The manufacturers that make smart capital investments in times of crisis are those that come out on top. These five proven strategies can make automation feasible despite recession fears.
By Søren Peters, CEO of Gain & Co and HowToRobot.com
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. US manufacturers are – due to labor shortages and reshoring plans – investing heavily in automation with record robot sales of 2 billion dollars in 2021.
Pausing these investments at this time may be a bad idea (which studies of past recessions also suggest). Not only because automation is needed for US manufacturing as a whole to keep a competitive edge over countries such as China. It can also be a wise strategic move for the individual business. Those manufacturers with higher capital investment levels before a recession have also shown to be 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. Working with manufacturers around the globe as independent advisors, our company Gain & Co has identified five (surprisingly underutilized) strategies we have seen reduce the cost and risk of automation. They present an obvious opportunity for those manufacturers that don’t want to jeopardize their transition to a more automated production
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 resulting 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 automation because proven solutions already exist. 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 utilizing it to send out automation requests and receive offers from suppliers.
Our market data shows typical price variations of 15-25 % on the solutions offered for a project – even though each solution offers the same functionality. For an investment around $350,000, that makes for potential savings of $87,000 between the most affordable and expensive option.
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.
It is worthwhile to investigate alternative financing options that allow the business to realize 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. A company could pay $200,000 for an automation solution and, with savings of $5,000 a month, would have to wait over 3 years to start profiting from the investment. By leasing it instead, the company would immediately gain over $1,000 a month at current rates in the US.
Until recently, there had been limited options for leasing automation equipment and industrial robots in particular. In 2023, however, robot and automation-specific leasing options are beginning to become more broadly available.
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.
About the author
Søren Peters is founder and CEO of two companies that are reshaping the global automation market.
Gain & Co are vendor independent advisors on robots and automation – working with manufacturers worldwide on creating their automation roadmaps, planning investments, and sourcing, implementing, and optimizing solutions.
HowToRobot.com is a global market platform helping manufacturers broadcast their automation needs worldwide and get custom proposals from suppliers, including leasing options.