The benefits of automated solutions on the factory floor have been well known and understood for years. Yet there’s still one hurdle holding back some manufacturers in making progress on their digital transformation efforts: not fully understanding the associated upfront and ongoing costs.
Before manufacturers can modernize their technology, they first need to justify the investment and prove the payback can be realized relatively soon. While historically this may have been a challenge for some, proving that automated solutions can introduce greater efficiencies and quickly enable cost savings is easier than ever.
First, there’s an assessment process associated with implementing automated technology, as it typically involves an upfront capital expenditure purchased out of a CapEx (capital expense) budget, which accounts for new equipment, software systems, and other properties. Any purchase out of the CapEx budget often goes through several rounds of approvals at the corporate level. When it involves automation, the approval process can often take longer as it requires an assessment of the upfront cost as well as the expected cost savings from fewer operators.
The payback time of a new platform, system, or solution is also calculated to help guide the decision-making process. It’s often approved if the projected payback is less than one year, a “maybe” if the payback is one to three years, and declined if it’s longer than three years.
Once a project is approved and the technology is implemented, ongoing operating costs are then paid for out of OpEx (operational expense) budgets, which account for day-to-day things, such as energy consumption and support and equipment maintenance. Other ongoing OpEx items, such as tooling changeover and the costs associated with engineering change orders (ECOs), can be more challenging to estimate.
Changeover costs: Let’s assume a new automated line needs to support 10 different product SKUs over a five-year period. As work orders are processed, it requires operator time to adapt the line to build each SKU specified in the work order. The combined operator time spent on implementing changeovers to build the 10 SKUs over five years is the total changeover cost.
Changeover time can be “designed out,” though that typically results in more upfront work and a larger CapEx expense to develop a better design. Essentially, manufacturers have to navigate a trade-off between how much is spent on the upfront design versus how much will need to be spent on ongoing costs of operating the line. Most opt for lower upfront costs of automated lines, and therefore end up with higher changeover costs.
ECOs: There are three kinds of ECOs to consider and plan for, including incomplete specification of line, line efficiency improvements, and product changes.
The first is an incomplete specification of a line. Automation projects typically follow a process of describing requirements in a statement of work (SOW), design reviews, and acceptance testing. SOWs can sometimes be extensive, but more often, they lack the detail required to completely describe the line. As initial designs are prepared based on the SOW, the incompleteness of the specification can lead to the need to update an ECO and capture new requirements.
The second type of ECO involves line efficiency improvements. Once a line is up and running in production, opportunities to improve its efficiency may be identified. For example, the operator may learn that changing the sequence of how parts are assembled will improve cycle times. Implementing these types of efficiency improvements are done through ECOs.
The third potential ECO to consider is a product change, which is typically a minor revision to boost production quality. Other revisions occur based on market response to new products or if there’s a need to place a new label on the product. For example, the manufacturer may learn that there is a potential hazard for consumers using the product, such as a pinch point, that requires a warning label. These types of changes trigger ECOs when the production line needs to be modified to support the revised product.
Ongoing operating costs of running an automated line can get inflated when changeover costs and ECOs grow beyond expectations, raising the total cost of ownership (TCO) higher than anticipated, which ultimately impacts the bottom line.
To ensure the financial benefits of automated technology are realized quickly, manufacturers need to better consider upfront costs as well as ongoing operating costs, including both changeovers and ECOs. Through this assessment process, companies will better understand how traditional versus modern technology approaches can make a big difference.
Lines implemented using a traditional hardware-first automation, for example, are more rigid and harder to reprogram, making it difficult for these highly customized lines to absorb changes after an initial design is completed. As a result, traditional lines can have inflated operating costs as more changes need to be made.
Lines implemented using a modern software-first automation platform, however, are much more flexible. They use modular hardware supported by a common operating system, so they’re better able to absorb changes without greatly impacting operating costs. Then, when a new product receives a lackluster response from the market—or when there’s a new requirement to produce a broader range of products in different colors—manufacturers aren’t left navigating expensive changeovers or ECOs as they adjust and adapt to new conditions.
The importance of a diligent assessment today cannot be overlooked. Through this, manufacturers will realize that a modern approach—one with flexible technology built in—will allow them to avoid unexpected costs while experiencing the benefits of greater efficiency and flexibility.
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