The pressure of finding, training and retaining employees to perform the repetitive and mundane tasks required to keep your business running is overwhelming. To make matters worse, management just informed you that the hourly labour rate must increase again to remain competitive and attract any talent and you have just been requested to increase production and reduce scrap. You may be thinking, “now is a great time to consider automation.” But how do you justify the costs?

The business case for robotics

The easiest and most obvious justification for automation is labour reduction. To determine the potential ROI, let’s use the typical robot system lifetime of twenty years. Most material handling systems like basic pick-and-place applications consume approximately 5.4kW of power per hour, and the average electric rate in Canada is 17 cents per kilowatt hour, though this varies significantly based on your province or territory. This means your robot will work for about $0.92 per hour.

Assuming you run two eight-hour shifts per day you will run the system for 83,200 hours in its 20-year lifetime. This will cost you $76,554. Based on data collected for yearly preventative maintenance and unscheduled repair costs we estimate the robot system will cost another $30,000 to perform 20 years of work. With an estimated initial cost for a material handling system set at $200,000, the grand total for the automation solution over its lifetime comes in at $306,554.

What if we performed the same labour manually? The average minimum wage in Canada is approximately $16.40 per hour, though, again, this varies based on your province. If you pay this average to two shifts per day, five days a week for 20 years it will cost somewhere in the range of $1,364,480, meaning the robot system has saved you over one million dollars right out of the box.

This is just an example, but I encourage you to make it specific to your business. Substitute your electric and labour rates, system costs and maintenance. The numbers will always favour automating over manual labour.

Managing employee response

Many business owners cite losing job opportunities as a reason to delay automation. The important thing to remember is you aren’t replacing the person, but rather the current task they are performing. Great leaders recognize the need to automate to stay competitive, but, rather than losing the member of the team they have invested in training and want to see succeed, they move them to another, more essential role in their business.

Consider offering them the opportunity for training to be robot system operator, or to transition to another area of the business where your new automation solution isn’t eliminating jobs. Doing this offers these employees an opportunity to grow in their career and improve their situation. Though it may not translate to immediate cost savings for your ROI calculations, it keeps your top talent in the building, vastly improves their working experience and represents a value-added proposition across your operation.

More than just labour savings

Let’s set aside the monetary benefits and consider a few harder or less obvious benefits. These can be more challenging to quantify with numbers but can sometimes yield very significant savings when automating a process. Often these savings are not realized until after system installation when you are comparing your processes before and after automating.

The robot system will provide an increase in productivity, as they perform routine manual tasks faster than a human and maintain that speed throughout the shift. Robots don’t get tired or lose focus, they don’t take lunch, breaks and vacations, they don’t call in sick, come in late or work slower the morning after golf or bowling league nights. You can achieve eight hours of work in an eight-hour day compared to an eight-hour day with human labour being reduced by these distractions or roadblocks. Include these benefits in your justification calculations.

Consider the possibility you need to run production a few hours longer to fill a rush order. Just keep the robots running, with no need to pay overtime.

All these improvements stemming from the switch to robotic systems means that more products can be produced with automation than with manual labour. Using your profit per part and the number of additional parts produced with automation can be used to help justification.

Robots are repeatable, so their assigned tasks are performed exactly the same way every time. This eliminates the occasional mistakes or misses that come part and parcel with human labour, leading to an increase in part quality and a reduction in scrap. Lowering your scrap rate certainly has a cost benefit that will help with justification.

Although system safety dictates certain floor space requirements for automated systems, robots typically occupy less space than humans, saving you room on the production floor. If you can use the extra floor space to produce other items or add value to your existing products it will be easier to justify the cost of automating to leadership.

Plan your system with consideration to parts flow in and parts flow out of your system. Can the robot orientate parts or stack them as they exit the system to assist with the next process downstream? Would this benefit another operation in your production flow? Based on system cycle times can the robot perform another operation or task thus eliminating or simplifying another process downstream? If your current processes require moving parts in bins from one operation to another and the robot system can do more work in its system it reduces WIP sitting in bins and the labour to move them around your building, further reducing floor space and increasing production. Any cost savings here will help with justification.

Operator safety is improved when automating, as you have eliminated the need for humans to perform dangerous tasks, reducing the risk of injury. In dangerous or hazardous environments this is much more obvious, and these injuries have large potential costs, but even in less dangerous working environments the risk still exists. Any injury has a potential cost and should be considered in justification.

Other factors with smaller and possibly harder to quantify actual costs include protective clothing or the supply of PPE, employee turnover and the associated hiring and training costs, unpredictable or inconsistent production, health and liability insurance and, a few years ago, the cost of sanitizing, face masks and lost production to due to circumstances way beyond your immediate control.

Your justification calculations need to include the obvious labour reduction and as many of these additional benefits as can be considered. They require cost inputs like the initial system, installation and startup, lifetime maintenance, lost production or inventory buildup during installation, interest for any loans to finance the system purchase and for training employees. You will need your current and estimated future labour costs for operators and maintenance personnel.

Based on your required payback period, the justification calculations should include lifetime costs, ROI summary and a cash flow analysis. Armed with this data the decision to automate a particular process from a financial perspective should be easy to make.

Resources to help

A spreadsheet can be developed to collect and analyze this data if nothing exists as a tool within your financial team for this. There is an ROI calculator on the A3 website (www.A3.org) under the Robotics tab.

This calculator focuses on the potentially dramatic cost savings of robot versus manual labour but does not include the other potential savings discussed above.

Another valuable resource are the robotics industry employees. We have been empowering manufacturers to adopt robotics and have seen the dramatic improvements made by those that have adopted this technology, and we are eager to help you on your automation journey.

A testament to the advantages of robotics is that first time customers quickly realize the enormous benefits to automation and always come back to do it again at other processes.

Contact us. We’re here to help.

Bob Rochelle’s industrial automation career spans over four decades, where he acquired a vast knowledge of many manufacturing processes and is recognized throughout the automation industry as an authority on the positive impact automation has on manufacturing processes and bottom-line performance. He is a veteran conference speaker, college level instructor and freelance author. Although semi-retired he continues to work with manufacturers to educate them in getting started with robot-based automation systems and empowering them to embrace this technology.