Making automation affordable in cost-cutting times

WHEN the economy slows down, it is a very common reaction to hold our money tight – and with good reason. During past recessions, manufacturing was hit harder than most other industries.

Now, as recession fears are taking hold once again, manufacturers are facing some tough decisions. The knee-jerk reaction for many is to cut down on capital spending, including investments into advanced manufacturing technologies such as automation and robotics.

This comes at a critical time. UK manufacturers are – due to labour shortages and reshoring plans – about to pick up robot adoption after years of lagging behind its European counterparts (the UK had a density of 101 robots per 10,000 workers in the industry in 2020, below the world average of 126 according to the International Federation of Robotics).

Pausing these investments at this time may be a bad idea (which studies of past recessions also suggest). Those manufacturers with higher capital investment levels before a recession have also been the quickest ones to recover, and they also tend to experience higher growth rates in the years after.

The challenge, of course, is balancing costs. Although prices on industrial robots are dropping, the cost of automation is still a roadblock that manufacturers must find ways around. Working with manufacturers around the globe as independent advisors, our company Gain & Co has identified five (surprisingly underutilised) strategies we have seen reduce the cost and risk of automation.

1. Go for the low-hanging fruit

Automation and robotics can be used for almost any type of task today. Yet, our advisors have found that most businesses do not have a structured process for identifying the most obvious automation opportunities within their facilities.

As a result, automation is applied more or less randomly – sometimes ending in unintended “innovation projects” with major cost overruns and, ultimately, failure. On-site, our advisors typically find 10-15 manual tasks that are ripe for automate because proven solutions already. By creating an automation roadmap of these opportunities, manufacturers can zone in on the low-risk projects with a quick return on investment that make most sense for their business.

2. Create a competition to win your project

It may sound obvious. Yet, in our experience few manufacturers make a habit of seeking several comparable offers from suppliers. Often, businesses go with the first solution they find that seems to do the job. This is surprising when all evidence shows that competition can provide substantial savings for the buyer.

We have an idea of how much money is left on the table through our global market platform HowToRobot.com. Manufacturers are utilising it to send out automation requests and receive offers from suppliers. Our market data shows typical price variations of 15-25 % on similar solutions offered for a single project.

For an investment around £300,000, that makes for potential savings of £75,000 between the most affordable and expensive option. But without creating an actual competition, manufacturers remain unaware of any savings available to them. Evaluating several offers should be the default – even more so in times when money is scarce.

3. Move performance responsibility to the supplier

Manufacturers often struggle with articulating their needs to automation suppliers. In their struggles, many fall into the trap of describing exactly how they want the solution to be designed. The size, type of robot, gripper, etc. By doing so, they – often unknowingly – end up taking responsibility away from the supplier. If the solution does not deliver to expectations, the buyer is not able to make any claims and may end up with a failed investment.

It is in every manufacturer’s best interest to avoid taking on this risk and focus on what the ideal solution should accomplish instead. Doing a functional requirement specification helps achieve this. It describes the needs and goals of the solution (such as the throughput it must deliver and variants to handle) and the constraints (such as available space). This both gives suppliers the freedom to engineer the best solution, and it holds them accountable for delivering the results the buyer needs.

4. Build the business case on real market knowledge

An automation investment will – even if it looks good on paper – only deliver the expected return if it is based on accurate assumptions. Too often, our advisors see business cases for automation built on guesswork instead of real market knowledge. If important factors change (which they sometimes do), the business may end up with some unpleasant surprises and see the expected return on their investment dropping.

Often what is missing are accurate reflections of market prices and knowledge about staffing needs when the automation solution is up and running. Maybe manual operators are no longer needed, but who will oversee and maintain the solution? And will some manual work still be needed?

The businesses that want to take the guesswork out of automation often use a vendor independent advisor to plan the investment. Also, there are free tools available online to help businesses build a solid business case.

5. Look at alternative financing options

It is not uncommon for an automation solution to pay itself off over the course of one to five years. The significant upfront costs, including integration, may leave manufacturers with years of waiting before reaping the financial rewards of automation. This can be particularly challenging in times when liquidity is limited.

It is worthwhile to investigate alternative financing options that allow the business to realise cost reductions immediately. Leasing makes it possible to finance automation equipment with predictable, monthly payments and thereby avoid the at-times unattainable upfront capital requirements. Unlike the US, where robot and automation-specific leasing has become broadly available, the options in the UK are still limited. However, some suppliers are starting to offer alternative financing options and it will only be a matter of time before more opportunities arise.

The five strategies mentioned in this article are not difficult to follow, but they do require manufacturers to think differently about the way they approach automation. This is a small price to pay to save a lot more.

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