June 15, 2009 by Chris Stergiou
Manufacturing automation, found in all our plants falls under the capital costs factor of the manufacturing costs equation. Automation leverages our competitive advantages and makes our products economically viable by creating an optimum mix of the three factors of production.
Capital in the form of automation is our control dial and is the most responsive control point so that we can “dial in” our resultant manufacturing costs. Therefore, as materials and labour are commodities in the global markets, automation remains our most important competitive advantage.
WHY DO WE AUTOMATE?
We automate for several reasons: 1) To eliminate the process variation inherent in manual operations; 2) To protect workers from safety hazards; 3) To substitute variable labour costs with controllable capital costs; 4) To achieve faster cycle times; and 5) To produce at a predictable rate.
Implicit in the reasons to automate, is economic production so that we can compete with an optimum mix of material, labor and automation (capital). We automate based on an economic analysis of alternative uses for our capital ranging from totally manual operations to increasing levels of automation as we substitute for human effort with machine function to lower total costs.
WHAT TO AUTOMATE?
In manufacturing, anything and everything can be automated as indicated by the economics of the operation and our strategic objectives. We automate labour-intensive operations that offer immediate economic justification: the so-called “low hanging fruit”. Whereas labor costs are unpredictable and recurring; capital investments are more predictable in terms of the Return On Investment (ROI), and Internal Rate of Return (IRR), and offer opportunities to invest in an internal investment instrument that has a higher economic yield.
Automation’s key driver is the economic justification of the investment for that automation which has to compete with other potential investments within manufacturing, but also with other company investments internal/external for the same scarce company capital.
In the continuum from totally manual to fully automated operations there are many economic “break points” which meet the ROI/IRR criteria for automation. These range from simple assembly fixtures to major fundamental redesigns of a manufacturing operation so that multiple steps are buried into the same cycle time.
Automation must be quality neutral or a quality improvement and the ROI/IRR must meet our minimum criteria. The automation then becomes a new revenue stream since it leverages an existing operation and that new revenue is realized as productivity improvement. A well-executed automation project meets its economic objectives, but also brings unknown and unknowable benefits, which become evident only after deployment as new opportunities are created.
WHEN TO AUTOMATE?
The untimely execution of an automation strategy fails to both deliver its promised economic benefits and can increase costs. It is essetially “turning the dial in the wrong direction.”
In an ideal world, automation is timely when the inputs to the process are well understood and are to specification and the process has been value stream mapped and we perfectly understand the economic and technical value of each step.
Alas, under this rubric, we will never be ready for automation. Still, the two prerequisites to good if not perfect automation are the stability of our inputs and a good understanding of our process. Both of these requirements are achieved through the use of Lean manufacturing tools and judging the two conditions as met is as much art as it is science, requiring leadership.
Since a process is fluid and dynamic; responding to market/strategy shifts; there are always operations, which are ripe for automation. Using the two signals of stable inputs and a well-understood process, we will always find automation opportunities. If we search our process, we will find several operations, which meet the above criteria. Then using the ROI/IRR calculations, we will proceed to automate that operation which yields the highest economic benefit.
Once we have completed our first iteration, we rerun our search through the process. This second search will reveal another set of opportunities including the previous results, but likely including new opportunities that were created by our first pass automation. So our search is repeated continuously and our investment in automation is in the higher ROI/IRR available at that point.
In summary, while understanding why we automate, we run our automation search continuously, using stable inputs and an understood process as our signals and maximizing the ROI/IRR to identify economic targets for automation.
Chris Stergiou (firstname.lastname@example.org) is a manufacturing consultant with 25 years of experience. He provides custom automation and consulting services to clients, many of them Fortune 500 companies.
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