Updated: Jul 14, 2021
Designing for automation is often a significant investment. As a business owner, you don’t want to spend money on anything that doesn’t have value for your company, whether it is in the short term or the long term. That means that making the switch to automation should first involve an extensive review of how it will affect your company’s bottom line.
The Benefits of Automation: Investment or Expense?
You have likely heard that automation in manufacturing has a lot of benefits, including:
· More efficient processes
· Less waste generally
· Decreased risk
· Lowered cost over time
Automation can even expand product and service offerings in some cases.
However, automation is not suitable for every company. In general, it works well for processes that are repeated and standardized. If whatever you are trying to automate requires any measure of creativity or individuality, automation likely doesn’t make sense. In those situations, automation can do more harm than good.
Calculating Automation ROI
1. Begin by knowing your starting line.
To start, you have to know your current expenses. If you don’t know these numbers at the outset, you won’t be able to compare the new automation costs and potential revenues to anything meaningful.
Be sure to consider every resource that goes into the task or product that you want to automate, such as labor costs, production time, direct material costs, and overhead.
2. Plan for the long-term costs.
If you only look at the short-term costs of implementing an automation system, you will never realize the true cost savings over time. Automation is an investment—in most situations, you won’t see a decrease in costs immediately because of the upfront costs of implementing the process.
You have to calculate the automation ROI over the long term rather than using more traditional short-term measures. Costs for automation eventually go down over time, but expenses for manual manufacturing often increase over time.
3. Do your calculation.
The basic calculation for automation ROI is gains minus investments, divided by investments. It looks like this:
Although the equation is simple, defining what constitutes “gains” and “investments” is not as straightforward.
Knowing your current costs will help you compare apples to apples to reach an appropriate “gains” number. The investment includes the overall investment in the automation process, which includes the equipment and resources to run it.
4. Don’t forget to consider “soft ROI.”
The above calculation provides your “hard” numbers to review ROI. However, it does not consider some of the harder-to-quantify benefits. For example, providing the right kind of automation allows your team to move away from mundane tasks (like packaging and washing) and focus on more meaningful work, improving job satisfaction and decreasing turnover. Decreased downtime and faster response times (which increase customer satisfaction) are also soft ROI measures that can be difficult to quantify.
These soft ROI considerations are not only difficult to measure but they often will not be seen in any meaningful way until long after implementation. Nonetheless, they should be considered as part of your overall decision to move toward automated tasks and processes.