Question

You are a global account sales executive for the German software company SAP dedicated to meeting your annual sales goals while creating sustained value with a single client, Dell Computer. Following several months of analysis that you initiated involving both SAP and Dell team members, Dell’s newly appointed Vice-President of Manufacturing Operations Nancy Lee-Barat is considering purchasing and installing a sophisticated software solution from SAP. The new system analyzes and eliminates plant expenses related to shrink (waste) due to defective parts in Dell’s laptop and tablet computer assembly facility in Round Rock, TX.

The annual cost of this waste in Dell’s manufacturing operation is $790,150 per year. Your SAP software solution takes roughly one year to implement (during which Dell will not benefit from reduced shrink). Once Dell employees are trained and using the software, experience with other customers (including Lenovo and Hewlett-Packard) indicates that this shrink will be completely eliminated. The cost of your software is $884,500 plus training costs of $97,500 in the first year. What would be Dell’s ROI (quantified in both $US dollars and %) for the investment over the three-year period?

Answer 1

Answer:-

Given That:-

The annual cost of this waste in Dell’s manufacturing operation is $790,150 per year. Your SAP software solution takes roughly one year to implement (during which Dell will not benefit from reduced shrink). Once Dell employees are trained and using the software, experience with other customers (including Lenovo and Hewlett-Packard) indicates that this shrink will be completely eliminated. The cost of your software is $884,500 plus training costs of $97,500 in the first year.

Dell Total Cost for 3-year = 790,150 (1 year waste due to setup time) + 884,500 (cost of software) + 97,500 (training cost = $1,772,150.

Dell Total Cost for 3-year if software isnt purchased = 790.150 * 3 = $2,370,450

Return on Investment in $ = 2,370,450 - 1,772,150 = $598,300

Return on Investment in % = 598,300 / 1,772,150 = 33.76%

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