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Supply Chain Management

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ROI Strategy

What is ROI? (Return On Investment)

ROI is a performance measure used to evaluate the efficiency of an investment or to compare the efficiency of a number of different investments. From the perspective of manufacturing and technology, this could be justifiably contextualised as ‘how does my company maximise Return On Investment from my technology investment?’ Of course, cautious expenditure is a fundamental of any company – how does this benefit my company’s bottom line and make it better? A number of software providers provide some interesting perspectives, Shark Software and ComActivity are good examples.

How is it calculated?

Calculating ROI on expenditure on technology aimed to help your supply chain management depends on your expectations. Broadly speaking, a company may compare two different products by dividing the gross profit that each product has generated by its respective marketing expenses. A financial analyst, however, may compare the same two products using an entirely different ROI calculation, perhaps by dividing the net income of an investment by the total value of all resources that have been employed to make and sell the product. Whichever way you look at it, try to be precise as possible and realistic with your expected outcome. Does applying some new software mean that your business will immediately achieve stratospheric profits? Most likely not. It needs to be implemented effectively, your staff need to understand how to use it well and your customers need to see beneficial results to their engagement with you.

Key elements to consider

    Here is a list of 5 key elements to consider:
  1. Cost of Deployment – Costs that will occur due to the investments your business undertakes.
  2. Cost of Software – Software costs involved in purchasing and tracking your efforts.
  3. Associated Risks of Implementation – What are the possible issues involved with rolling out your investment
  4. Staffing, Training & Overhead – Time and costs involved with training or hiring staff, not only to implement and adopt your new software but also what might be needed if results turn out beyond your current capacities.
  5. Cost-Savings Resulting from Implementation – did the return on your investment cover all associated costs and still hit targeted profit margins?