Before manufacturers can make the shift to more modern technology like automation, they first need to justify the investment and prove the payback can be realized quickly enough. However, once the investment has been made, there are ongoing operating costs associated with using automation. These costs can threaten to inflate OpEx expenses over time, depending on how well the automation can adapt to changes.
The approval process
When purchasing automation, there’s an assessment process that is typically required upfront for capital expenditures purchased out of a CapEx budget. Any purchase out of the CapEx budget often goes through several rounds of approvals at the corporate level. The approval process requires an estimate of expected costs and expected savings.
Once the costs and savings have been estimated, then the payback time can be calculated, and it’s often used as the key metric in guiding the decision-making process. If the payback time is less than one year, the automation investment is normally approved. If the projected payback is two to three years, then it’s a maybe. Automation projects with a payback time longer than three years are usually declined.
Understanding ongoing operating costs
Once a project is approved, and the automation is implemented, ongoing operating costs, including changeovers and engineering change orders (ECOs), are then paid for out of OpEx budgets.
- Changeover costs: Say an automated line needs to support building 10 different product SKUs over a five-year period. As work orders are processed, it requires operator time to changeover the line to build each SKU specified in the work order—all that time is total changeover cost.
- ECOs: There are three kinds of ECOs to consider including:
- 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 sometimes lack the detail required to completely describe the line, which can result in ECOs going back and capturing new requirements.
- Line efficiency improvements: There may be opportunities to improve the efficiency of the line once it’s running. The operator may learn that changing the sequence of how parts are assembled will improve the cycle time, for example, and those changes are done through ECOs.
- Product changes: Products often undergo minor revisions to improve product quality as production ramps up. Other revisions occur based on market response to new products or if there’s a need to place a new label on the product. These changes trigger ECOs as the line needs to be modified to support the new product version.
Traditional hardware vs. software-first technology
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. To no surprise, a traditional versus a modern technology approach can make a big difference when it comes to TCO:
- Traditional hardware: Lines implemented using traditional hardware-first automation are more rigid and harder to reprogram. As a result, they can lead to inflated operating costs as more changes need to be implemented.
- Software-first technology: Lines implemented using a modern software-first automation platform, such as the Bright Machines Microfactory, are much more flexible. Microfactories use modular hardware supported by a common operating system, so they’re better able to absorb changes without greatly impacting operating costs. Then, if there’s a change order or a new requirement for the product, manufacturers aren’t left navigating expensive changeovers or ECOs, as the platform can easily adjust and adapt to the 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 inflated operating expenses, reduce TCO and enjoy the expected return on their automation investment.
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