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How to Achieve Better Financial Returns on Automation Investments

Dec. 15, 2022
Flexible automation technology that enables adjustments on the fly should not negatively impact ROI. Follow a few guidelines to avoid common pitfalls.

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The power of automation to improve productivity in manufacturing facilities has proved itself time and time again. But manufacturers are no longer satisfied with traditional automation solutions and instead are seeking intelligent technology that can allow them to navigate the demands of today’s dynamic market more easily. They’re facing harder-to-forecast demand, ongoing supply chain challenges and new product versions that are difficult to predict. Traditional automation, which is rigid and prone to pitfalls, is no longer cutting it.

Manufacturers who want to drive resiliency in their operations are pivoting to flexible automation technology that enables adjustments on the fly, without destroying the return on investment (ROI). Navigating the assessment process for sizable investments like these can feel daunting, but there are ways to avoid common pitfalls and achieve more promising financial returns on automation investments going forward.  

Three Common Pitfalls That Impact Payback Time 

Automated technology typically involves an upfront capital expenditure purchased out of a capital expenditure (CapEx) budget. CapEx purchases go through several rounds of approvals and automated solutions may require additional due diligence. 

One of the key metrics used for reviewing automation investment proposals is payback time, which accounts for both estimated costs, such as equipment and maintenance, and estimated savings, primarily from reduced staffing needs. The investment is more likely to be approved if the payback time is under one year; anything over three years is less likely to be approved. For example, a solution that costs $1 million with $500,000 in savings per year could have a payback time of approximately two years. Again, the shorter the estimated payback time, the more likely the solution is to be approved.  

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The biggest surprises for any manufacturer investing in automation lie in the assumptions made with these upfront estimates. If assumptions are extremely conservative and account for the full variability of uncertainty that could be encountered, there is a better chance of achieving a strong return. But more often than not, manufacturers take a short-term outlook, with aggressive assumptions that support CapEx approval, and then encounter pitfalls later on that impact ROI.  

Here are three common pitfalls manufacturers run into when aggressive assumptions are made: 

1. Requirements aren’t captured fully, and the cost is higher than initially estimated. When requirements for the line(s) aren’t fully captured, engineering change orders (ECOs) that account for line efficiency improvements and product changes will likely be needed before deployment—and they can get costly, fast.

When working with a system integrator, for example, they will assess the requirements with the automation team, but they don’t always capture everything. Then, when the line integration and building process starts, more requirements will reveal themselves, and the manufacturer will be hit with ECOs that drive up the cost. The estimated cost (leveraging the same example above) could quickly increase to $1.5 million with $500,000 savings per year, pushing the payback time out to three years. 

2. Demand is lower than initially expected, so savings are lower than initially estimated.  Supply chain issues are still in full swing, not only impacting demand for products but the availability of components needed for those products. There may be high demand this month and low demand next month, making it difficult to forecast demand and set the capacity of the line. 

When demand is lower than initially expected, a traditional, hard-coded automation line is going to fail to realize the estimated savings. For example, instead of running the line for the expected two shifts, a decrease in demand may result in only one shift needed. Underutilizing the line by even one shift can severely impact the payback time. It could now cost $1 million but with only $250,000 instead of $500,000 in savings, resulting in a payback time of four years.

3. New product versions are introduced, reducing savings due to longer changeover times. The dynamic nature of the marketplace often leads to manufacturers needing to adjust the product mix that is built. Say the marketing team learns of demand for a new product variant, which has slightly different assembly requirements than were implemented in the initial line—this requires ECOs to accommodate the new changes.

These kinds of unexpected changes can drive up cost while at the same time reduce savings, as more time is needed to handle the increased product changeovers required. In this case, the cost could increase to $1.2 million and the savings decrease to $400,000, taking the payback time to three years. 

Avoid Common Pitfalls With an Intelligent Automation Platform

An intelligent platform approach helps manufacturers avoid pitfalls of a traditional automation approach through its inherently flexible architecture. Rather than customized, hard-coded lines, which make it difficult to implement changes or reuse equipment, intelligent platform architecture provides a standard operating system and software-based configuration that allows manufacturers to modify as needed. The result is flexible implementation, shorter product changeover times and fewer surprises that impact ROI. 

An intelligent platform approach decreases the risk of manufacturers missing requirements because the process is not continually started from scratch. And even if something is left out, modular hardware makes it easier to add or remove elements on the line. It also safeguards manufacturers from fluctuating demand because they can remove modular robotic cells from the line to reduce capacity and reuse the removed cells on other lines as needed. Then, as demand changes, line capacity can be right-sized accordingly.

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In addition, an intelligent platform approach enables manufacturers to pivot quickly as new product versions are introduced by providing the ability to run multiple SKUs on the same line—resulting in shorter product changeover times that contribute to savings.

An intelligent platform approach results in fewer ECOs, too—but if ECOs are needed, they’re also less expensive. By having the “building blocks” through software-based configuration, reconfiguration time is minimized, which reduces ECO costs. Manufacturers can also reuse equipment on the next line. When a product nears end of life, for example, they don’t need to scrap the equipment. Nearly 70-80% of hardware modules can be reused, which helps extend the life of equipment, resulting in an even better ROI.

Making the case for automation investments is inherently easier when championing intelligent flexible solutions over traditional rigid ones. And ultimately, the numbers don’t lie—the agile nature of an intelligent platform approach results in better financial returns and is undoubtedly the future of the industry. 

This article was submitted by Stevan Dobrasevic, director of product marketing, Bright Machines.

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