Basic ROI Factors When Considering an Industrial Automation Solution

A lot of people overlook the benefits of industrial automation citing high acquisition cost. The question on most of their minds is how do you derive sustained profitability from automation? The only way is to find out the return on investment (ROI) of making such a move in concrete figures. Simple ROI can be calculated as:

ROI= Gains/savings less investment costs over investment costs

Simple as it may look, it is not that straightforward. You need to know what costs and returns figures to use referred to as ROI factors. Here are some high-level factors to think about when considering an industrial automation solution:

Total ownership cost (TCO)

This can be broken down into: acquisition, installation, maintenance, operating, and training costs.

Acquisition, and installation might be easy to take at face value, but maintenance requires more thought. Generally speaking a maintenance schedule would account for a timeline similar to the one below:

• First 3-4 years- minimal maintenance like greasing

• After 4th year-you begin to replace worn out parts

• 3-4 years after that-minimal maintenance

• 8-10 years-major refurbishments

You can see how these costs might increase gradually between the years, and that’s going to add to your investment long-term.

Operating costs for industrial automation majorly focus on power consumption. A 10 kilogram robot, for example, is estimated to cost 15 cents an hour to operate. That cost alone can add up quickly.

Furthermore, trained personnel may need to watch over a whole cell of robots despite automation. You will therefore have to train them, incurring an additional and often overlooked cost.

Gains / Savings

By implementing industrial automation systems, you can save on labor, productivity, rework costs, and materials, but you should also look at gaining factors related to enhancements in quality, space utilization, increased output, and reduction of injuries.

As an example, if you install a robot that can carry out the work of three people, it results in over 150% increase in production. In other words, you can now undertake an 8-hour task in 3 hours which translates into significant financial benefits with respect to the savings and gains above.

Return on investment (ROI)

To obtain an accurate ROI, you will need to generate a cash flow analysis related to the above factors. Here is an example* to give you an idea of how to evaluate the value an automation solution offered by a basic robotic arm:

Total System Costs (installation, training, & spare parts) = $250,000

Number of robots in system = 2

Robot Usage:

• shifts per day = 2
• days in a week = 5
• weeks per year = 50

Annual operator labor costs per year = $45,000/operator

Less operators per shift = 2 % of operators to maintain system per shift = 10%

Other Estimated Savings/Costs:

• Productivity Gain – spindle utilization = 17%

• Productivity Gain – automation vs. manual production = 10%
• Total Estimated saving from Productivity Gains = 27%

Once you run the numbers, you’ll generally will see a labor savings of $2.8M and a productivity saving of $756K over a total life of 15 year.

*Go to the ROI calculator found here to see how the above figures were derived.

Industrial automation costs should be properly justified before any decision can be made. Keep in mind, changes to your factory or warehouse will obviously affect the TCO and Gains / Savings. Faster, better, and cheaper products can certainly be obtained from automation and definitely will provide an edge over competitors, but you’ll feel more comfortable about implementing an industrial automation solution if you are aware of what the true costs are and how it should yield a return for your operation.