Calculating Your ROI for Robotic Automation: Cost vs. Cash Flow

Your customers want it faster, better, cheaper. Your competitors are closing in. And the stakes are getting higher for sustained profitability.

Automating with robots could give you that edge. But how do you know?

You hear robotics spending is booming and only expected to surge higher. Costs are coming down and robots are getting smarter with advanced capabilities. Manufacturers are moving back onshore and clamoring to automate. But how do you know you should get on board?

What’s enough return on your investment? You need cold, hard figures.

Well, what if you could employ a highly skilled laborer for only 75 cents an hour that can work 24 hours a day, 7 days a week, for 52 weeks a year, without needing breaks? A no-brainer?

Think Long Term
It might not be that simple, but it’s not rocket science either. It just takes a little effort. Robots are flexible, dynamic machines. ROI may be difficult to pin down, but not impossible. Take it from someone who’s been around the robotics block a few times. Think long term.

 Positive cash flow over course of robotic system’s service life (Courtesy of Factory Automation Systems, Inc.)

“People often say I need a payback of two years or less, or we can’t do the project,” says Ron Potter, Director of Robotics Technology for Factory Automation Systems, Inc. in Atlanta, Georgia. “Most manufacturing companies have traditional means of calculating ROI and they’re based on direct labor savings and short-term benefits. But the real benefit of robotics is not on the short term.”
 
Potter is a 45-year veteran of the automation industry and past recipient of the prestigious Engelberger Robotics Award. He cofounded the first robot systems integration company in 1978 and has been integrally involved in more than 2,500 robotics applications. He stresses the importance of ROI evaluation as a function of long-term strategic planning.

“Justification should be a STRATEGIC decision made by informed management that balances the short-term goal of SURVIVAL with the longer-term goal of GROWTH to posture a company for competitive advantage. It should not be relegated to an accounting function without foresight of long-term strategy.”

ROI in robotic automation is about positive cash flow over the long term. Like any significant investment, you need to look at the service life of the robotic system and the duration of your automation project for an accurate picture. Potter puts it into perspective.

He uses a medium-sized robot, about 100-kg payload, as an example of a typical industrial robot that you might deploy for material handling applications. Taking into account the average power consumption for this size robot of 7.35 kW and the average energy cost of 10 cents per kWh (based on 2013 rates for industrial usage, source: U.S. Department of Energy), he calculates the average cost to operate a medium-sized robot at 75 cents an hour.

Potter then compares this cost to human labor. Now you clearly begin to see the business case for robotics.

“You’re getting a skilled laborer in a robot once it’s programmed and set in a job. So let’s take that average-sized robot operating at 75 cents an hour. If you project that over the life of the project, which might be 8, 10 or 15 years, much of the cost savings results from not needing a higher-paid, manual laborer. And many times that’s $15 to $20 an hour versus 75 cents an hour.”

Positive Cash Flow
The real eye-opener is when you see the impact of that labor savings on the positive cash flow over the course of the robotic system’s service life, as demonstrated in the bar graph. Potter provides an example with a typical $250,000 installation.

“In an integrated turnkey system, often the robot is maybe one-third of the cost of the total installation, which includes all of the design, tooling, safety guarding, conveyors, integration services, programming and installation. That’s all included. But that goes into the initial cost of the system.”

“Once the initial cost is made, which may take two years or so for payback, that’s where you start to reap the benefits of low-cost labor from a robot. During years 3 through 10 the positive cash flow is almost exponential. By the time you’re at the 7th or 8th year, that $250,000 robotic investment turns out to be about $1.5 million of positive cash flow, and it keeps going up from there.”

This cumulative cash flow example is based on a system using two robots operating during two shifts, 5 days a week, for 50 weeks a year (see ROI calculator). Labor savings and productivity gains are the result of the automated system replacing two manual laborers per shift at an annual $45,000 labor cost per operator. As well as the additional labor needed to achieve the same output as the robot system.

ROI calculator is used to analyze economic impact of proposed robotic automation project
(Courtesy of Factory Automation Systems, Inc.)

Potter says this ROI analysis takes only 10 minutes to complete and only requires eight easily quantifiable inputs. The spreadsheet tool then calculates the annual cash flow and generates supporting graphs showing the robotic system’s impact on cash flow for the life of the project.

“People think of the cost of a robot at $60,000 to $70,000, but they don’t think of the benefits. You’re getting a skilled laborer that can work around the clock, doing a repetitive job the same way every time for consistent operation, which is the key element of production efficiency.”

“A lot of companies have ingrained ROI calculation procedures which don’t take into account this longer-term thinking. Only the progressive managers and owners of companies are looking at the long-term benefits.”

Total Cost of Ownership
The ROI calculator takes total cost of ownership into account as well. Potter explains how robotic system maintenance over time impacts TCO.

“During the first few years of the robot’s life, there’s hardly any maintenance at all, just a matter of some oil and grease that you add to the system. As time goes on, you may have some internal cables in the robot arms that have worn and need to be replaced. There’s an incremental cost for that. And maybe 10 to 12 years into the project, the entire robot will have to be refurbished for a portion of the robot cost.”

A typical maintenance scenario:

• First 3-4 years, $500 per year in preventative maintenance (mainly lubrication and battery)
• After 4th year, $5,000 in PM, mainly for replacement of wear items (i.e., internal wire harnesses)
• Next 3-4 years, $500 per year in PM (mainly lubrication and battery)
• After 8-10 years (30,000 hours usage), refurbishment may be required at a cost of 50 percent of the robot’s asset value, depending on duty cycle and environment

Referring to the Cash Flow Analysis chart for a typical material handling system with two robots, you can see the nominal maintenance costs through year 4, then the $10,000 incremental cost for replacement of worn components in year 5, and the $60,000 expenditure to refurbish the robots in year 10.

Cash flow analysis chart shows total cost of ownership and long-term benefits over life of robotic automation system
(Courtesy of Factory Automation Systems, Inc.) [click image for larger version]

Also part of TCO, the operating costs include the power consumption noted previously and the practically negligible cost for compressed air to operate the robot end-of-arm tooling or gripper in a typical material handling application. For our example, the $6,000 operating cost in year 1 accounts for two robots working two shifts per day, for 5 days a week, 50 weeks a year, at 75 cents per hour.

Although this example uses a medium-sized robot, these calculations can be used with other robot payloads. Potter says the cost to operate a small, 10-kg robot is about 15 cents an hour. A very large robot, 500 kg or above, is about $1.50 an hour.

When considering new equipment, you also need to account for routine and emergency spare parts, plant utility connections, tools and custom fixturing, training and management overhead, site preparation and disposal of old equipment, and information system overhead and maintenance.

“The other part of this is that you will need trained personnel for the robot, which you may not need with manual operations,” says Potter. “So there’s a higher level of skills required in implementing and maintaining a robotic system. Typically it’s not one person for one robot. It’s usually a person taking care of a bank of robots on a line, so you spread out the cost of taking care of the cell.”

Indirect Savings
Once you have accounted for all of the costs of the robotic automation system, the remaining columns of the Cash Flow Analysis chart include labor savings, productivity gains, scrap and rework savings, and material savings.

Beyond the direct labor savings, Potter suggests keeping in mind the maintenance costs of manual workers, including lost production due to routine breaks, vacation time, lost-time injuries, training and retraining, plus the costs of insurance and workers’ compensation.

This article provides an interesting perspective on manufacturer’s insurance liabilities and opportunities when it comes to automation.

“When people prepare a justification report for robots, they often look at direct labor only, and not at all the indirect costs and indirect savings, like increases in productivity and quality improvements,” advises Potter. “It’s better to make an educated guess of their value rather than leave them out of the justification analysis.”

Potter says machine tending is Factory Automation Systems’ largest area of application. The RIA Certified Robot Integrator also specializes in material handling, palletizing, material removal, and controls integration.

“Typically in machine tending, you have fairly heavy parts. Many times a person has to lift these parts, and load and unload them from a machine. It often requires a hoist. It’s very cumbersome.”

Improving worker safety and ergonomics by removing personnel from hazardous or repetitive tasks and moving them to value-added jobs is one of those indirect benefits of robotic automation.

Additional indirect benefits include:

• Improved manufacturing flexibility by reprogramming robots for different projects, or having multiple robot programs for short production runs
• Reduced work-in-process inventory by combining operations
• Floor space savings with flexible robot mounting configurations
• More efficient production planning and scheduling due to predictability of automation

“An application we’ve had in operation for several years is for a supplier of parts to agricultural equipment manufacturers,” explains Potter. “It resulted in a 150 percent increase in productivity by having the robot do what three people were doing before. Now, they are accomplishing in 3 hours what used to take them 8 hours with manual operations.”

“They are loading and unloading machine tools with a robot. The machine tools are located back-to-back with the robot mounted overhead in the middle. We’ve introduced deburring into the cell, automatic gauging, automatic tool compensation, and automatic pin stamping. So all of these operations that occurred with work-in-progress inventory are now done in one cell. It actually runs unmanned during the third shift.”

This video shows the machine tending cell at work.

“They’ve had a huge increase in productivity and of course that impacts their return on investment,” adds Potter.

Collaborative Robots and ROI
We of course cannot have a conversation about ROI without addressing the advent of collaborative robots. These often power- and force-limiting robots typically cost a fraction of their traditional robot counterparts and boast payback periods in months rather than years.

But they also lack some of the capabilities of their legacy brethren, especially when it comes to heavier payloads and faster cycle times.

“It’s still a learning curve,” says Potter. “Many people don’t understand that collaborative robots are not a direct replacement for conventional robots.”

Yet collaborative robots certainly have their place in manufacturing and commercial sectors, particularly in introducing small and medium-sized enterprises (SMEs) to agile automation, or working cage-free alongside their human coworkers in larger factories and distribution centers.

Rethink Robotics’ Baxter is stacking up ROI in just 10 months for this plastics injection molder. Check out this video. 

Universal Robots is reportedly creating more jobs and shortening the ROI cycle for a customer profiled in this article and video. And that’s not all they have up their sleeve. 

The Danish cobot manufacturer will again shake up the traditional robotics establishment with a new addition, the UR3 table-top robot debuting at Automate 2015. The official unveiling and press conference will take place on March 23 at 10 am in the Universal Robots booth 960.

“With the UR3, table-top automation is easy, safe and flexible,” says Esben Oestergaard, CTO and Cofounder of Universal Robots in Odense, Denmark. “A single worker can accomplish what traditionally would be a two-person task by having the UR3 robot as a third-hand helper. Because of its compact form and easy programming, it’s easy to switch it between tasks to meet agile manufacturing needs, making total cost of ownership low and the payback period fast.”

Check out the new UR3 in action.

Late-Breaking News: Boston-based Rethink Robotics just announced the release of a sibling for Baxter. Sporting one long-reach arm and a slimmer profile, Sawyer is reportedly faster and more precise than its dual-arm big brother. The collaborative robot is designed for repetitive, precision tasks common to electronics manufacturing and assembly. Check out this article for early specs and a video of Sawyer showing off its seven degrees of freedom. According to Rethink, Sawyer will be available in limited quantities beginning summer 2015. No word yet on an official unveiling to the public.

And this just in, Precise Automation will introduce Automate show goers to an entire family of collaborative robots, including SCARA, 6-axis and Cartesian models designed for table-top applications.  KUKA Robotics’ LBR iiwa collaborative robot will make its North American debut at Automate 2015 as well, with interactive demos of industrial and medical applications.

Keep up with the latest product debuts at this must-attend event in Exhibitor News.

Proven Solutions for ROI
Potter and the Factory Automation Systems team will also be on hand at Automate 2015 along with dozens of other automation, vision, and robot system integrators in the Integrated Solutions Center. See live robotic demonstrations, interactive displays, and real-world application solutions with proven ROI right on the show floor.
 
Special thanks to Ron Potter of Factory Automation Systems for his generous contributions to this article. Find out how much value robots can bring to your operation with the Robot ROI Calculator.

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