Is Now the Time to Invest in Manufacturing Automation?

July 5, 2022 | | Business Insights

As more companies embrace advances in manufacturing automation, those who refuse to change may find themselves left behind. However, investment in these new technologies comes with its own hurdles. Read more about this trend and strategies to assess potential automation investments.

Even as the US shifts into a post-pandemic norm, American manufacturers will likely continue to face labor shortages. Despite pushes for increased wages, flexible scheduling, and improved workplace conditions to alleviate the strain, analysts believe the labor issue will continue to persist into the foreseeable future. As one might assume, this ongoing labor shortage continues to be a result of a number of factors, including increased competition from other sectors, inevitable retirements, and reshoring strategies. But business leaders proved their resiliency throughout the pandemic—and will continue to do so—by embracing emerging trends in manufacturing automation.

Employee on tablet watching machinery

Data from the Association for Advancing Automation (A3) indicates record-breaking sales in 2021. According to A3, American manufacturers ordered nearly 29,000 robots, valued at $1.48 billion. Those orders were up 37% from 2020, proving how investments in manufacturing automation have kept pandemic-burdened businesses on track.

Speaking on the matter, A3 president Jeff Burnstein says that “with labor shortages throughout manufacturing, logistics, and virtually every industry, companies of all sizes are increasingly turning to robotics and automation to stay productive and competitive.” What factors should manufacturing business leaders consider when determining the ROI of manufacturing automation?

Employee operating tablet in front of machinery

Cost vs ROI: Leveraging Automation to Mitigate Labor Shortages in Manufacturing

A trend toward automation has been an understood norm in manufacturing for several decades now. But as labor shortages persist—exacerbated by the Covid-19 pandemic—manufacturing business leaders may consider accelerating their adoption of automation.

Before the current state of affairs, the upfront investment necessary to automate may have seemed costly compared to maintaining an existing human workforce. But as new cutting-edge technology emerges every day, stiff competition is keeping the price of manufacturing automation relatively grounded. By implementing new adaptive technologies and intelligent software now, you can benefit from an economical solution to ongoing labor shortages.

Back to Basic Calculations

Before investing in new robots, tech, and AI, manufacturing business leaders must weigh the cost of automation against that of human labor. Ultimately, this cost difference is the most important factor in determining whether or not such investments are worth it in the long term.

Begin by defining your company's goals and determining your success indicators. These indicators might include revenue targets, uptime/downtime ratios, and scrap rates. Use these (among other metrics) to determine whether your manufacturing business would benefit more from a human or automated labor force.

Tangible Costs

Once you've established your goals, collect as much data as you can on the costs associated with your current labor force. Then, weigh them against converting to a fully or partially automated system (or updating your current robotic workforce). Include metrics such as:

  • The cost of human labor (salaries, hourly wages, benefits, etc.)

  • Wage inflation

  • Turnover rates and associated training costs

  • Payroll taxes

  • The cost of safety equipment

Intangible Costs

Of course, manufacturing business leaders must dig deeper than just these surface-level cost metrics. You should also consider intangible costs and determine how embracing manufacturing automation can save money in those areas. Some intangibles to consider include:

  • Accidents and safety risks caused by human error

  • Waste and production loss

  • Slow-paced human workers vs. robotic counterparts

While there's no hard dollar amount you can save on these metrics (given their intangible nature), accounting for them is just as important. It also helps to consider the costs associated with implementing an automated workforce, such as up-front hardware and installation fees.

Manufacturing machinery in product development

Remember, these machines still need operators to maintain and inspect, as well are programming and managing their operating systems. Consider the expense of hiring skilled workers who understand these complex machines and the maintenance, monitoring, and troubleshooting they require. You must also consider downtime due to malfunction. How long will it take to complete repairs and deliver new parts? Replacing a human worker when someone calls out sick or is injured is relatively simple. Given current supply chain bottlenecks, replacing an automated worker may not prove as straightforward. New parts and repairs may lead to unplanned extended downtime on the manufacturing floor.

While there are few intangibles associated with fully-automated systems, this doesn't mean that they are always the most cost-effective option. The most important questions to consider: How much value can manufacturing automation add to your bottom line, and when you can expect a return on the investment?

When the answers to these questions are analyzed and weighed against each other to strategically invest in manufacturing automation, business leaders can:

  • Improve output to increase revenue

  • Avoid costly recalls with increased accuracy

  • Improve employee morale and safety

  • Implement automatic maintenance reviews to improve compliance with industry standards and regulations

Employees operating machinery

Challenges When Investing in Manufacturing Automation

Manufacturing business leaders face constant market pressure to increase profitability. You’re always searching for new investments to boost efficiency while trimming expenses. Adopting automation in the industrial sector can bolster reliability and efficiency, and ultimately improve ROI. A transition to complete automation is on the horizon—but it will still take several years for the global economy to adapt to these expanding technologies. Investing in manufacturing automation therefore still comes with several hurdles to consider before making any serious financial moves.

Initial Cost

When discussing manufacturing automation, labor cost still reigns as the foremost issue. After all, costs associated with human employees are likely the driving factor behind switching to automated systems. But if you're conducting offshore business in countries with lower wages, implementing automated or assistive technology may not prove particularly cost-effective. Instead, you may find that in these circumstances the upfront costs of automation actually outweigh those of hourly wages—intangibles included. On the other hand, automation could save businesses considerable sums in countries with high wages for low-skilled positions.

Up-front automation costs are falling; however, the initial investments may still push some companies away. You must also consider maintenance, repairs, and upgrade costs associated with these machines.

Manufacturing labor shortages aren't necessarily new either. A Deloitte/Manufacturing Institute skills gap survey from 2018—well before the current pinch—found that 488,000 skilled-worker jobs sat unfilled. Furthermore, estimates found that a continuation of that skills gap rate could drive those figures as high as 2.4 million by 2028! Add a global pandemic into the mix, and those projections are likely even higher now.

As more businesses turn to automated solutions, those who've yet to embrace the change may be facing an ultimatum. The influx of technology will inevitably force all business leaders to embrace manufacturing automation.

As skilled-labor shortages continue, the need to shift in some capacity has become blatantly obvious. Many have already turned to automation to reduce (or eliminate) low-skilled jobs. Now, robotic arms can manage production lines, while co-bots assist human workers with manual tasks.

Of the business leaders surveyed in the Deloitte/Manufacturing Institute study, almost half indicated that they had implemented some form of automation in the past three years. Sixty-four percent attested that adopting manufacturing automation helped alleviate the pressure to fill open positions.

Machinery building automobile components

Employee Acceptance

Once you've decided to adopt new technologies, it's imperative that you communicate this change to your current employees. Some may feel like they're being pushed out of a job, as the standard line of rhetoric is that “the robots are taking our jobs.” The most successful integrations address critical employee concerns.

Upon beginning a new automation project, your employees must understand how these changes will help the company achieve its goals. They can focus more on value-added tasks by working side-by-side with automation, thus benefiting the company and building a more efficient workplace. When your existing employees to buy into the solution, you increase your chances of success with manufacturing automation.

Workflow Integration

Now that you're moving forward with new automated tech, your next challenge is ensuring successful integration into your current system. Some automated solutions act independently and may cause initial hiccups when integrated with your manufacturing floor. Connectivity issues and security lapses could also lead to lost data and vulnerability.

As more automated systems become interconnected, the chances of a widespread security breach increase. Hacking methods develop as quickly as new security measures. To prevent any breaches, make sure you're using the most up-to-date cybersecurity software. You must also train employees on how to use and monitor the new systems, instructing them to report any potential red flags.

Man on computer operating machinery

Implementing Industrial Automation in Manufacturing

Manufacturing automation can benefit nearly any industrial facility. With industrial robots and programmable logic controllers (PLCs), you can improve product quality, reduce mistakes, and lower overhead costs. As the modern manufacturing world solidifies itself in the Fourth Industrial Revolution, or Industry 4.0, business leaders must move towards automation to stay ahead of the curve.

You can think of “industrial automation” in broad terms of including the wide spectrum of technological methods used to minimize human interaction, across industries. Human efficiency is often impacted by fluctuations in frequency, quality, quantity, usability, durability, and workflow—all tangible metrics you can improve and even correct with automation.

Manufacturing business leaders should consider the following steps when implementing automation into their business:

Determine the Opportunities for Automation

Simply put, some jobs are better suited for automation than others. Tasks considered repetitive, low-skilled, or menial may be performed faster and more consistently by robots, thus freeing up employees for more value-added tasks.

Take Small Steps

As you probably know, buying new machines for the manufacturing floor can run up the budget quickly. Consider the time, money, and human resources necessary to replace or redesign the factory floor to make room for new tech.

For these reasons, it’s best to start small when converting to an automated workforce. Consider which processes will benefit the most from automation, and then hone in on those particular steps. You'll see the next logical move more clearly once you've dipped your toes into the automation water.

Conduct Necessary Tests and Reviews Before Moving Forward

Now that you've identified the most beneficial processes to automate, consult with design engineers to determine the most efficient way to progress. Design engineers will consider several factors, letting you know whether or not particular processes are actually good targets for automation. They’ll be evaluating:

  • Volume of product parts and assembly steps.

  • Processes best suited for automation—fewer parts and assembly steps are better.

  • Product colors and dimensions.

  • Level of manufacturing difficulty as automated computers may not be able to handle nuanced steps.

Woman operating computer and looking at handheld tools

Their audit may open your eyes to more cost-effective assembly means in general. Perhaps you will find two or three steps to eliminate, thus further decreasing production time while increasing output.

Design engineers will also examine materials used in making products. The more screws and fittings required for assembly, the more chances arise for production errors. Materials should be optimized for manufacturing automation.

Conduct Regular Inspections

When implementing new automation, establish regular maintenance and test schedules to prevent malfunction. Robots themselves should be designed to make data collection as easy as possible. Doing so can prevent small issues from developing into significant problems, like robots rejecting perfectly good products (or accepting poor quality ones).

Assess Whether Automation Makes Sense for Your Business Model

As labor shortages continue to plague the manufacturing sector, business leaders can turn to automation to compensate for lost revenue. As more companies embrace advances in manufacturing automation, those who refuse to change may find themselves left behind. However, investment in these new technologies comes with its own hurdles, and a financial partner with deep manufacturing expertise like First Bank & Trust, a division of HTLF Bank at your side can help you plan for the capital investment required.

As the world moves toward more automated processes, weighing the associated costs and ROI is imperative to success. Contact First Bank & Trust, a division of HTLF Bank to speak with a commercial banker today.