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Data cleansing projects, like all company-wide initiatives, require an initial investment of both time and money. Before you can get resources allotted, though, you’re going to need your C-suite to understand the benefits the project will actually bring. That may sound like a daunting task at first, but it doesn’t have to be if you arm yourself with the right knowledge.
In general, most business cases for data cleansing are built upon the justification that quality data will deliver significant cost reduction and cost avoidance. But if you’re not familiar with the process and its outcomes, it may not be immediately obvious how you actually reduce costs or what those reduced costs are. And without a clear itemization of the project’s benefits, you can have trouble even getting it off the ground.
In today’s blog post, let’s discuss your return on investment (ROI) and how you can accurately gauge what your savings will be in advance.
Benefits of a data cleansing project
If you’re planning a data cleansing project, you have probably already heard of the many benefits they bring! Actionable, world-class data can make a huge difference in many different areas.
Some of the biggest improvements you’ll see tend to be:
Efficient part searchability
Maintenance time savings
Accurate reporting capabilities
Identification and elimination of duplicate items
Reduction of excess and non-moving inventory
Less equipment downtime
Fewer maverick purchases
Fewer expedited part orders
OEM to MRO conversion opportunities
Maximum ERP/EAM functionality
We even wrote a series of blog posts that cover a lot of the improvements quality Material Master data brings: How Material Master Data Drives Efficiency: Introduction
While all of these benefits are realistic and attainable, the question still remains, how do they translate into hard dollar cost savings and return on investment for the company?
How do you translate that into ROI?
The key to understanding the value of the data cleansing initiative is to define the direct correlation between data quality and return on investment as it relates to operation costs and production capacity. After all, the main objective for any company is to improve the bottom line–which means operating at the lowest cost, while maximizing production capacity. The maintenance department may appear to reap most of the immediate benefits, but data cleansing provides many long-term benefits that span far beyond any one department.
Material Master data plays a much larger role in the organization, even for those who do not have a hands-on relationship with it. For instance, clean, consistent materials data that directly improves part searchability will result in maintenance time savings and improved efficiency when performing predictive or catastrophic maintenance. Subsequently, maintenance time savings and improved efficiency will equate to downtime reduction, therefore, increasing production output capacity. Now that’s the kind of return on investment that your Finance team is looking for.
To understand what ROI your data cleanse can generate, you need to first identify how each benefit leads to profitable outcomes like increased production or productivity or decreased spending.
Let’s revisit our list above:
Efficient part searchability > reduced time searching > more employee work hours available for other tasks
Maintenance time savings > reduced downtime > increased production output capacity
Accurate reporting capabilities > better ability to make cost saving decisions
Identification and elimination of duplicate items > reduced purchasing and opportunity for inventory resale/buy backs
Reduction of excess and non-moving inventory > reduced purchasing and opportunity for inventory resale/buy backs
Less equipment downtime > increased production output capacity
Fewer maverick purchases > reduced purchasing costs
Fewer expedited part orders > reduced purchasing costs
OEM to MRO conversion opportunities > reduced purchasing costs
Maximum ERP/EAM functionality > better ability to make cost saving decisions
What kind of ROI can you expect?
Based on years of experience and project success, IMA has identified the following industry standards that can be used to perform a conservative return on investment calculation for data cleansing. The standards below are organized into the area of improvement to which they correspond.
Duplication
On average, duplication ranges from 10-20% within an uncleansed item master.
Approximately 25% of the duplicate value is eligible for inventory reduction.
Purchases and spend leverage
Approximately 60% of Annual Purchases qualify for spend leverage opportunities.
On average, 5% purchase price reduction can be captured through spend leverage opportunities.
On average, excess-active items represent up to 20% of the total MRO inventory value.
Time savings
On average, maintenance personnel will save 0.5 hour per day.
OEM
On average, 30% of the item master represents OEM items.
Approximately 10% of OEM items can be interchanged to a standard MRO.
Approximately 25% purchase price savings can be captured on OEM to MRO conversions.
However, these standards are just a general estimate. Before you start a data cleansing project, you should receive an estimated ROI based on your specific situation.
Calculating your ROI
To complete a more personal ROI calculation, you will also require several company specific input values. Those values include:
Total Number of SKUs (Items)
Total Annual Part Purchases
Total On Hand Inventory Value
Number of Maintenance Personnel
Maintenance Hourly Burden Rate
After you have obtained all required information, you or your service provider can proceed to perform an ROI calculation to clearly illustrate the immediate and future benefits of data cleansing.
IMA’s free ROI calculator
IMA offers a complimentary ROI calculator on our website that you can use to get a personalized ROI based on your company’s information. IMA uses proven data and our years of experience to get you the most accurate estimate for your specific situation.
Check it out or contact us at info@imaltd.com for more information. We’re happy to answer any questions to help you begin your data cleansing journey!
So that’s it?
It’s important to note that, while a data cleansing initiative is incredibly valuable and can pay off with your ROI, the work doesn’t end when the data cleansing wraps up. Once all of the low hanging fruit has been harvested through the data cleansing initiative, the objective becomes maintaining ongoing data integrity and providing sustainable benefits through ongoing cost savings initiatives, such as inventory optimization.
Neglecting to implement a catalogue management strategy will result in a corrupt data relapse, which means all of that money you just spent on data cleansing will have been for nothing. Implementing a long term solution is what will really maximize your ROI.
What’s involved in a long term solution?
When we talk about a long term solution, we’re talking about strategies used to keep your data clean and usable and take advantage of it.
The main solution is ongoing data governance, to make sure the data you continue to add is consistent and not duplicative. But you might also consider how you can use your cleansed data to leverage spend and maximize your purchasing, right-size your inventory, or optimize your storeroom.
How can IMA help?
IMA is a leading MRO data management service provider with decades of experience. Not only can we help you get an estimate on your ROI for free, but we also provide a free data evaluation to help you kickstart the process and determine what’s right for you. Check out our free data evaluation tool here.
IMA offers the most flexible options in the industry; we’re confident that we can help you optimize your Material Master data!
Conclusion
While the price of data cleansing services may seem quite high at first glance, the immediate and long-term cost savings opportunities greatly outweigh the initial investment. In most cases, data cleansing projects will pay for themselves within 3-6 months from project completion. Find out today what savings await your company!
For questions or more information, contact info@imaltd.com. We look forward to hearing from you.
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