Manufacturing is anything but a static industry. Within it, manufacturing automation is rapidly transforming the way products are made, with more and more companies turning to advanced technologies to improve efficiency, quality, and flexibility. But with all these benefits come costs, and companies that want to invest in automation must carefully consider the financial implications.
In this article, we’ll consider the types of manufacturing automation, some of the benefits and challenges, and a few examples of how to calculate the cost of investment. Whether you are considering automation for your manufacturing business or are simply interested in learning more about this important trend, this article will provide valuable insights into the costs and benefits of manufacturing automation.
Automation can take many forms, from simple machines that perform repetitive tasks to sophisticated robots that can handle complex operations with precision and speed. Common technologies used in manufacturing automation include robots, cobots, CNC machines, and vision systems.
Investments in automation help increase output and are worth the cost. To take it a step further, there is also technology out there that helps monitor your automation investments, like machine monitoring and production management software that monitor machines and deliver real-time data (that’s us!).
So why is manufacturing automation important? Let’s look at a few of the benefits.
Improved efficiency: Automation can help manufacturers increase efficiency by streamlining production processes and reducing the time it takes to complete tasks. This can lead to faster production cycles and higher output rates, ultimately resulting in increased profitability.
Increased productivity: Automation assists in producing more products in less time, leading to increased productivity. Automated machines can also work around the clock without breaks, reducing the need for human workers to work overtime or in multiple shifts.
Better quality control: Automated machines can perform tasks with a high degree of accuracy and consistency, reducing the likelihood of errors or defects in the production process. This can lead to better product quality and a lower rate of defective products.
Improved safety: Automation can help manufacturers reduce workplace accidents and injuries by eliminating the need for human workers to perform dangerous or physically demanding tasks. Moreover, automation can work longer hours (even through the night), reducing the risk of employees feeling overworked and tired. This can result in a safer work environment for employees. (See this benefit in action in our Destaco x Amper case study, where the team explored lights-out production to increase throughput without increasing labor!)
Increased flexibility: Automated systems can be programmed to perform a variety of tasks, making it easier for manufacturers to adjust to changes in demand or product specifications. This can help manufacturers remain competitive in a rapidly changing market.
Overall, manufacturing automation is important because it can help manufacturers improve their efficiency, productivity, and product quality while also creating a safer and more flexible work environment. By implementing automation, manufacturers can increase profitability and remain competitive in an increasingly globalized marketplace.
Before we dive into the costs of manufacturing automation, let’s first make sure we understand the different types of manufacturing automation that you can use in your business. The cost of automation can vary widely depending on the type of automation used, with the cost increasing as the level of flexibility and complexity increases. There are four main types of manufacturing automation that play a role in your production processes that we’ll highlight below.
Flexible automation is often what people think about when they picture manufacturing automation in a production facility. These automation systems are controlled by computers and can quickly change programming settings and machine configurations to create new products. (Most can even do so remotely.) These types of machines are usually used for batch production.
Programmable automation, as the name might suggest, uses programs to plan machine production and configurations. Using electronic controls, programmable automation tells a machine what to produce and, while it can be reset to produce a different product, that takes time and can be expensive. This type of automation is often used in high-volume and mass-production environments.
Fixed automation is used for production lines that focus on fixed and repetitive operations that require high production volumes. For example, a machine that produces gears might use fixed automation programming to deliver a high product output. Fixed automation is often referred to as “assembly line” production, and is most common in the automotive industry.
Integrated automation is the final evolution of automation. While the other types of automation are all stand-alone components that you can add to your production facility, integrated automation is the full automation of your manufacturing process.
Many manufacturing companies have implemented automation to improve their processes and remain competitive in a global market. For example, General Motors (GM) recently invested $2.2 billion to retrofit its Detroit-Hamtramck assembly plant with automated equipment to produce electric and self-driving vehicles.
Another example is Amazon, which has implemented a range of automation technologies in its fulfillment centers, including robots that transport packages and AI-powered algorithms that optimize delivery routes. These examples illustrate the wide range of automation technologies available and the associated costs.
Unfortunately, manufacturing automation and innovation come with a cost. Investing in manufacturing automation technology is exactly that: an investment. It requires you to plan out how you will break down costs across your production facilities. Most automation costs can be broken down into four main categories: people, data, equipment, and robots.
By breaking down the costs of automation into these components, manufacturers can get a better understanding of the automation system’s total cost of ownership and make more informed decisions about whether to invest in automation.
It’s important to note as we move forward that each automation project is different. Just as no two businesses are alike, there isn’t a singular way to calculate manufacturing automation costs that applies to every situation. Figuring out exactly what your costs are will require a level of personalization to ensure that the specific objectives of your organization are met and exceeded.
Now that you understand the different types of automation, let’s look into how you can calculate the costs. Total cost of ownership (also known as TCO) is a metric to help leaders in an organization capture all of the costs that are associated with an investment during the course of its life.
First created by the Gartner Group in 1987, the TCO calculation has grown to become a standard calculation for each piece of technology that you use in your manufacturing process. Calculating the TCO for every automation system tells you what your total investment and ROI are. But how do you actually calculate TCO? With a simple formula.
TCO = Purchase Price + Costs Incurred During Useful Lifespan
Once you’ve determined the TCO, you can then compare it to the projected benefits for your business. If the cost of ownership is too high, you might want to consider a different piece of automation technology for your business.
Even though the formula for TCO might seem overly simplistic at first glance, there are many different considerations to keep in mind as you’re pulling your numbers together and determining the costs associated with automation. Some of those considerations include:
Tracking your TCO requires you to calculate the costs associated with three key stages of automation adoption and management.
Just as there are considerations and factors to take into account while calculating your TCO, there are also different types of challenges that you need to keep in mind. No system is the same, and no business is the same, so the difficulties that might arise for you won’t happen with everyone else.
Some of the top factors that might occur and challenge your industrial automation include:
In an ideal world, it would be easy to see that the TCO of a new machine or piece of automation is much lower than the savings it can bring to your business. In reality, there’s often a need to make a considerable effort to lower the total cost of ownership of any software or automation system you bring in. Let’s discuss a few of the major strategies you can employ to lower TCO.
While many types of machine automations might manually require installers to sit by the machine and work through different questions presented by the setup system, there are some automation systems that use unattended installs. That means that the automation itself takes care of the installation process. That frees up your employees and saves on engineering and upgrade costs.
The migration process in manufacturing automation refers to the slow upgrading of control equipment from the initial version to the newest and most relevant iteration. That takes time and can make the entire automation setup process slower than it needs to be. Flexible migrations allow you to skip to the desired version of the equipment without going through all of the previous iterations first. That helps things get up and running much more quickly.
Virtualization is a tactic that can be used to reduce the amount of hardware that is required to start up different automation systems and machines. It can reduce ongoing costs like labor and maintenance concerns, as well as help platforms work independently of each other.
People often wonder whether the automation’s ROI brought could match or exceed the ROI of doing the same processes with manual labor. While there are many indications that automation makes plants run more efficiently, this is still a valid point to consider
To begin comparing the automation ROI against manual labor, start by creating the goals and metrics you will use to judge whether those goals have been achieved. With those benchmarks in place, you can begin to measure ROI from each source. Let’s go over a few of the factors you’ll want to consider during your calculations.
Think about how often you plan on using your new automation systems and the other robotics that you implement. You can think about expressing that figure in terms of work shifts, days per week, or even weeks per year.
Next, you’ll want to think about how much you spend each year in your annual labor costs for each of your operators and employees. You’ll want to think about things like:
In addition to those more common labor costs and factors that influence labor costs, there are also different examples of labor costs that might be overlooked or not directly tied to paychecks, but that still relate to comparing automation to human labor. These include:
You’ll also want to take a look at what the costs are once labor is removed from the production process. In order to find the figure, take the number of operators you have and remove the ones you expect to replace with automation for each shift, and work out the costs from there.
Once you’ve determined what your labor-removed costs are, you need to take a look at your labor-retained costs — or the costs associated with the existing workforce you plan to keep in place. These are the operators who will monitor the machines, take care of maintenance issues as they arise, or operate the automation system when necessary.
Once you’ve figured out your labor removed and labor retained projections, you can start to calculate the percentage of productivity that you can expect to see increase as a result of installing new automation systems or robots in your production line.
In addition to the calculations you’ve gathered in the previous steps, there are a few more pieces of information to gather in order to determine exactly how much your ROI can be on automation and manual labor. There are a few more savings that you can include in your overall projections, including:
Now that you have an idea of how to go about calculating your ROI on automation, let’s take a look at an example scenario that compares automation and manual labor costs.
Say that you have a system that runs manually and requires the skills of three operators per shift, working across all three typical shifts per day. If each operator earns $60,000, then during the year you can expect to pay $540,000 in general labor expenses.
Then, let's say you are able to determine that it costs $475,000 to completely install a new automation system that can complete the same tasks. It will also cost you $35,000 a year to have a single untrained operator run the machines for two shifts a day, coming to $70,000 for the full year.
Looking at those numbers, in the first year of operation you’ll lose $5,000 on the automation system. However, in the second year, you can expect to save a lot since you don’t need to pay the initial capital investment of $475,000 that it took to set up, install, and build the automation system. Instead, you only pay for maintenance costs and repairs if any come up. As the years go on, you save more and more on yearly labor costs, leading to lower costs each year and significant returns on investment.
Generally, the cost of automation is higher than the cost of manual labor in the short term, as it requires significant upfront investment in equipment, software, and training. However, over the long term, the benefits of automation can often offset these costs, resulting in overall savings for your company.
It’s hard to say exactly how long it takes to generate ROI on new automation systems or platforms in your production facility. There are many different considerations to take into account in order to know how quickly you can gain a healthy ROI from your investments.
To start estimating a timeline, think about how quickly your new manufacturing automation will be adopted in your workplace. Some businesses take a while to phase out manual practices and replace them with new technology, while other businesses are ready to hit the ground running as soon as new equipment or machines come in.
Another consideration that can affect how quickly you gain ROI on automation is the potential time it takes for your entire business model or production line practices to shift in a way that uses the new equipment as effectively as possible to increase productivity. It may take a significant amount of time before new technology and automations can be used to their fullest potential if other parts of the factory are still working on older systems.
In addition to the direct savings that we’ve discussed in this article, there are a few other indirect ways in which manufacturing automation can help your business cut down on costs. Those might include:
Factors that can affect the cost of manufacturing automation include the type of
automation, the level of customization required, the size and complexity of the system, the
integration with existing equipment and systems, and the level of training and support
needed.
The potential cost savings from manufacturing automation can be significant, including
increased efficiency, reduced labor costs, improved quality control, and the ability to scale
production.
The best way to get an accurate estimate for the cost of manufacturing automation for your business is to consult with a reputable automation provider and provide them with details about your specific needs and requirements. They can provide a customized estimate based on your unique situation.
Amper is a software platform that makes it easy for companies to monitor their manufacturing automation investments. It provides comprehensive analytics and reporting capabilities, enabling manufacturers to track their performance and make data-driven decisions to improve their processes.
Because Amper doesn’t require a PLC or machine integrations, manufacturers can easily monitor and understand the benefits of their automation without the hassle and complexity of traditional technologies.
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