RaaS Model Helps Manufacturers Solve Labor Problem Without Huge Investment
The Georgia Nut company faced a dilemma common to many manufacturers: it didn’t have enough employees to meet demand for its products. With just over 160 employees, the 77-year-old Illinois company, which specializes in nuts and wholesale confections, was often short staffed by 15 to 20 people per shift. Like many manufacturers, Georgia Nut had for years considered automating. But concerns about the high upfront investment and performance risk kept the company on the sidelines.
“Over and over again I hear this exact same line: ‘We’ve been planning to automate this cell for the last 10 years,’” said Saman Farid, co-founder and CEO of Formic, which began offering fully customized robots as a service (RaaS) in late 2020. “It doesn’t happen because it’s too risky, too expensive, too complicated. Or, they have robots that a charismatic salesman convinced them to buy now sitting in a corner, collecting dust.”
Farid explained that the labor shortage and stalled operations are impacting manufacturers. “Plants are sitting idle 75 percent of the time. No wonder U.S. prices are higher than our global competitors. No wonder we can’t compete with production in China and Vietnam. When we give them an abundant workforce of robots on demand, their capacity goes up instantly. They don’t have to build any new facilities. They become way more competitive at the flick of a switch.”
Of course, adding more robots solves only the labor problem. Traditional leases slash the high upfront investment but not the fear of new technology/performance risk, Farid said.
“But these were financial leases, just a way to avoid capitalization and not that different from normal ownership,” said A.K. Schultz, co-founder and CEO of SVT Robotics. The company, which was launched in 2018, makes platforms designed to ease and speed robot integration. “I started to see it tilt about five years ago,” he continued. “Robots as a service is different. There is a more on-demand component. RaaS also is a means by which to deal with uncertainty and seasonality.”
Enter true RaaS, which can solve both the worker shortage and the automation fear factor, with benefits to both manufacturers who use robots and the companies who make and sell robots.
As business uncertainty has accelerated, RaaS has become a more inviting option. “People have very little business certainty year to year,” Schultz said. “The ability to be flexible is quickly trumping the need to optimize capital for five years.”
RaaS is a win for both the company purchasing the service and the robot makers, according to Schultz. “If you’re a business, you don’t have the big upfront cash outlay. You can pay for what you think you need and then add to it. You can have machines during your peak season and you pay for them only when you need them. It’s also a benefit to the robot companies. They’re not always installing brand new robots. They can maintain a fleet of inventory and use them across multiple customers. They can charge a peak season premium, during Christmas and other peak seasons.”
Prasad Akella, founder and chairman of manufacturing-focused video analytics and software-as-a-service company Drishti, based in Mountain View, Calif., credits the robotics group at General Motors as a global leader in working through the details of deploying robotic systems. Akella cited two key takeaways. First, designing the robot in simulation and buying the robot were easy. Second, making the robotic system work as designed on an actual plant floor and achieving a functioning robotic system were much more difficult. In response, the GM robotics team created internal standards for different use cases.
“That was the beginning of robots as a service even though the term did not exist then,” Akella said. “The robots could be swapped in and out, and the plant could have a clear sense of functionality and cost.”
The RaaS model offers several options for manufacturers, all based on demand, Schultz said. A manufacturer can contract robots on a seasonal basis, ramping up when demand for products increases and ramping down when demand passes.
The RaaS model provides four key benefits compared to buying robots, Akella said:
--The technical challenges are abstracted away.
--The burden of the high initial cost is eliminated.
--Manufacturers get what they pay for and gain flexibility with a direct connection between expenses and needs in the service level agreement.
--The manufacturer does not need to organize its IT department around servicing the robots.
“This model allows for a bit of flexibility,” Akella said. “Manufacturers lease only those robots that they need for only as long as they need, aligning their per-piece costs with their per-piece revenues.”
“They’ve reduced the cost of uncertainty and allowed these companies to monetize the uncertainty while providing a more targeted value for their customers,” Schultz said. “If they’re only using what they need and then adjusting the volume the rest of the year, that capacity isn’t sitting idle, bringing down their investment. They’re able to be more capital efficient. They can more closely tie their robots to the ROI. They’re not building a church for Easter.”
Another model is to pay by capacity. For example, companies can choose to pay by the number of picks a robot performs, an approach that also helps when exact need is uncertain or varies. “It’s a stairstep model,” Schultz said. “You buy capacity, use it up, then buy more.”
Large manufacturers typically have enough engineering talent in-house who can buy, maintain, and service robots themselves, Farid said. Meantime, small and medium manufacturers have remained on the sidelines.
“While the largest robot users in the world like GM can create their own RaaS capabilities, smaller companies that don’t have the sophistication of GM cannot do this on their own,” Akella said.
With RaaS, manufacturers who are considering robotic systems can test the systems with a lower financial commitment, Schultz said. “You can make a bet that’s less than $100,000 instead of millions. You can test things out without the long-term liability. If it works out, you can continue.”
“Most of our customers are small- and medium-sized manufacturers,” Farid said. “They don’t have their own engineering teams available. They make food products, packaging, metal fabrication, plastic injection molding. Most have 1,000 employees or fewer. We offer them an easy, low-commitment way to automate. They don’t pay a dollar until the robots are installed, running smoothly, and delivering the promised outcome. We are responsible for that outcome.”
The first step, and the primary challenge, is defining the problem or manufacturing use case into enough detail to determine if a robotic system is the answer, and, if so, finding a robotic system that will fit seamlessly into factory production, Akella said, noting that manufacturers often “prioritize the technology over the fit.”
Companies such as Formic (robotic hardware) and SVT Robotics (software) strive to make the transition as easy as possible.
Typically, a Formic salesman will walk into a plant and plant owners will point at two or three cells or processes they want automated, Farid said. “That’s the extent of their involvement,” he noted. “What kind of robot, what kind of frame, what kind of base—that’s not on their plate. We come back with a fully working system. We don’t charge them a single dollar until the robot is doing exactly what we promised. If we promised five boxes per minute and the robot is moving 4.9 boxes per minute, they don’t have to pay.”
If a robot component needs maintenance or wears out, Formic steps in at no additional cost to the manufacturer.
SVT Robotics provides integration software to ease the demand on a company getting started with robotics, Schultz explained. “Our team is very skilled at helping companies that have never used automation before get through the journey with a higher probability of success.”
Formic is seeing an uptick in demand for RaaS among fast-moving consumer goods manufacturers, including the food and beverage and cosmetics sectors. Metal fabrication and packaging companies also are hungry to automate. In metal fabrication, for example, there is a big demand to bring production back to the U.S., and increased automation is a key step in achieving that goal, Farid added.
Another deployment is warehouse operations, which often have labor requirements that fluctuate by season. “Many manufacturing facilities are attached to warehouses,” Farid said. “The needs are great—unloading trucks, palletizing, managing shelves. With robots, it’s easier for cash outlay to match cash inflow.”
One dominant use case, Akella said, is hardware RaaS with robotic systems of different types of robots such as pick-and-place units, cobots, and autonomous mobile robots set up to execute different functions and job types.
The RaaS model also lends itself to packaging operations and material movement, according to Schultz. However, he noted, the model doesn’t work for custom filling machines, extruders and others that, once built, wouldn’t work well for another manufacturer.
Price also is a factor, he said. “If one machine costs a million dollars compared to another machine at $20,000, you’re more likely to have a RaaS model with a price closer to five figures instead of seven figures.”
There are some cases where RaaS doesn’t make sense, and some downsides for manufacturers and robot makers, Schultz noted.
RaaS might not make sense for manufacturers with more certainty in their business model, Schultz said. From a purely monetary standpoint, companies could end up paying more in the long run. The model also doesn’t make sense for manufacturers that need highly specialized robot cells that could not be reused in a different factory, he said.
Venture capital for robotics companies helped enable the shift, Schultz added. Traditionally funded companies, which had to be quickly and constantly profitable, had trouble self-financing the RaaS model, he said. “With venture capital coming in, companies can be more inventive with business models; the cash doesn’t have to turn a profit immediately.”
One downside for robot makers is that RaaS are “a slightly less sticky product,” Schultz said. “There’s a chance the customer could cancel the contract as opposed to the traditional automation model where you sell it once and those bots are in there forever.”
A big challenge is the necessary cultural shift, according to Farid. “The owners and operators of these facilities are generally used to buying and owning everything themselves,” he said. “When we come in and say, ‘We’re going to take it off your plate and manage it for you,’ that requires a lot of trust, a lot of partnership. A big part of it for the manufacturers is finding a partner they can trust and has a track record.”
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