Manufacturing Automation ROI is Tragically Undervalued by Small and Medium Manufacturing Companies

Summary

If you ask leadership at the average American manufacturing company, “How are automation investment decisions made?” You will inevitably hear “We calculate the ROI, and if there is a return in under X months, we make the investment." This is not bad business thinking. However, most manufactures are incorrectly calculating their ROI. This is because they are only considering the most basic values of automation investment.

Astute executives quickly weigh an investment decision with a narrative that parallels the Story of John Henry, the Steal Driving Man. The decision is boiled down to man vs. machine - Labor and benefits vs. Machine cost and maintenance comparison. Again, this is not bad thinking. However, it is a limited binary model that overlooks a significant portion of the value proposition automation investments can offer a company. It is also a terribly cold and politically charged view of automation. A model that moves the conversation away from Man vs. Machine and helps decision makes better conceptualize the value proposition of automation investment is badly needed.

In addition to helping manufacturing decision makers, a value model will also help machine builders, system integrators, device manufacturers and software suppliers better craft their value proposition sales pitches. The automation industry is plagued by technology selling. Even worse is when we aim to sell valuable ideas, we do so with abstract concepts that do not make it any better. “Is your factory or device industry 4.0 ready?” is a prime example. A simple model that both illustrates value and presents a path to additional value in the future can help quantify return and build meaningful conversation between suppliers and customers of automation systems and components.

Maslow meets manufacturing

Abraham Maslow gifted the world with his hierarchy of human motivation. You may remember his theory illustrated as a pyramid with basic needs like food and shelter at the base, psychological needs like family and friendship in the middle and self-fulfillment at the top. I think it is about time a similar model is applied to the value of automation in manufacturing. There is an existing Automation Pyramid (Google ISA 95 Pyramid), but it is a categorization of automation devices not a hierarchy that helps illustrate the value proposition of automation. It is my contention that most manufactures leveraging automation are investing in and receiving only the most basic value from automation. An Automation Value Pyramid will help illustrate the complete value proposition of continued investment in automation.
 

Meet the Automation Value Pyramid (listed from low to high)

​This Automation Value Pyramid will help decision makers better quantify the ROI on automation investment. For this article we are going to dive into the first 3 levels to understand the unique attributes at each level of the pyramid.

Level 1: Labor augmentation
Labor Augmentation is the pyramids foundation and likely the most leveraged consideration when making an automation investment decision. Labor requires wage, benefits, facility overhead and management. Machines must be purchased or leased, supplied with power to operate and be maintained throughout their useful life. The math is simple but gathering the inputs is often a chore choir for small and mid-tier manufacturers. Variable benefits, tiered time off, attendance and average tenure of employment are all variables that impact the cost of labor and send many intelligent companies down complex rabbit holes.

Leverage the below equation to keep the calculations simple, this calculation is now only 1/7^th of the value proposition. Close enough is ok.


Level 2: Employee quality of life
Quality of Life is broken into three distinct parts all related to improving the labor experience of your workforce to increase ROI and eliminate human error. The three quality of labor life categories are Health and Safety, Accident Avoidance and Training.

Health and safety: Automation can remove humans from tasks that pose risk to their wellbeing via anatomy and physiology. Machine systems can take over tasks that are inherently hazardous for human workers, such as working with chemicals, high temperatures or in confined spaces. These systems can also lift and move heavy loads, reducing the risk of injuries related to manual lifting. They can also handle repetitive work at high speeds eliminating ergonomic challenges related to repetitive motion injuries.

Accident avoidance: Automation can add two key benefits to avoid accidents. First it can be implemented in systems to remove the possibility of human error. And second, tied to health and safety it can remove humans from habitats they do not belong in. Tasks are shifted from mind-numbing physical repetition to active monitoring and management.

Training: Automated systems today can supply training in amazing ways. At the highest-level VR and digital twins can be leveraged to hone operating skills in a simulation. These simulations provide a visual and tactile experience far beyond what a text or lecture could accomplish. On more typical systems user interfaces and HMI’s can offer help screens and suggested actions to support less experienced workers. This automated training can make onboarding more efficient; workers feel more empowered and reduce workforce errors.

Layer 3: Capacity scaling
Capacity scaling is defined by two broad categories, volume and ability. Volume is the amount of goods that can be processed. Ability is added capability automation may add to a manufacturing process.

Volume: Automation systems are faster, more accurate and more consistent than standard labor. There are no laws governing working hours per day or week for a machine. No biologic components to fatigue and far fewer staffing challenges. 24x7x365 is a far more realistic goal with automated systems. This part of the capacity scaling value is well understood and accounted for.

The value often overlooked is how much more scalable automation is than any other manufacturing process. The ability to double or triple processing capacity is greatly simplified. Yes, additional equipment will cost capital, need space and will need to be installed by specialists or integrators. This is still less complex than scaling a manufacturing process that relies on labor. You can grow and scale your options much more easily.

Ability: Automated systems can greatly improve the ability to execute highly precise work. They can run value add processes not possible for humans to do. They can also execute tasks faster than humans which may be required in applications where time synchronization of tasks or curing times of a substance are critical.

In addition, the precision of automated processes in additive or subtractive manufacturing can eliminate entire stages of a traditional manufacturing process. Less precise manufacturing processes often include finishing stages. A raw good is produced and is later refined to a higher quality or precision. These finishing steps can be eliminated because the automated process allows the raw goods to be produced at finished good quality levels.

This additional precision and determinism of process can enhance the quality of your products and potentially open new market opportunities. With these capabilities you may be able to offer a higher quality product or product that meets additional standards opening new revenue opportunities.

Automation will add value by increasing the amount of goods you can manufacture and open new opportunities by allowing you to manufacture high quality goods.

To continue reading about all 7 layers of the Automation Value Pyramid click here.