Calculating ROI for Smart Storage Solutions in Manufacturing

Investing in modern smart storage solutions is a significant decision for manufacturers, but one that can yield substantial returns. These systems not only save space but also reduce manual labor and significantly minimize human errors, leading to greater efficiency and cost savings. However, every manufacturing operation is unique, and calculating the return on investment (ROI) for smart storage requires a tailored approach. This blog explores various ways manufacturers can assess the potential ROI of implementing smart storage solutions.

Floor Space: Immediate ROI from Maximized Efficiency

For manufacturers, floor space is often a premium resource. Smart storage solutions can reduce storage space requirements by up to 90%, allowing manufacturers to reclaim hundreds or even thousands of square feet. The value of this saved space depends on its cost per square foot.

For example:

• If your storage area costs $20 per square foot annually, reducing 1,000 square feet of storage translates into a direct savings of $20,000 per year instantly.
• Beyond direct cost savings, repurposing freed-up space for value-added operations, such as assembly lines or testing areas, can further enhance ROI.

Calculating the financial impact of reclaimed floor space is one of the simplest and most immediate ways to measure ROI. For manufacturers with vast stockrooms operating below full capacity, this calculation alone can justify the investment.

Manual Labor: Saving Time, Reducing Costs

Material handling processes in traditional rack-and-bin systems often require operators to spend significant time locating and managing parts. Searching for a single package in a typical system can take 10 minutes or more, especially when checking and transacting items in ERP or MES systems.

Modern smart storage solutions reduce this time drastically:

• Operators can pick and put away parts in under 10 seconds.
• By calculating the current cost of labor spent searching for parts and comparing it with the time saved using a smart storage system, manufacturers can quantify ROI in terms of labor efficiency.

For example:

• A manufacturer spending 40 hours per week on manual picking and storing tasks could reduce this to a fraction of the time.
• Assuming a fully-loaded labor cost of $35 per hour, going from 40 hours of manual labor per week to 4 hours equates to more than $60,000 in annual savings.

Going from 40 hours to 4 hours may seem too good to be true, but with the best modern solutions, this is actually a conservative estimate! Most manufacturers with multiple production lines are spending a lot more than 40 hours per week as well. This labor savings directly contributes to ROI while freeing up employees to focus on more productive, value-added activities.

Error Reduction: Eliminating Costly Mistakes

Errors in part selection can be both costly and time-consuming to fix. In traditional systems, ensuring that the right part is picked often involves guesswork, double-checking, and manual validation. Mistakes can lead to material waste, production delays, and even product failures—all of which carry significant financial consequences.

Smart storage solutions eliminate these risks:

• Advanced systems automatically select the exact package required for each job based on predefined picking criteria, such as lot codes, expiration dates, or manufacturer part numbers.
• By automating this process, smart storage solutions remove the potential for human error, reducing waste and rework costs.

For example:

• If a manufacturer incurs $50,000 annually in costs related to picking errors, implementing a system that eliminates 90% of these errors could save $45,000 annually.
• Combined with the time saved from avoiding error-related rework, this is another substantial contributor to ROI.

Additional ROI Factors: Beyond the Basics

While floor space, manual labor, and error reduction are the primary contributors to ROI, manufacturers should also consider other potential benefits, such as:

• Improved Inventory Accuracy: Smart storage systems provide real-time data on inventory levels, reducing stockouts and overstocking, which leads to better purchasing decisions and cost savings.
• Enhanced Throughput: Faster picking and storage processes enable higher throughput, allowing manufacturers to scale production without adding headcount or equipment.
• Employee Morale: Simplifying repetitive, manual tasks reduces strain on employees, potentially improving morale and reducing turnover.

Building Your ROI Model

Every operation is different, and the true ROI of smart storage depends on the specific metrics and priorities of your business. To build an ROI model, consider the following steps:

1. Assess Current Costs: Identify costs related to storage space, labor hours spent on material handling, and error-related waste or rework.
2. Quantify Savings: Estimate how much of these costs can be reduced or eliminated with a smart storage solution.
3. Include Intangible Benefits: Factor in improvements to efficiency, employee satisfaction, and scalability, even if these are harder to quantify.
4. Calculate Payback Period: Divide the initial investment by the annual savings to determine how quickly the system will pay for itself.

Conclusion

Calculating ROI for smart storage solutions requires a comprehensive look at how these systems can transform your operations. From reclaiming valuable floor space to reducing manual labor and eliminating costly errors, the benefits are wide-ranging. By tailoring your ROI calculations to your specific processes and priorities, you can build a clear case for investing in modern storage solutions that enhance efficiency, cut costs, and position your business for future growth.