CXO

How to measure ROI on your company's automation projects

Automation can open up new business models and create cost savings for the entire organization. Here are the metrics that matter.

Automation technologies like artificial intelligence (AI), robotic process automation (RPA), and physical robots can potentially cut costs and shape new business models. However, tech leaders must understand how to measure the ROI on automation projects to prove their use case to the business, particularly in the manufacturing field, according to a panel discussion at the 2018 LiveWorx Conference in Boston, MA.

"If you don't automate, you will fall further behind," said Alex Shikany, vice president of the Association for Advancing Automation. "Driving the demand for automation is the need to remain competitive—to evolve manufacturing and how processes are run."

Any organization can identify opportunities for automation, said Doug Olson, president and CEO of Harmonic Drive LLC. "It doesn't have to be a full-blown robotics system—it can be a piece of custom automation equipment that serves a need," he added.

SEE: IT leader's guide to the future of artificial intelligence (Tech Pro Research)

Companies can look to where they have resource shortages, such as where they would want to run a second shift, but don't have the personnel to staff it, Olson said. "There's an opportunity to get productivity gains from current staff, without having to go out and hire and train people and worry about vacation time," he added. "There's a lot of opportunity within your own organization. It becomes easy to see what would be a good application for some automation."

Calculating automation ROI

Calculating ROI for automation projects may not be as easy as you think, Sam Hoff, CEO of Patti Engineering, said during the panel discussion.

"The easy calculation is to say, 'How much is this system going to cost, compared to what I pay an operator per hour plus overhead, etc.,'" Hoff said. "But there are some other important things with that."

For one, automation saves you recruitment and training costs, Hoff said. It can also lead to an increase in product or process quality, especially for repetitive tasks, as automation ensures the task is done the same way each time.

"If you ask a human to assemble something, you're going to inherently have errors, where robots can be consistent," Hoff said. "For the right application, a robot's going to produce a higher quality part. Those are other intrinsic values you have to look at when looking at ROI and the business case for robot integration."

It's also key to consider the ROI on the business as a whole, Olson said. "If there is a bottleneck operation in your plant and automation is properly placed, you're not just increasing the throughput of that one machine, but of the entire factory," he added.

Safety issues should be considered in ROI calculations as well, Hoff said. For example, at automotive facilities, it's rare to see humans painting vehicles instead of robots, because the chemicals are harmful. "It's great that people don't have to do that anymore," Hoff said. "The next logical step is the need to take those robotics and put them in automotive repair facilities. We still have guys in body shops painting by hand, and they shouldn't be."

SEE: Enterprise IoT calculator: TCO and ROI (Tech Pro Research)

To get the most out of any automation implementation, there must be "a tremendous amount" of communication between your company and the company integrating the system for you, Hoff said. "Too often in the past I've seen integration processes go sideways because the customer is expecting this, but the integrator is building this, and it doesn't meet the customer's satisfaction," he said. "You need to make sure whoever is doing it is on the same page and has observed the process, and knows everything that goes into it."

Hoff also recommended virtually commissioning the system before building it. Companies should build a data strategy for the system, he added, which stipulates what data will be collected, who will have access to it, and how it will be used to improve the system.

New business models and the threat to jobs

Automation has the potential to enable many new business models, said Asuman Suenbuel, director of Robotics of IoT in the SAP CTO Office. For example, one of SAP's customers had a business renting compressors to construction companies. Using IoT, they were able to create a new line of business of Compressor rental as a Service.

"The CEO came back and said 'The new business model is my main model.' They are still renting, but are generating more revenue with the new business model," Suenbuel said. "If you talk about finding new business models and automation, it's worth it to mention finding ways that help you gain competitive advantage."

In some cases, automation has been an enabler for evolution and adaptability that allows companies to stay in business, Shikany said. For example, Marlin Steel Wire Products used to make baskets for bagels, and employed 18 people and made about $800,000 in sales in 1998. Once they began implementing automation and robotics, they were able to enter new markets like custom engineering wire baskets for the aerospace industry. The company made about $8 million in 2014, and now employs more people.

Panic about robots killing jobs is overblown, Shikany said. "When you look at the data we collect, robots have gotten to record numbers in North America and globally—they go up by double digits every year—but unemployment levels have plummeted," he said. "Looking at the overall impact, it's companies going out of business that's the biggest threat to jobs."

SEE: Research: Companies lack skills to implement and support AI and machine learning (Tech Pro Research)

Technology has always changed the nature of work, all the way back to the days of agriculture, Shikany said. "If you focus on the negative, you miss all the opportunities," he added. "Other countries like China are fully invested in backing the evolution of automation. If we in North America push away AI and automation, we will miss a lot of the good that can come from it."

The most successful companies implementing robotics and automation frame the technologies as tools that will give employees better quality of work and job satisfaction, Shikany said.

Olson said that his company has employed robots, but has not laid off any human employee—rather, they have continued to hire.

"One of the things I've been interested in are the people who are hands-on with the robots, and they're very excited to work with them," Olson said. "There are opportunities for people within the company to expand their skills and knowledge base, which equates to an increase in their pay. In some cases, it's a great opportunity for career growth. In other cases, it removes from mundane operations for individuals, and those people can go do something more interesting and challenging."

From an employee morale standpoint, automation is a clear sign of progression and advancement in technology, Olson said. "Nobody wants to work for a company that's chiseling rocks with stones trying to make something," he added. "Employees want to see that they're working for a company that's on the leading edge of technology and not being left behind."

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Image: iStockphoto/Kinwun

About Alison DeNisco Rayome

Alison DeNisco Rayome is a Staff Writer for TechRepublic. She covers CXO, cybersecurity, and the convergence of tech and the workplace.

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