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4 Ways an Automated Production System Can Save Money

January 8, 2021

 by Renaud Anjoran

Manufacturing belt working on boxes

The 2020 crisis made automated production systems no longer an option but a necessity. 

The shutdown prompted the manufacturers across all the industry sectors to rethink their operations and consider the urgency of automating production lines. Using intelligent machines on the factory floor is becoming a prerequisite to fuel operational processes with minimal human intervention. 

Flexible manufacturing systems not only accelerate production capacity without sacrificing quality, but it also helps to lower costs in several ways. In this blog, CMC's lean manufacturing experts gather four ways on how an automated production system can cut costs for manufacturers.

1. Save on production operators’ wages

According to Statista, manufacturing labor costs in 2018 were estimated to be US$ 5.51 / per hour in China. This is compared to an estimated US$ 4.45 /per hour in Mexico and US$ 2.73/ per hour in Vietnam. 

With hourly wages rising in China and companies looking into ways to reshore their factories, the situation has become more demanding. Labor is now cheaper in Mexico, Romania, Vietnam and India than in China.

Manufacturing managers are looking for opportunities to replace labour by the equipment. The primary constraint is the lack of cash to buy that equipment – otherwise, automation would be a much stronger phenomenon.

For example: A machine can replace 11 operators, and costs approximately RMB 2,000,000 to buy. Running it will cost another RMB 100,000 / a year in electricity.

The 11 operators cost RMB 500,500/ per year in salary, social insurance, etc. (3,500 RMB x 11 people x 13 months) and their cost is growing at 12% a year.

Over the expected machine lifetime of 10 years, the cost difference is pretty large – RMB 3,000,000 for the machine vs more than RMB 6,000,000 for the operators.

Note a few extra savings:

  • If a sequence of processes is automated, some logistics operators can be made redundant;
  • If the new equipment can transfer key data into its ERP system, there is no need for manual notes & input.

2. Save on management overhead

The fully-loaded cost of employing people is not only their wages. Here are a few ‘hidden costs’ that many managers overlook.

Replacing an operator consists of finding and hiring a replacement, training this new hire while the production time is lost and quality is compromised. Many companies have studied this and concluded the cost is about 25% of the annual salary.

To get back to our example, let’s say that 7 of the 11 operators have to be replaced every year (this is typical in China). The related cost amounts to 25% x (7 x 13 x 3,500) = RMB 79,625/ a year.

Supervising those people on a day-to-day basis is another expense. Let’s say a group leader is paid RMB 6,000 / a month to manage these 11 workers. And a supervisor, who is paid RMB 12,000 / a month, spends 20% of his time managing this group. All these costs add up!

3. Reduce the costs of poor quality

In highly manual operations, and the absence of proper training and mistake-proofing, many quality issues are caused by operators. Here are a few examples:

  • The two halves of a remote control’s casing are assembled, but a gap subsists between them.
  • The wrong wires are soldered in an electrical product.
  • Metal parts get scratched because they are not sufficiently “packaged” when transported from one process to the next.
  • The upper part of a shoe is not sewn correctly and breaks easily.

As a result, an average of 30% of people is busy re-working in some factories. It sounds relatively high, but it is not readily apparent. Only when you start to count who does what does the problem become evident.

Other costs of poor quality include customer claims, scrapped material, expedited shipments, and an unnecessarily high number of inspectors.

With a well-setup and well-maintained piece of automated equipment, the issues are detected more efficiently and instantly addressed. It can deliver a much more consistent quality.

4. More targeted sales & marketing efforts

Given the cost and quality benefits of a well-oiled automated production system, some customers look specifically for manufacturers that have automated their processes.

If that’s your case, you can target more prominent companies, have something exciting and potentially unique to say, and enjoy shorter sales cycles. Hopefully, you can then say goodbye to “spray and pray” marketing channels such as Alibaba and trade shows.

All in all, robots and other automated equipment hold significant promises. Calculations of return on investment are often apparent, with payback periods sometimes under three years.

What do you think about automated production systems?

Have you studied the opportunity to automate some processes? What reactions did you get from the production supervisors? How has your experience been?

Please let our community know, and of course, ask any questions you may have about automation and manufacturing in general, by leaving a comment below.

Want to learn how to use spreadsheet to be more cost efficient? Click on the banner below to download our automation spreadsheet to keep track of your financials.

"Will You Save Money With Process Automation in Your Factory" [PPT + sheet]

Topics: Cost Reduction, Automation

Renaud Anjoran

Renaud Anjoran

15 years experience in China.
Partner, China Manufacturing Consultants.
Worked with hundreds of factories in China.
Certifications: ASQ CQE & CRE; ISO 9001 & 14001 lead auditor.
Author of well-read blog, Quality Inspection Tips.

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