Cost Considerations for Industrial Automation
Automation has taken the industrial world by storm, making manufacturing processes more efficient than ever before. In fact, by 2025, researchers predict that robotics and animation will have taken over 52 percent of tasks!
One step past mechanization, industrial automation leverages advanced control systems and information technologies to strengthen, quicken, and improve manual processes and machinery.
Is your firm planning to invest or expand an automation solution? While it can be a giant leap in the right direction, it’s important to understand the cost implications first. Though these systems deliver an impressive ROI, there are still initial expenses to take into account.
Today, we’re diving into the key financial points to keep in mind before you cut that purchase order.
What is Industrial Automation?
To keep pace and stay relevant, today’s manufacturers have to produce high-quality, consistent products at a competitive price. To do so, they’re trading laborious, costly and time-consuming processes for automated ones, using integrated technologies and services to improve their:
- Product quality
- Product reliability
- Product production rate
At the same time, automation also helps them minimize their overall production and design cost, saving money and future headaches.
These solutions replace human effort with logical programming commands and powerful machines. Categorized based on their integration level and flexibility, the different kinds of industrial automation systems include the following:
Fixed automation systems prevail in production settings centered on mechanized and dedicated machinery. These systems are used to conduct fixed and repetitive operations, achieving high production volumes.
You can find them in environments that center on continuous flow systems and discrete mass production, such as distillation processes and conveyors.
Programmable automation systems use electronic controls to facilitate changeable operation sequences and machine configurations.
As it can be an intensive process to reprogram certain sequence and machine operations, these production processes don’t often change. This makes this type of system one of the more affordable types.
You’ll find programmable automation systems in settings that have a low job variety and a medium-to-high product volume. It’s also appropriate for mass production environments, such as paper mills.
As their name implies, these automation systems fit into flexible, computer-controlled manufacturing systems. Humans enter high-level codes or instructions into the computers that trigger automatic, lower-level changes.
When production machines receive their instructions, they’ll load and unload required tools before completing their computer-instructed processes. Upon completion, those end products transfer to the next machine automatically.
This makes flexible automation ideal for shops that perform batch processing, with high product varieties and low-to-medium job volumes.
Integrated automation is the full automation of manufacturing plants, powering all processes through digital information processing coordination and advanced computer control. Some of the most common types of systems presented in this environment include:
- Computer-supported process planning, design, and manufacturing
- Flexible machine systems
- Automated cranes and conveyors
- Automated material handling systems (e.g. robots)
- Automatic storage/retrieval systems
- Computerized production
- Computerized scheduling control
The Costs of Industrial Automation
With so many options at your fingertips, it can be difficult to know which type of industrial automation is the best fit for your business. It’s important to start by keeping major cost considerations in mind. Let’s take a look at a few.
Calculating Total Cost of Ownership
At the end of the day, automating your production processes is smart and cost-effective. You can deliver better, faster and more consistent products with little to no human involvement.
However, like with any major investment, it can take a while before you begin to see a return on the money you put down. To make sure the solution will serve your business, it’s important to calculate the expected return on your investment.
This formula to calculate ROI is the benefit (or return) of an investment/(divided by) the cost of the investment. First, let’s determine the costs.
Finding Your Costs
To figure out your costs, begin by calculating your Total Cost of Ownership (TCO) on each automation system you’re considering.
The analyst firm Gartner Group first used the term TCO within the IT technology industry in 1987. In short, this is a model that allows business leaders to capture all of the costs associated with a technology investment over the life of its installation.
While you should consider the TCO of every piece of equipment in your traditional IT infrastructure, plant automation systems require a slightly different approach. In fact, although the concept of TCO has existed for decades, it hasn’t been as commonly used in the process automation field, likely because the systems themselves are so complex.
The lifecycles of process applications and related equipment can vary from less than 10 years to more than 40 years. This variance affects cost in a major way, as you’ll pay for maintenance and upkeep to keep the systems around longer. Unlike a PC, you can’t just upgrade automated process devices every few years.
Rather, you’ll have these investment pieces around for many years, keeping a display for 20 years, controllers for nearly 15 years, I/O terminal panels for around 20 years, and wiring components for almost 40 years. As there is no standard lifecycle, it makes TCO more difficult to pin down.
Automation-Specific TCO Considerations
When you’re ready to calculate TCO in the process automation field, make sure your calculations include:
- An account for long, variable lifecycles
- Costs for platform switching
- Required reliability
- The potential to disrupt operations when making changes
- Costs of training all staff to become proficient with the new equipment
In addition, also take into account any risks or efficiencies, as well as flexibility and scalability, present in the prospective process applications. All of these factors could affect TCO. Finally, the equipment should also align with your company’s strategic long-term goals!
Calculating TCO on Automation Assets
There are three phases to calculating your direct and indirect costs of automation asset management. These include tracking your costs during the following stages:
- Procurement and deployment
- Operations and maintenance
- End-of-Life (EOL) management
While tools such as the Monte Carlo method are designed to help buyers run trials and define possible outcomes of an investment to lower risks, they aren’t always as effective when weighing different automation systems. This is because these systems have several factors that can be difficult to quantify or calculate, including:
- Technology lifecycles
- Future disruption due to platform switches
- Reliability considerations
- Variable system lifespans
- Complex organizations
- Initial and refresher staff training
- Hardware and software upgrades
- Intangible assets (e.g. knowledge bases, IP investments, integrations)
To work around these roadblocks, plant managers should adopt an automation-specific TCO plan that aligns the lifespan of these systems with that of plant process assets. As they do so, they can paint a clearer picture of not only TCO but also the total value of ownership (TVO).
Calculating this metric requires first determining the total benefits attained (TBA) by the new automation system, including increases in:
- Overall yield
From there, the calculation becomes TVO = TBA – TCO.
Plant managers can take strategic steps and leverage industry offerings to improve their automation TVO while reducing their TCO, including these:
Normal installations require that each installer sit at a console and click through the myriad questions presented by a setup wizard. An unattended install, on the other hand, allows you to extend automation to the installation process itself. This means you’ll save on engineering costs for both the initial installation as well as any future upgrades.
Upgrading your control equipment can require a major investment of both time and money. This is mostly because standard migration processes require upgrading through subsequent versions until you reach your desired generation.
Some modern automation technologies allow end-users to skip new releases and migrate to their desired equipment version quicker. This makes the process easier on your budget and gets your teams up and running quicker.
If you’re firing up multiple systems to run applications, it won’t take long for costs to add up. Virtualization can help alleviate this burden by reducing the amount of hardware plant managers require.
It also reduces ongoing labor and maintenance costs, as you’re performing fewer mission-critical functions (e.g. patch management) on fewer systems. By enabling platform independence, virtualization also facilitates smoother and quicker upgrades.
The Integration of Robotics
Once you’ve calculated the costs you’ll incur over the lifespan of a particular manufacturing automation solution, it’s time to determine what you’ll see back.
There are many online calculators designed to help you understand how much your company will save when you use robotic versus manual labor over the lifetime of a project.
The two major fixed data points you’ll need to plug into the calculator include:
- The total cost of the equipment
- The total quantity purchased
From there, the calculator will compare those prices against what your plant currently pays to perform the same work manually. The variables for current operational costs will include:
Robotic System Usage
How often do you plan to use the robotic system? Include the number of shifts per day, days per week and weeks per year.
Annual Labor Costs
Next, you’ll enter how much you pay in annual labor costs per operator. Make sure to include fringe benefits.
Enter in the number of operators you expect to remove per shift with the installation of the new automation platform.
Now, enter the percentage of your existing workforce you plan to retain per shift. These workers will be the ones responsible for operating the system if required.
As a percentage, how much productivity do you anticipate gaining from the installation of your new system?
In addition to saving time, industrial automation and control systems also provide other financial benefits, including money saved on:
- Scrap work/rework
If you have these figures on hand, most calculators include an “Other” section where you can enter them as dollar amounts.
When you conduct the final calculation, the results you can expect to see include:
- The year you can expect to break even on your investment
- Your total dollar amount of labor savings
- Your total dollar amount of productivity savings
- Forecasted maintenance costs
- Forecasted operating costs
- Other savings
- Yearly cash flow
- Cumulative cash flow
Keeping these figures in mind, you can then complete the ROI calculation to determine how the money you’ll spend on the automation solution compares to the benefits you can expect to receive.
In most cases, you’ll find that while industrial automation can be a major up-front investment, it doesn’t take long to realize an impressive return on the system you buy. The most important step is to do your research and take your time, making sure the processing platform you choose aligns with your overall business needs.
Investing in Industrial Automation the Right Way
It seems that around every corner, there’s a new technology trend lurking, threatening to disrupt our current efforts and render even our most innovative efforts obsolete. However, industrial automation isn’t a flash-in-the-pan fad.
It’s an entire movement, and it’s here to stay. Moving forward, future-focused business leaders and plant managers alike will make strategic investments in the tools and technologies that can propel their teams forward and help them maintain a competitive advantage.
Looking for tools and accessories that can help you automate some of your most labor-intensive manufacturing projects and processes? That’s where we come in.
We offer an extensive portfolio of electrical controls with more than 15 million product configurations designed to fit any control system need. Contact us today to learn more and embrace the future of manufacturing, one part at a time.
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