value_paperless

With all the talk about going paperless, a question was raised by one of our prospective customers recently; why go through the time and effort to go digital when the cost of paper is so cheap? It’s a fair question given that paper is less than a penny a page and the average click charge on an MFP (Multifunction Printer) to put the ink on it is about the same. My answer was that the savings with going paperless had nothing to do with paper at all. The real benefit lies in labor savings or even more specifically, the labor costs to effectively utilize the information that resides within the paper once it’s printed. Below is a clear example on how document management software delivered hard cost saving in the real world of import and distribution.

The example below demonstrates the practice of “cost avoidance” where a company saves money by not incurring additional labor costs while growing their business. In this case the company is a relatively small importer and distributor of metal products. While doing more than 100M in annual revenue, this company relied on a small team of highly trained people called Traffic Managers to oversee the distribution and tracking of its inventory. This is a critical role given the requirement to track the various certification of these products as large quantities were imported and then broken down into smaller amounts for distribution. Based on the level of responsibility and the expertise required for this role, each position represented more than $100,000 in annual salary.

About eight years ago growth trends for this company mandated that they hire another traffic manager to address their volume of business. One forward thinking executive however proposed the idea of increasing the efficiency of the traffic manager by looking at paperless office software instead. The results were immediate and continued to increase over time. Let’s take a look at what happened:

Instead of hiring an additional traffic manager at $100,000, the company invested about $60,000 in a document management system that included workflow and a couple of high speed scanners to handle their volume of paper. Using a combination of OCR technology and document workflow, this organization was able to extract high value information from their paper documents which was then fed to its ERP system, At the same time, documents flowed rapidly throughout the organization for review and approval while process definitions were automatically enforced. The result was very positive with an ROI in less than seven and a half months. But this was only the beginning of the story.

About six months later one of the three traffic managers decided to retire. By this point the benefits of document management and workflow were in full effect and the management team realized that they could easily get by with just the two remaining traffic managers. By avoiding their second hire, their annual savings were now at $200,000.

Fast forward eight years later and this organization has more than doubled their sales volume. By their own estimates, it would have required at least 6 traffic managers to handle this increase in volume if they had not incorporated document management and likely more. If we use the conservative number of six employees at $100,000 per year the numbers become staggering. Let’s see what that their ROI looks like;

  • Year 1 – $40,000 which represents cost savings of $100,000 by not hiring and additional person less the initial investment in document management.
  • Year 2 – $200,000 savings based on the cost savings of two employees ; the original and another due to attrition
  • Years 3-8 – Cost savings of $200,000 each year with an additional $100,000 every two years in additional cost avoidance as hires are averted while sales volumes increased.

The eight year cost savings for this project total an incredible $2.34M based on an initial investment of $60K. In addition the company has expanded their use of document management to other departments allowing them to be Sarbanes Oxley compliant as the further reduce operational costs.

You can quickly see from this that the real value in going paperless has nothing to do with saving on paper and printing. It’s really all about the efficiencies that can be driven when processes are defined and automated.

Learn more about SmartSearch document management software, Square 9’s answer to burdensome paper processes.

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