How to Justify the Cost of Automated Manufacturing Projects

At the same time the manufacturing industry is experiencing a labor shortage, they are also tasked with becoming more efficient and productive but are given smaller and smaller budgets with which to work, making justifying the cost of automation projects more important – but more difficult – than ever.

Calculating the ROI of automation is a good start, but that only examines the tangible costs. This blog will provide information on calculating automation ROI, as well as suggestions on how to make the case for automated manufacturing more attractive to the folks who hold the purse strings. 

To determine the cost of an automation project, you must determine the total cost of the project, including operational and ongoing expenses, as follows:

The base cost of the equipment	This includes the cost of the hardware – such as an industrial robot – that will be needed to complete the project.
The cost of components and accessories	Additional components for the automation project may include secondary equipment such as infeed and outfeed conveyors, machine guards, fencing and safety equipment. Accessories such as end-of-arm tooling, sensors, vision systems, cable management systems and other items that may not be included in the base cost of the equipment should also be considered.
Software and controllers	Software, controllers and other equipment essential to automated manufacturing also must be tabulated into the cost.
Design, integration, programming and training	Do not forget to include the cost of designing and integrating the automated manufacturing equipment into existing infrastructure. Programming costs and training for operators and maintenance technicians should also be factored.
Operational costs	The cost of operating and maintaining the automation, such as labor, energy and ongoing maintenance, must also be calculated.

Adding up all of these factors will provide the total cost of the automation project.

How to Calculate and Justify the ROI of Automation Projects

The next step is to determine the automation ROI by calculating the gains and savings that are expected from the automated manufacturing process. This can be more difficult because, in some cases, these are intangible figures.

However, there are universally agreed upon benefits of automation in the manufacturing industry, including:

• Savings from labor costs and the ability to continue production despite a dwindling labor force.
• Gains in revenue associated with increased throughput.
• Higher-quality products with fewer errors and waste.
• Improved facility and employee safety.

Calculating and pointing out these perks of automated manufacturing and subtracting realistic financial expectations from the cost of the automation project, will provide the ROI of automation. However, even with an attractive automation ROI, justifying the expense of installing an automated manufacturing system during times of tight budgets may be more difficult and may require presenting a more thorough cost/benefits analysis.

Labor Costs

Often labor costs and staff shortages are the most justifiable reasons to introduce automation machinery manufacturing into a facility. And, labor costs are the easiest to tabulate and present. To calculate labor cost savings, determine the salary and cost of benefits per employee per shift for the line when performed manually over a set period of years.

For example, if there are currently two employees working each shift with two shifts per day and each worker has a salary and benefits that equal $50,000 annually, the cost of labor for that line is $200,000. Realistically, one employee may still be required on the line, so the cost savings for labor would be $150,000 in one year. This number can be subtracted from the total cost of the automation to determine a one-year labor savings ROI of automation for that line.

Keep in mind that while the labor savings may cover the cost of the project (especially when that figure is spread across two to three years), that alone may not be enough to convince management to foot the bill when facilities are struggling to reduce costs, rather than simply offset them.

However, the ongoing labor shortage may provide more justification for the automation project. When the difficulty of keeping production lines staffed with reliable laborers, as well as the increasing rate of turnover that requires training for each new hire and the growing shortage of workers in the manufacturing industry mandating higher salaries and making positions harder to fill, it becomes easier to justify the need for automation projects to management.

Productivity Boost

Another selling point is the enhanced efficiency and resulting increase in productivity and throughput, which will likely add significant revenue to the company’s bottom line. Automation in industrial facilities has the potential to considerably boost productivity, with some estimates saying industrial robots can complete processes over 100% faster than manual laborers.

Gains in efficiency can help justify the automation project in several ways. First is the potential increase in sales revenues derived from manufacturing more products. However, if increasing throughput is not the goal, keep in mind that the increase in efficiency may make it possible to run fewer shifts and still achieve the current level of output, which will further reduce labor and operational costs.

Additionally, the increase in efficiency will also improve product quality because industrial robots are programmed for speed, as well as accuracy and do not make fatigue-related errors. This enhancement will help reduce labor hours spent doing rework and will minimize raw material waste, as well as waste associated with defective finished products.

Historical figures for these issues are likely available and should be estimated into the automation ROI to further justify the cost of the automation project. If a company has sustainability initiatives and waste has been a significant issue, waste reductions may help justify the automated manufacturing process, as well.

Improved Safety

Finally, improved safety should not be left out of the equation. According to the National Safety Council, it costs employers $40,000 for each medically consulted injury. Often, automation in the manufacturing industry is applied to tasks that cause repetitive motion injuries in human employees, such as lifting and loading and palletizing.

By eliminating the use of manual laborers on these lines, it will reduce some of these medical costs (and, as a bonus, the skilled laborer can be moved to a more value-added or complex position). Additionally, automation can be applied in areas or to processes that involve hazardous conditions or materials, minimizing risk and likely reducing the cost of insurance and non-compliance with regulatory agencies, as well.

Although many manufacturing facilities are operating under restricted budgets, the expense of an automation project usually pays for itself over a period of just a few years. However, justifying the ROI of automation to management may require a cost/benefits analysis that points out both the tangible and intangible benefits of installing automation in industrial facilities. The automation experts at JHFOSTER are available to help determine the cost of your next automation project and can assist with calculating the savings and automation ROI you can expect from the project.