Why Invest in Automation?
Luckily, you read a blog somewhere about getting automation solutions fast. The piece said something like “an automation system could be up and running in less than six months”. That’s not quite right now, but it is so much sooner than most automation solutions. And automation is clearly the way to go - or these process problems will just persist.
So you talk to some key people and their eyes light up… for about a tenth of a second. “You’ve got to economically justify this, you know. And it’s got to pay for itself in less than three years. And our rate of return is 8%. Can automation match that? Probably not.” You tell them you’ll get back to them next week.
Who doesn’t like a challenge? Especially when you already know this one is a slam dunk. And then you remember that seminar at ProMat where Troy VanWormer laid out a plan and a roadmap for selling automation internally. Good thing you took notes.
In his session, right at the start, VanWormer asked the question you know your review committee is sure to ask: “Why invest in automation?”
Your first answer is a home run – reduce our dependence on labor. Competition for labor is fierce and wage rates are climbing. There’s also the matter of retention, training, absences and workers’ comp risks. All of that adds up to real dollars toward your justification of automation.
Then there’s the matter of making better use of space. Well-designed automation reduces the footprint required to process orders, as much as 30%. And a smaller footprint is part of justifying automation.
Equally as important, automation also increases throughput up to 75%, reduces replenishment delays and, in some cases, shrinks order processing speed as much as 90%. Those are all worth real money in the justification.
VanWormer offered a roadmap to this and other data you will need to prepare your presentation: Of course, he started with the capital expense of the project. That needs to be offset by savings in cash flow from labor reductions and space savings. The former includes wages and liability costs (injuries), as well as reliability costs (missed work). Space savings is all about reduced utility and space costs.
There’s also the matter of potential cash flows. For instance, higher service levels can lead to higher revenue. That’s due to faster order processing, better accuracy and less damage from reduced product handling. A little hunting can easily uncover other potential cash flows from the increased efficiencies garnered by automation.
Regardless of the justification method used at your company, “investing in automation has a very strong business case,” said VanWormer. “You just have to be sure to find the hidden costs that can be eliminated and the potential revenue streams that result to make the case.”
In the end, it really wasn’t that tough to justify automation. And, when you followed up the next week, everyone was quite impressed by your thorough understanding of integrating automation. Problem’s solved.
In the next blog, we’ll take a look at the practical considerations of automation.
Gary Forger is the former editor of Modern Materials Handling magazine and the Material Handling & Logistics U.S. Roadmap to 2030.