"Cost and ROI justification to owners needed."
That sentiment appears frequently when manufacturers evaluate Andon systems. The technology makes sense operationally—but the business case needs numbers.
This article provides a framework for calculating Andon system ROI. You'll learn how to quantify current costs, estimate realistic improvements, and build a credible business case that finance teams can support.
The ROI Framework for Andon Systems
ROI calculation follows a straightforward formula:
ROI = (Annual Savings - System Cost) / System Cost × 100
For Andon systems, savings come from three primary categories:
- Downtime reduction — Less wait time means more production
- Labor efficiency — Less time walking and searching
- Quality improvement — Faster support reduces defects
Step 1: Calculate Your Current State Costs
Before estimating what an Andon system will save, you need to understand what the current state costs.
Identifying Wait Time
Wait time is often invisible because it isn't tracked. But the examples are everywhere:
"I had one guy the other day go into our other building... for an hour and a half, he wasn't—he didn't know that they're pressing."
That's 90 minutes of lost response time from a single missed call. The operator waited. Production stopped. No one knew.
"Operators wait for forklift to drive past to request help."
That's ad hoc communication—hoping someone happens by when you need them.
"Welders and tradesmen waiting hours for supervisor rounds."
That's systematic waiting built into the process—help comes on a schedule, not on demand.
How to Estimate Wait Time If Not Tracked
If you don't have wait time data, use one of these approaches:
Time studies: Have supervisors track call-to-response times for one week. This provides baseline data, though manual tracking typically underestimates wait time.
Operator interviews: Ask operators how long they typically wait for maintenance, materials, or quality support. Their estimates tend to be accurate because they experience the wait.
Shift observation: Shadow a production area for a shift and record every help request and response time.
Even rough estimates are better than nothing. If operators say they wait "about 10 minutes" for maintenance on average, use that number.
Calculating Downtime Cost Per Minute
Downtime cost depends on your operation, but the formula is:
Downtime cost = (Operator rate + Lost production value) × minutes
For operator rate, use loaded labor cost (wages plus benefits), typically 1.3-1.5× base wage.
For lost production value, consider:
- Revenue per unit × units per minute
- Or: contribution margin per line per hour ÷ 60
Labor Walking Time
Beyond operator wait time, calculate time spent finding people:
Responder search time: Maintenance techs walking the floor looking for who called. Quality inspectors checking multiple stations. Supervisors doing rounds.
Supervisor status checks: Walking the floor to identify problems because there's no automated visibility.
Operator abandonment: Operators leaving their station to find help because no one responded.
Estimate weekly hours spent on these activities. Convert to annual cost.
Quality Costs
Delayed quality support creates defects:
- Parts produced while waiting for inspection
- Adjustments not made because quality couldn't respond quickly
- Rework from problems that grew while waiting for help
Step 2: Estimate Improvement Potential
This is where many ROI calculations lose credibility. Assuming 90% improvement sounds impressive but triggers skepticism.
Use Conservative Estimates
For credible projections, assume:
- Response time reduction: 30-50%
- Calls addressed vs. missed: Improvement from current baseline
- Walking time reduction: 20-40%
What Drives Improvement
Automatic notification: Instead of hoping someone notices, every call reaches the right responder immediately. No missed pages. No forgotten radio calls.
Escalation: If the primary responder doesn't acknowledge, backup responders get notified. Calls don't sit unanswered.
Documentation: Every call is logged with timestamps. This enables identification of chronic issues and targeted improvement.
Visibility: Dashboards show current status. Supervisors see problems without walking the floor.
Step 3: Calculate Payback Period
Payback period is typically more useful than ROI percentage because it answers the practical question: how long until this pays for itself?
Payback period = System cost ÷ Monthly savings
Example Calculation
Current State:
| Variable | Value |
|---|---|
| Calls per day | 30 |
| Average wait time | 8 minutes |
| Operator loaded rate | $30/hour |
| Days per month | 22 |
Monthly wait cost: $120 × 22 days = $2,640/month
Estimated improvement: 40% reduction in wait time
Monthly savings: $2,640 × 40% = $1,056/month
System cost: Assume $15,000 for hardware and software
Payback period: $15,000 ÷ $1,056 = 14.2 months
This example only includes operator wait time. Add walking time, production value lost, and quality costs for a more complete picture.
Variables That Accelerate Payback
Higher call volume: More calls mean more opportunities for savings. A plant with 100 calls per day sees faster payback than one with 20.
Higher labor rates: Plants with higher wages see larger dollar savings from the same time reduction.
Longer current wait times: If operators currently wait 15 minutes on average, improvement potential is larger than if they wait 5 minutes.
Higher production value: Lines with expensive products or tight margins benefit more from reduced downtime.
Step 4: Include Soft Benefits
Some benefits don't translate directly to dollars but matter for the business case.
Accountability
With documented response times, performance conversations become fact-based rather than anecdotal. "Response time averaged 12 minutes last month" is different from "I feel like maintenance takes too long."
This data enables fair assessment and targeted improvement.
Operator Morale
Operators notice when their calls go unanswered. The frustration of waiting—especially when production targets depend on getting help—affects engagement and retention.
"Paper-driven downtime tracking" doesn't capture this frustration. It just records that there was downtime, not that someone waited 20 minutes feeling ignored.
When operators know that pressing a button produces a response, their experience of work improves.
Management Visibility
"No automated way to track downtime."
Without data, management operates on anecdotes and impressions. Problems that happen during second shift go unreported. Chronic issues aren't recognized as patterns.
Automated tracking provides visibility that paper logs can't match—complete, accurate, and immediate.
Sample ROI Calculation Template
Use this template to build your own analysis:
Input Variables
| Category | Variable | Your Value |
|---|---|---|
| Volume | Calls per day | _____ |
| Operating days per month | _____ | |
| Time | Average wait time (minutes) | _____ |
| Walking time saved per call (minutes) | _____ | |
| Rates | Operator loaded rate ($/hour) | _____ |
| Production value ($/hour) | _____ | |
| Improvement | Estimated wait time reduction (%) | _____ |
| Cost | System cost ($) | _____ |
Current State Cost Calculation
| Cost Element | Formula | Monthly Cost |
|---|---|---|
| Operator wait time | Calls × Wait × Rate ÷ 60 × Days | $_____ |
| Lost production | Calls × Wait × Production ÷ 60 × Days | $_____ |
| Walking time | Hours × Rate × 4.33 weeks | $_____ |
| Quality (estimate) | _____ | $_____ |
| Total monthly cost | $_____ |
Savings and Payback
| Metric | Calculation | Result |
|---|---|---|
| Monthly savings | Total cost × Improvement % | $_____ |
| Annual savings | Monthly × 12 | $_____ |
| Payback period | System cost ÷ Monthly savings | _____ months |
| First-year ROI | (Annual savings - Cost) ÷ Cost × 100 | _____% |
Common ROI Mistakes to Avoid
Mistake 1: Overstating Improvement
Claiming 80% or 90% improvement looks good on paper but damages credibility. Finance teams and operations leaders will question aggressive assumptions.
Use 30-50% for initial projections. If actual results exceed this, you'll look conservative rather than optimistic.
Mistake 2: Ignoring Walking Time
Many analyses focus only on operator wait time. But supervisors, maintenance techs, and quality inspectors spend significant time walking the floor—checking status, searching for problems, responding to issues they happen to notice.
This walking time is real cost that improved communication can reduce.
Mistake 3: Not Measuring Current State
You can't calculate improvement without a baseline. If you don't know current wait times, conduct time studies before finalizing ROI projections.
One week of measurement provides enough data to establish baselines.
Mistake 4: Forgetting Compounding Value
The initial ROI calculation captures direct savings. But the data an Andon system generates enables continuous improvement:
- Identify which stations generate most calls
- See which call types take longest to resolve
- Find patterns by shift, time, or responder
Frequently Asked Questions
What if we don't know our current wait times?
Estimate based on operator interviews, or conduct a one-week time study. Even rough numbers are better than none. If operators say they wait "about 10 minutes," use 10 minutes.
What's a typical payback period?
Payback varies widely based on call volume, labor rates, and current wait times. Typical ranges are 6-18 months. High-volume plants with significant wait time often see payback under 12 months.
How do I present this to finance?
Focus on payback period rather than ROI percentage. Show your assumptions clearly. Use conservative improvement estimates (30-50%). Include sensitivity analysis—what if improvement is only 25%?
Should I include quality savings?
Yes, but estimate conservatively. If you can tie specific defects to delayed quality support, quantify those. Otherwise, include a modest estimate or note it as additional upside.
Building Your Business Case
ROI calculation transforms "this seems like a good idea" into "this will pay for itself in X months."
The framework is straightforward:
- Quantify current wait time and its cost
- Estimate realistic improvement (30-50%)
- Calculate payback period
- Include soft benefits for complete picture
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