Robot economics

Published:  12 April, 2017

Manufacturing is just starting its evolution into the digital world, and robotics is one of the key enabling technologies. But is it the right time to take the plunge? Andrew Armstrong, FANUC’s UK sales and marketing manager reports.

By 2018, it is estimated that 1.3 million industrial robots will be working in factories globally, at the same time getting smarter with advanced capabilities. The fall in price of next-generation robots means that the business case for implementing robotics across individual manufacturing lines has become stronger.

The robotic density figure is a key performance indicator for gauging the current degree of automation within the international markets. By 2019, more than 1.4 million new industrial robots will be installed in factories around the world - that's the latest forecast from the International Federation of Robotics (IFR). For example, the average global robotic density in producing industries lies at 66 robot units per 10,000 employees. Whilst traditionally the preserve of the automotive sector, automation is now encroaching across many subsectors and, rather than feared as a potential job stealer, can help to increase profitability, speed up the manufacturing process and actually create employment.

In the race for automation in manufacturing, the European Union is currently one of the global frontrunners. However, according to the International Federation of Robotics, the UK is currently languishing in 21st place worldwide in the global robot density league, with robot density barely above the global world average of 58 robots per 10,000 employees in the manufacturing sector. Putting this into perspective, the Republic of Korea has nearly 10 times the number of the UK.

For those who are taking their first steps on this journey, what are the key issues to answer when considering whether to invest in robotics? How do you justify the value of that investment? How do engineers, plant managers and the finance department work together to determine which areas to focus on first? The answers to these questions are unique to every company and every process.

A good place to start is to understand what the automation of the process is intended to do. In manufacturing, it may be to:

• Speed up a high volume manufacturing process

• Make a process more flexible and reduce batch sizes and reduce changeover times

• Introduce greater processing reliability and repeatability

• Instil safer working practices.

Individually, combined, or even taking into account other reasons, it is possible to quantify, or at the very least get an accurate estimate, on the payback of your robotics investment.

Commonly, people think only of the cost of a robot without quantifying the benefits. Weighing the benefits against the costs is the basis for return-on-investment (ROI) calculations. Ranking by potential ROI helps to identify the projects that will deliver the most value. For an accurate picture, a potential buyer should look at the service life of any robotic system and the duration of the automation project.

Similarly, many potential users look at direct labour costs only, yet don’t consider all the indirect costs, benefits and savings. Indirect savings include increases in productivity and quality improvements, which can be harder to measure. Similarly, improving worker safety and ergonomics by removing personnel from hazardous or repetitive tasks and moving them to value-added jobs is an indirect benefit of robotic automation. It is better to make an educated guess of these values than leave them out of the justification analysis altogether.

Before any meaningful calculations can be undertaken, it is essential to establish a baseline by analysing the current operations and taking meaningful measurements. While a first step might be to connect devices to extract data from the plant, this isn't always necessary. Even an elderly system installed decades ago can provide useful data about a process. Adding in labour, energy and other related costs provides a good baseline to measure process performance before and after, enabling manufacturers to calculate the return on an automation investment.

Once the information is available, an ROI analysis takes only a few minutes to complete and only requires about eight easily quantifiable inputs.

Operating costs

During the first few years of a robot’s life, there is hardly any maintenance at all, just some oil and grease to add. Yet as time goes on, some components, such as internal cables in the robot arms may have worn and need to be replaced. There’s an incremental cost for that. And maybe later into the project, the entire robot may need to be refurbished.

Companies that operate with a run-to-failure strategy can end up spending more, because failing to maintain systems shortens the lifespan of their capital investment. It also subjects them to unplanned downtime. Questions you should be asking your supplier include; Can running costs be minimised by signing up to a maintenance contract? How quickly can you get up and running in the event of a breakdown? How much of a business risk is this? Would you consider purchasing a new car and then not get it serviced to maintain optimum performance?

Other costs to consider include power consumption. Although compressed air to operate robot end-of-arm tooling or grippers in a typical material handling application is practically negligible, it should be factored in. And when integrating a robot into a workshop, a proper risk assessment must be undertaken. Robot suppliers with systems capability should be able to carry out and advise on such a risk assessment

Robot owners also need to account for routine and emergency spare parts, plant utility connections, tools and customising fixtures, disposal of old equipment, and information system overheads and maintenance.

Social implications and retraining

Aside from the financial issues, introducing robotics may raise social implications as well. What are the consequences of replacing human labour with a robot? One of the biggest challenges the engineering industry currently faces is attracting the most talented and passionate people into the sector. Where robotics are used to replace human functions, the potential efficiency savings and profitability allow companies to reinvest into higher skilled labour which will in turn bring greater long term benefits to a company

Collaborative robots

Most robot cells require site preparation and allocated space on the shop floor to set up and operate. To function safely, these cells need fencing and external safety devices, all of which come at a cost.

The ROI of robots cannot be discussed without addressing the advent of collaborative robots (COBOTs). These are becoming more significant in manufacturing; particularly for small and medium-sized enterprises (SMEs) in factories and distribution centres are introducing robots to work alongside humans doing repetitive or dangerous jobs.

COBOTs are not a direct replacement for conventional robots, which means that the ROI equation will be different. They typically cost a fraction of their traditional counterparts and boast payback periods in months rather than years. They require very few external devices to work properly, but they also lack some of the capabilities of traditional robots, especially when it comes to heavier payloads and faster cycle times.

Cost-benefit analysis

In manufacturing, the potential benefit of a robot is best calculated in terms of its effect on piece part cost. This is the actual cost of each and every part/item product handled and includes the cost of the investment amortised over a number of years or operations. After investment, the piece part cost should decrease, because of the savings made by increasing output, reducing labour costs, or having fewer line stoppages: all can be included in the calculation. Expected robot system usage (hours per day, days per week, weeks per year) would be included, as would annual labour costs per operator, including fringe benefits, number of operators required per shift and the number of shifts per day

On the other side of the equation, maintenance costs, and the cost of consumables (such as energy and compressed air), as well as training, should be included.

The payback period for the robot is calculated by working out how long the savings have to continue before the robot is "paid for". Payback periods in the range of 3 to 5 years are normally considered to be a good investment. But if the robot carries on working beyond that, then the unit cost savings will go on for years more.

Justifying the value of an investment in robots is not rocket science. For many companies, cold, hard ROI calculations will be based on the more immediate benefits and short-term labour savings. Yet, when you consider the average lifespan of most automation technology now stretches into decades, and the increases in production efficiency coupled with indirect savings that can be realised over a project’s lifetime, it becomes easier to rationalise the economic gains.

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