subject: Be the Hero to Owners By Justifying Then Proving the Investment in Integrated Automation [print this page] Be the Hero to Owners By Justifying Then Proving the Investment in Integrated Automation
One of the hardest parts of moving your manufacturing operation into the current century is the process of justifying the investment in integrated automation. If your company is like most it will require that there be well defined economic justification for a capital expenditure for integrated automation. Normally the process of determining the payback on capital expenses is done by calculating the payback or the net present value of the project expense. The calculation is not the hard part, but determining all the costs that will need to included sometimes is difficult.
The most obvious cost to include is that of the equipment itself. Beyond that you will need to think imaginatively to include the realistic expenses that will be needed to get automation online. There will be expenses for interfacing the integrated automation with your current manufacturing. Usually there will not be a total replacement of manufacturing processes, so there will be some places where the new automation will have to be integrated with your current operations. This will take planning and maybe the help of some personnel outside the company to lay out and make the interface of equipment happen. The salary for consulting personnel can be significant, so it might be important to plan in advance and keep this expense to a minimum. Often these individuals are difficult to locate and it can be difficult to schedule their time at your facility. This should be considered when planning a plant re-configuration, do a lot of research about it in advance. Determine what companies are available to do this kind of work. Most important of all, make sure they have the right expertise to lead you in the right direction with the automation integration and give your company the right value for the cost of consulting.
The physical rearrangement of equipment to configure the plant floor for the optimum location of all equipment must be done. This operation will impact the production that is already underway in the plant facility. There may be some interruption of production at some point in the re-configuring. It is a good idea in the planning phase to try to plan for and design for the minimum interruption in production to reduce the impact on production rates. Personnel training should be done with enough lead time so that company personnel can be involved in the transition of the plant floor to its new configuration. The training of employees will remove them from the production operation which will have a direct impact on the production rate. The skill that they gain in training can help to offset some of the expense for outside consulting fees that would be spent for re-configuration of the plant.
The long-term impact of integrated automation on the revenues of a company should be a significant positive. Sometimes estimating what the new income stream will be is difficult. The effective life of automation equipment is usually much longer than the life of traditional manufacturing equipment. This makes it more difficult to determine an accurate payout for the integrated automation. As technology continues to improve the capabilities of integrated automation and the cost of such equipment goes down, the payback period can be clouded. These factors have made it difficult to determine an accurate minimum rate of return for the capital investment in integrated automation. Historically the hurdle rate has been set at a high level to offset the high risk that is perceived to be involved with the investment in automation. Traditional accounting procedures that would be used to value the performance of new automation could make it difficult to justify the addition of automation to the current manufacturing mix.
When evaluating the addition of automation to your company capabilities it is necessary to consider the cost of matching the type of automation with the competitive strategy of the company. The automation should be able to contribute in a positive way to the competitive strategy in the market place. Your company would not want to implement automation that would make it difficult to improve the competitive position of the company. For instance it would not be efficient to implement technology that did not increase the production rate significantly if the company strategy was to double sales in a short period. The automation implemented needs to mesh with the strategy.
Another cost of automation to consider is the one which is related to the preparedness of the employee population. The organization needs to have the employees at the training level for managing and operating new automation when it is installed. If the automation is stand alone, there will be less of an impact on internal operations. If the automation is extensive in nature, it might mean that installation may need to be done in a phased approach, so the staff can ease into the proper management of change with training spread out over a longer period of time. This type of approach may not be possible if the full automation implementation is required in order to get the proper positive effect that the company needs.
