your company do to realize RPA’s full potential without breaking the bank? 

Measuring Overall Equipment Effectiveness (OEE) & its application & challenges

1. At its most basic, overall equipment effectiveness (OEE) is a simple calculation that can be the foundation of great process analysis. It is used to evaluate one machine, one station, or an entire factory. 

2. It’s understandable by operations, engineers and executive management, and it can guide real-time and long-term process improvements.

ABC (Value) & XYZ (Demand) Inventory Analysis

 1. ABC inventory analysis is a method used to classify a business’s stock items into three categories – A, B and C, based on their value to the business. 

2. A items are the most important in terms of the value they bring a company, whilst C items are the least valuable. 

3. ABC inventory analysis is important as it helps managers focus their time on their most valuable / important products and adapt their inventory control policies accordingly.

Sales Forecast Basics and ABC Inventory Classification

1. A sales forecast is a prediction of future sales revenue. Sales forecasts are usually based on historical data, industry trends, and the status of the current sales pipeline. Businesses use the sales forecast to estimate weekly, monthly, quarterly, and annual sales totals.

2. New businesses that don’t have much data about their own sales process may need to rely on industry averages or even educated guesses. On the other hand, more established companies can use their historical data to model future performance.

Inventory Demand Forecasting Techniques, Forecasting for Subassembly levels and Bills of materials

1. Inventory demand forecasting is the process of predicting customer demand for an inventory item over a defined period of time. 

2. Accurate inventory demand forecasting enables a company to hold the right amount of stock without over or under-stocking, for optimum inventory control. 

3. Historical data trends and market knowledge of how demand can fluctuate are often used to forecast inventory demand.

4. Forecasting inventory can be as basic or as complex as you make it. 

5. As a simple rule, the more sophisticated your inventory forecasting techniques, the more accurate your predictions will be. 

6. Accurate demand forecasts allow you to efficiently serve customers’ needs without investing capital in large amounts in stock, effectively helping you lower your overall operational costs. 

7. However, inventory forecasting can be challenging to undertake without the right guidance, so starting with basic forecasting techniques is advisable.

Understanding Purchasing Managers' Index

1. One of the most reliable leading indicators for assessing the state of the  economy is the PMI, formerly known as the Purchasing Managers' Index.

2. Members receive a monthly questionnaire that asks them to identify month-over-month changes for the following ten business activities that also constitute individual indexes in the Report on Business survey。

3. The most common answers include:

-Improvement
-No change
-Deterioration

Overall Equipment Effectiveness

1. OEE (Overall Equipment Effectiveness) is the gold standard for measuring manufacturing productivity. Simply put – it identifies the percentage of manufacturing time that is truly productive. An OEE score of 100% means you are manufacturing only Good Parts, as fast as possible, with no Stop Time. In the language of OEE that means 100% Quality (only Good Parts), 100% Performance (as fast as possible), and 100% Availability (no Stop Time).

2. Measuring OEE is a manufacturing best practice. By measuring OEE and the underlying losses, you will gain important insights on how to systematically improve your manufacturing process. OEE is the single best metric for identifying losses, benchmarking progress, and improving the productivity of manufacturing equipment (i.e., eliminating waste).

OEE, OOE, AND TEEP

1. OEE is measured by combining a machine’s performance, availability, and quality.  In this way, OEE helps you to identify potential losses and understand where your process is falling short.  But OEE alone is just the first step to fully understanding your performance.

2. Today we will explore two other important and related metrics to help round out your continuous improvement strategy: Overall Operations Effectiveness (OOE) and Total Effective Equipment Performance (TEEP).   

Understanding Manufacturing Productivity, Difficulties in Measuring, & Productivity vs Efficiency

1. Productivity is defined as outputs ÷ inputs. Productivity increases when the same quantity of inputs results in more outputs, or when you get the same output quantity using fewer inputs.

2. When calculating productivity at a whole economy scale, economists often measure the ratio of gross domestic product (GDP) to labour hours.

3. Similarly, productivity in manufacturing measures the number of units produced or net sales, relative to employee labour hours.

4. It’s important to note that measuring labour hours as the sole input is only a partial measure of productivity. In practical terms, this is a useful benchmark, as labour is an input to almost all production. However it does not capture the full productivity picture, and other measures including Capital Productivity, Multifactor Productivity and Total Productivity are also used (see below).

Generalized Linear Model - Part 3 - Overcoming Rigid Pricing Structure and Alternative Use

1. the most important elements of the price,is the expected claims cost and the demand for the product.

2. There are other considerations, such as a more in-depth treatment of variable expenses, investment income, cash flows, claims development, return on capital and fixed expenses.

3. How we can build these different rating components into a pricing system.

4. Most statistical analyses are compromised in order to fit into a rigid table design from which the premiums are calculate. The situation is further exaberated when profit margins especially when loads and discounts given for a variety of reasons.

Generalized Linear Model - Part 2 - GLM Functions for Pricing Structures

DEVELOPING OPTIMAL PRICING STRUCTURES
1. There are four basic components of estimating the premium to be charged; firstly the risk premium, secondly the direct policy related expenses, thirdly a contribution to fixed overhead expenses and finally a profit margin.

2. The industry partices with profit load and risk premium relativities for different customers being combined in some way. Consequently, in a competitive market, marketing discounts and/or rating action in response to competition become indistinguishable from rating action taken in response to changing claims experience.

3. if it were possible to anticipate an individual customer's response to the new business or renewal terms offered, then a probabilistic approach could be adopted in setting both the contribution to overheads and the profit margin in order to maximise expected profit.

4. The model needs to be flexible enough to take into account the individual characteristics of each policyholder and be able to respond to the dynamics of the market place. Under certain market conditions or market segments it is quite plausible that the profit loads can be negative.

Generalized Linear Model - Part 1 - Multiple Regression Approach

1. A dynamic pricing system can be built for personal lines business, whereby profit loads and risk premiums can be tailored to the individual behavioural characteristics of the customer. 

2. The objective is to use as much information as input to these models in order to establish which risk factors are the most predictive.

Provision of Risk Margin for Adverse Deviation (PRAD) Models - Characteristics, Pros and Cons

1. Many countries in the region are using the RBC (Risk Based Capital) approach to determine the capital requirements.

2. The PRAD shall be determined such that the overall valuation of guaranteed liabilities secures 75% sufficiency.

3. Why do we need risk margins? As we progress, we are facing an Increased uncertainty in the current estimate of liabilities and its trends. 

4. Different countires have different names for risk margins.