What are the top factors that drive return on investment for factory automation? Attaining production goals and minimizing operating process costs are the first—and sometimes only—criteria that most manufacturers use to calculate the ROI of their automation capital investments. However, a deeper dive into cost savings shows that ROI considerations have a greater scope than just increased productivity and reduced operation costs.
1. Human Capital Costs: Wages, Waste, Energy, and Data Collection
While often rolled into production output and operating costs, manual labor costs have measurable factors that can influence overall ROI.
When automation is integrated into a manufacturing process, it performs tasks that are either too dangerous, too tedious, or too complex for human workers. Additionally, automation can help supplement labor shortages when workers available for certain tasks are too few. In today’s economy, automation is also a way to supplement expensive labor costs. For example, according to the Wall Street Journal, the new terms of the United Auto Workers labor contract, which was approved in late 2023, could increase the cost per GM vehicle by $500 and the cost per Ford vehicle by $900 by 2028. So, fewer unionized laborers—thanks to automation—could help offset labor costs (as well as pass-through costs to consumers) in the auto industry.
When the number of humans required for a manufacturing process is reduced, plant managers find that there is reduced waste and lower energy consumption in addition to reduced wage costs. Regarding waste, automation significantly reduces the chances of materials being damaged, spoiled, or lost through human error; automation can also optimize the use of raw materials by decreasing scrap and time spent on rework.
Regarding energy consumption, reducing human capital is more than simply “lights out”—that is, more than just saving money on electrical lighting costs because robots can operate in the dark, unlike human workers. Automation enables precise regulation of many manufacturing variables like speed, temperature, and pressure, which helps reduce wasted energy.
Finally, automated systems capture valuable real-time manufacturing data in a way that unaided humans cannot possibly replicate. Poor data can cost companies an average of $15M annually, while the value of good data is inestimable in terms of product quality, operational control, business decision-making, and marketing efforts.
2. Equipment Scalability and Reusability
Among future-proofing strategies, the ability to adapt and reuse major capital equipment investments should be at the top of every manufacturer’s list. When production demand increases, automated systems can be scaled up more easily than human-operated systems. This is especially true in times of labor shortages. Upscaling can be accomplished by modifying existing workflows or adding to existing equipment, such as by reconfiguring and expanding conveyor lines.
With regular preventative maintenance, capital equipment can last a decade or longer. Capital equipment can be repurposed for new manufacturing processes and moved to a different facility when needs change. Ultimately, when manufacturers invest in capital equipment that can be repurposed and scaled up (or down), they can continuously optimize the full potential of their investment.
3. Manufacturing Floor Space
Space is valuable, and manufacturers should make sure that their factory automation projects make the best use of space available—whether that be along the plant floor or in the space above. Those high ceilings in manufacturing plants give manufacturers a significant amount of extra machining and assembly space beyond the horizontal footprint.
By combining lean manufacturing techniques—which focus on effectively using time and space—with agile manufacturing techniques—which focus on flexibility and responsiveness—along with a solid understanding of structural density, engineers can propose factory automation solutions that stretch from 2D to 3D.
For example, vertical machining centers require much less horizontal floor space and use two rotational axes in addition to the three conventional axes. Vertical assembly lines assemble products while components are moved vertically. Stacked production lines allow multiple production processes to occur simultaneously in the same vertical space, increasing output without requiring additional horizontal space. And overhead conveyors can be used to move parts between different stages of the assembly process.
All these vertical solutions—and any combination thereof—can free up valuable floor space for other uses. The use of vertical space for manufacturing means that manufacturers do not need to invest in a pricey expansion of their plants when additional machining or assembly is required at their facility. Also, clever use of vertical space means that overall facility size can be smaller—such is the case with microfactories—meaning property and building operation costs are less.
4. On-Time Delivery
Manufacturers can face steep penalties from their customers if the factory automation project they need to manufacture their product isn’t delivered on time. Moreover, each day a manufacturer fails in production because of delays in the automation process can mean literally millions of dollars in lost revenue.
On the other hand, when an automation project is designed, engineered, and installed on time, manufacturers enjoy customer satisfaction, which bolsters their brand reputation and aids in customer retention. On-time delivery also means that production and operational goals can be met, as expected, without hindrance, and the manufacturer can proceed to address other aspects of business. For example, Wes-Tech has an unparalleled 99+ percent on-time delivery rate; our reliability has saved our customers numerous headaches and untold amounts of potentially lost revenue.
An integrator’s ability to deliver a capital equipment project at the agreed-upon time can be a huge factor in determining ROI and shouldn’t be minimized.
5. System Operation: Downtime
Equipment runtime and product throughput are easy and standard ROI calculations. But for manufacturers, there is often an unknown and highly impactful variable: downtime. Will this equipment actually work? Will it do what it has been engineered to do?
The costs associated with downtime can be nearly exponential, depending on the length of time that equipment is not working. Loss of production, failure to meet contractual obligations, missed shipment dates, supply chain domino effect, customer dissatisfaction, and employee idle time are high costs that add up quickly when equipment isn’t working as expected.
So, how can manufacturers ensure minimal downtime when implementing their capital equipment investment?
In part, the answer lies in the automation engineering process itself, which works out system flaws before the automation project is ever presented to customers. An additional layer of assurance is a project run-off in the customer’s presence to ensure the project meets expectations before it is shipped and installed. Then, installation should be the final step for the execution of flawless system operation.
For example, at Wes-Tech, automation installation is a big part of what we do. Our engineers travel to customer locations and install the automation systems themselves. When needed, we train customer operators and maintenance technicians on the new equipment so they can operate it confidently and respond to any issues promptly.
But what about mechanical failure? For that, manufacturers should include in their ROI calculation the kinds of technical support available to them through their automation partner. More on that below.
6. After-Sales Support
Manufacturers’ ROI calculations should consider post-installation costs.
Beyond the engineering portion of automation, however, mechanical issues can happen. How can manufacturers protect themselves from mechanical malfunctions and wear and tear on machines?
Wes-Tech’s approach to this problem is twofold: one is proactive, and the other is reactive.
Proactively, when Wes-Tech designs a system, our engineers create a list of recommended spare parts for our customers. Typically, manufacturers will stock these parts in inventory for when they need them.
Reactively, Wes-Tech provides 24/7 emergency technical support. Many situations are resolved with phone support. In other cases, we send out our skilled trade workers (mechanical and electrical) or engineers (mechanical or controls) on site. Depending on the issue, we may collaborate with industry experts or robotics suppliers (who have their own warranties to cover their hardware).
Bottom line: Problems after automation installation can impact ROI. To get the most out of their investment, manufacturers should carefully research their integrator partners to understand what kinds of warranties and services will protect their factory automation before a project starts.
7. Ergonomic and Injury Costs
In 2021, the cost of workplace injuries was $167 billion. Medical expenses, lost wages, lost time, and litigation all add up fast and can be damaging. Even in workplaces with robust safety programs—where injuries are rare—ergonomic difficulties can take their toll. While less dramatic than a sudden major injury, musculoskeletal disorders due to poor workplace ergonomics are thought to cost $45 – 54 billion annually, with injuries in the manufacturing and services industry sectors making up about half of workplace musculoskeletal disorder cases.
Manufacturers should remember that their factory automation solutions offer an excellent way to mitigate injury risk. Factory automation can reduce human exposure to hazardous tasks, such as handling and lifting heavy or sharp objects, working with high temperatures or pressures, and performing repetitive movements. Automation, then, can lower the risk of accidents, injuries, and illnesses for workers, as well as the associated costs of OSHA recordables and workers’ comp claims.
Automation solutions should be designed with safety in mind, which means reducing current safety risks and minimizing the risk potentially caused by introducing new, large, powerful equipment onto the manufacturing floor. For example, Wes-Tech approaches these safety challenges by carefully performing risk assessments—using software to help us analyze aspects like the potential severity of an injury, how often workers might be exposed to a potential injury, and how an injury may be avoided—to determine the safety level required for each piece of equipment, which then drives the design of safety guards and lockouts as well as component selection to meet that safety level.
Ultimately, manufacturers should factor savings from reduced workplace injuries into their ROI calculation for their factory automation.
8. Experience and Expertise
In any business partnership, there are innumerable costs associated with conflict and misalignment. Manufacturers can maximize their automation ROI by selecting an integrator partner that closely aligns with their culture and business goals. This assessment can be made in several ways. First, manufacturers should check an integrator’s longevity and reputation in the industry, noting past customers and looking for evidence of their qualifications, such as ISO certifications and whether they are authorized systems integrators. Manufacturers should also review an integrator’s portfolio of completed projects, especially those projects that are similar to their needs, and evaluate quality, functionality, and performance.
Lastly, manufacturers should test their potential automation integrator partner’s competency, capability, and compatibility by paying close attention during the RFQ process to see how they can deliver a solution that meets their requirements and expectations. The quotation period is also a good time to assess a potential partner’s communication, collaboration, and problem-solving skills to see whether they fit with the manufacturer’s team, culture, and vision.
Since 1976, we here at Wes-Tech have been pleased to see how our factory automation projects have exceeded expectations, especially regarding unanticipated ROI resulting from one or more of the “hidden” factors mentioned above. If you want to learn how to get the most out of your automation investment, contact us for a free consultation and a deeper dive into the ROI criteria that are most important to you.