May 2021 Volume 3

AUTOMATION

manufacturing companies have to continually invest to be more productive (Reference: “Why Automation Matters to Forgers”). This has enabled companies not only to make processes more efficient, but also to give leadership and shop managers better quality and predictability of their equipment and output. That is great to say, but how should you look at these type of automation decisions if you are not an expert like Linamar? Here is what I came up with from my daily interactions with companies trying to find equipment solutions to solve everyday problems. I will warn you, that these are not always the conventional ways of looking at making investment decisions. 1. Return on Technology (ROT vs ROI) As amanager in themanufacturingworld, the one question I amsure you always get fromyour team is “Can I havemoney for this project?” My response to that question has historically been: “It depends on the return we get for that investment (ROI).” In business school, I learned that the proper way to measure these types of investments is to put together a discounted cash flow model. Discounted cash flow (DCF) is a valuation method used to estimate the value of an investment based on its expected future cash flows. It attempts to figure out the value of an investment today, based on projections of how much money it will generate in the future. A simpler way to look at this is by using payback: How long will it take to payback this investment? A rule of thumb that many manufactures use is to require projects to have less than 18-24 months. However, this strictly financial approach leaves out some intangible factors also required to be included into the discussion. For example, if you do not already have a robot in your facility, it will be very difficult to justify and meet the 24-month pay back threshold set by your ‘bean counters’. An industrial robotic cell will cost you a minimum of $200,000 and if you want to add the latest vision technology which Feedall can provide, it will be over $300,000. So, how do you justify this expense of you cannot meet the financial threshold? My recommendation is to look at using a Return on Technology (ROT) method (yes, I just made this up). The investment needs to be broken down into traditional capital investment and “Technology Investment”. The technology investments need to be seen as research and development in which the value will pay off over a longer period of time for the company. The second and third robotics cell will have higher value which will eventually carry the full burden of the capital. As a supplier of capital equipment and automation, we need to do a better job of helping manufacturers understand the return on the upfront capital and technology investments. Feedall works with customers to outline the payback on our equipment.

Figure 2: Payback options for loading centerless grinders We spend the time upfront with customers to better assess the solution they need, but also work with them on putting together the justification on the upfront capital costs. Once the decision is made to move forward with a new automation system, the next thing you need to consider in the decision is who is going to support this new technology. 2. Re-Skilled Labor Analysis shows automation is likely to push output potential far ahead of demand potential. The rapid spread of automation may eliminate as many as 20% to 25% of current jobs—equivalent to 40 million displaced workers (3) . The benefits of automation will likely flow to about 20% of workers—primarily highly compensated, highly skilled workers. As a result, automation has the potential to create a seismic shift in the skill levels needed in manufacturing facilities over the next 10 years. Once you install the turn-key robotic cell with help from your systems integrator, then what? If you have a problem or want to change something, you are going to need the capabilities in-house to address the programming requirements. Brennan Palmiter wrote an interesting article about this in the February 2021 FIA Issue (Who’s Going to Program My Robot). There are many integrators out in the market that can help with robotic programming, but as a manufacturer, you will want to invest in re-skilling your labor to address this technology shift and the overall shortage of labor. 3. Hourly Cost of Equipment Faced with a rising scarcity of labor, companies are likely to draw increasingly on automation technologies. But with fewer labor employees, how should we look at these investments in automation? Typically, productivity is measured by the output of production for every labor hour. However, with the increasing usage of automation equipment, you also need to weigh a comparison between amortizing the upfront costs of capital to the reduction in labor costs. One way to do this is by deciphering labor costs for your

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FIA MAGAZINE | MAY 2021