Changing Automation

For each point of change in automation, up or down, the company is charged $4.00 per unit of capacity. For example, if a line has a capacity of 1,000,000 units, the cost of changing the automation level from 5.0 to 6.0 would be $4,000,000.

Reducing automation costs money. If you reduce automation, you will be billed for a retooling cost. The net result is you will be spending money to make your plant less efficient. While reduced automation will speed R&D redesigns, by and large, it is not wise to reduce an automation level.

When you buy automation, you might want to determine the return on investment (ROI). On your income statement, find last year’s labor cost for the product you are automating. Your labor cost savings will be approximately 10% for each new point of automation. Multiply the savings by the number of rounds remaining in your simulation then divide it by the total cost of the automation.

(Savings * Remaining Rounds) / Automation Cost = ROI

If your plant is highly utilized your ROI will be higher than if your plant is only partially utilized (if your plant is under-utilized you might consider selling excess capacity). Clearly, the greater the ROI, the better the investment.

Changes in automation require a full year to take effect– change it this year, use it next year.

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