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UNIT 14

Economics of Automation

This unit shows how the concepts and methods described in Units 1-12can be applied to automation. The economics of discrete part manufactur-ing automation are similar in many ways to those of continuous processcontrol, but differ in certain key respects.

Learning Objectives When you have completed this unit, you should:

A. Understand the differences between automation and continuousprocess control.

B. Know which benefits are most likely to be realized by automation.

C. Be able to estimate economic performance improvement fromdiscrete part manufacturing automation.

14-1. Definitions

Many definitions can be found for automation. For the purposes of this dis-

cussion, it can be defined as the conversion of a process, procedure orequipment so that less human intervention is needed. Process controlisusually considered to be the regulation or manipulation of the variablesthat influence a process in order to keep controlled variables at theirdesired values. It is obvious that these concepts are related but far fromsynonymous. Automation may or may not include control; control may ormay not include automation. Automation is a primary consideration inmanpower-intensive activities such as discrete manufacturing, while con-trol is more important in fluid processing, whether batch or continuous.

14-2. Costs

Automation projects are often classified into one of two types, hard auto-mation and flexible automation. Hard automation is older and morewidely applied. It typically performs a single function or a fixed, repeat-able sequence of functions. First costs will usually be limited to mechani-cal and electrical hardware, engineering, installation, commissioning andtraining. Most sensors and actuators are on-off devices. Hard automationis the major industrial market for switches and solenoids. No application

software is likely to be required. The installation may include a small PLC,but even then its software is likely to be supplied by the vendor and unal-terable by the user.

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144 Unit 14: Economics of Automation

Flexible automation has the capability to perform multiple functions andvariable sequences. To reach this capability, additional equipment andservices must be provided. Hardware will involve more extensive use ofelectronics, and some computing capability, including but not limited to

PLCs. The operator interface will probably be computer-driven. Somecontinuous sensors and actuators are likely to be used in addition to on-offdevices. Application software will be an added cost.

Automation and process control costs are on converging tracks. Ten yearsago, when the first edition of this book was written, software was alreadythe largest single cost factor in many if not most process control jobs, but amuch smaller fraction of automation projects. Today, software is the dom-inant cost factor in a still higher percentage of process control jobs, andalso in a large fraction of automation projects. By 2015, software seemslikely to be the principal cost component in both areas.

One task that must be budgeted in many flexible automation projects istraining of devices, particularly vision systems and robots. Vision sys-tems must be trained to recognize features and defects; robots must betaught a specific sequence of movements and actions. If the project entailsusing the same equipment for production of a large variety of differentobjects, these costs may be significant, and are likely to recur when prod-ucts are added or design changes.

14-3. Benefits

Automation project benefits come under the same general headings asthose for process control, but a closer look will find differences in themethods of achieving these benefits and in one case, a difference in themeaning of a description.

Higher output can be achieved by performing an operation faster, or byreducing the time between operations. The latter period is relatively unim-

portant in continuous fluid processing, but can be much greater than pro-cessing time in discrete manufacturing. Many successful automationprojects have produced substantial benefits by introducing devices thatshorten this interval. A very early example would be the turret lathe,which allows cutting tools to be switched with minimal delay. A moremodern example would be a pick-and-place robot that can load and posi-tion a workpiece several times faster than a machine operator.

The paths to lower costs are also likely to differ. The major costs in contin-uous fluid processing are usually raw materials and energy. Laboraccounts for a much larger fraction of total cost in discrete manufacturing,so automation projects are often justified as a way to reduce manpower.

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Unit 14: Economics of Automation 145

Some projects that are started with a primary labor-saving objective turnout to have other major benefits.

Example 14-1:The final assembly station of a tape measure manufacturing

line performed the tasks of manual assembly, manual inspection, manualsorting, and manual transfer to any of five packaging areas. It was decidedto automate the station almost completely, so that it would include semi-automatic assembly and automatic inspection, sorting and conveying.When the project was completed, it was found that the expected man-power savings had been realized, but that even larger savings were pro-duced by reduction of the the large work-in-progress inventory of tapeassemblies in various stages of completion

Better quality in fluid processing usually means making a product with

higher purity or more uniform characteristics that may command a higherprice. The phrase has a different meaning in discrete manufacturing; itusually refers to making a higher percentage of acceptable product. Thishas much more effect on cash flow, so quality improvement is heavilyemphasized in the discrete manufacturing environment. Many companieshave made large investments in programs such as TQM (Total QualityManagement) and Six Sigma Quality.

14-4. Strategies

Strategies for higher output may include removing bottlenecks, shorten-ing downtime, and improving quality. It should be noted that these strate-gies may conflict. Improved quality may require taking more time on akey operation, thus slowing down production. Speeding up productionmay increase machine wear, causing more downtime.

Example 14-2:A plant makes 10,000 plastic parts per day, of which 10%fail inspection and must be discarded. Table 14-1 shows prices and costs.

Parts/day $/part Cash flow, $/day

Sales 9000 2.00 18,000

Costs

Labor 10000 0.60 6,000

Raw Material 10000 0.60 6,000

Utilities 10000 0.20 2,000

Total 4,000

Table 14-1. Plastic Part Daily Operating Summary, Manual Charging

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Production is limited by the curing furnace. The bottleneck can beremoved by spending $50,000 to automate furnace charging. This willallow an increase in production to 11,000 parts/day with no added labor.Table 14-2 shows the effects of this change on cash flow.

The difference between an increase in sales revenue of 1000 (1 0.1)parts/day $2/part and an increase in raw material and utility costs of1000 parts/day ($0.60 + $0.20) is $1000/day. This is a highly attractivereturn on a $50,000 investment. But what if the higher production rateaffects the precision of the molding machine, increasing the reject rate to15%? Look at Table 14-3.

Salable product is now only 11,000 (1 0.15) = 9350 parts/day.Revenue and expenses both increase, but the change in cash flow now is(9350 9000) parts/day $2/part 1000 parts/day $(0.60 + 0.20)/part =$100/day, and automatic charging is no longer a good investment.

Strategies for lower costs often center on automation, to reduce the laborneeded per unit of production. Realizing the full benefits of automationoften requires increased production, which may affect the market for thegoods sold.


Sales 9900 2.00 19,800

Costs

Labor 6,000

Raw Material 11000 0.60 6,600

Utilities 11000 0.20 2,200

Total 5,000Table 14-2. Plastic Part Daily Operating Summary, Automatic Charging


Sales 9350 2.00 18,700

Costs

Labor 6,000

Raw Material 11000 0.60 6,600

Utilities 11000 0.20 2,200

Total 3,900

Table 14-3. Plastic Part Daily Summary, Automatic Charging with 15% Rejects

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Example 14-3:Reinforced plastic, usually known as fiber glass, is moldedinto a variety of products, ranging from boat hulls to shower fixtures.Low-volume products are often produced manually, using a techniqueknown as hand layup. A plant turns out 5000 units/year of a fiber glass

product that sells for $200/unit, for total revenues of 5000 $200 =$1,000,000. Operating costs for hand layup manufacturing are $250,000 forlabor ($50/unit) and $250,000 for other expenses (also $50/unit).

The molding process can be mechanized for $500,000. This will allow pro-duction to be increased to 20,000 units/year without increasing total laborcosts. Marketing says that to sell this increased production for the next fiveyears, price must be cut to $100/unit. Figure 14-1 shows cash flows forhand and mechanized layup. Mechanization increases revenues to 20,000$100 = $2,000,000/year. Labor costs are still $250,000/year. Other costs,principally raw materials, are still $50/unit, so total other costs go up to20,000 $50 = $1,000,000/year. Mechanization is still attractive, with aninitial investment of $500,000 producing added cash flow of $250,000/year, but it is not the bonanza that would result if product price could bemaintained at $200/unit.

Automation is especially profitable if the labor that is saved is expensive.Desai and Staus (Ref. 1) describe a control systems upgrade to a can manu-facturing line. The line had been controlled by a combination of an obso-lete PLC and relay logic. Outages were frequent, and an electrician was

Fig. 14-1. Cash Flows for Hand and Mechanized Layup

Year

Labor

Other

0 1 2 3 4 5

Labor Other

2.0

1.5

1.0

0.5

-0.5

-1.0

-1.5

0CF,M$

Manual

Mechanized

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required to diagnose all but the simplest faults. After the system wasreplaced by a new PLC and an operator display, the operator could takecare of most problems without assistance.

Quality improvement is particularly important in discrete manufacturing,since it both increases production and lowers unit cost. Off-specificationproduct of a fluid process can often be stored and made acceptable by sub-sequent treatment or blending. Similar product from a discrete manufac-turing line is likely to wind up in a scrap barrel. Rework may not beeconomical even if technically possible.

Example 14-4: A very young engineering student took a summer job at amajor brewery, and was assigned to the bottling plant. (Bottling is a dis-crete assembly operation.) Each bottling line included a bottling machine

which filled and capped several hundred bottles per minute. He was hor-rified to find that when the capper on a bottling machine jammed, the con-tents of the filled but uncapped bottles were poured down the drain andthe bottles tossed into a hopper for rewashing. It was gently explained tohim that the cost of lost production if the filled bottles were manually put

back on the machine before the capper was much greater than the cost ofwasted beer.

All engineering projects, including automation, should avoid unnecessaryrisk. Risk avoidance involves the same strategies discussed in Unit 11.Avoid unnecessary novelty, keep it simple, test key components, modeland simulate. If you are fortunate enough to have a multiline process, useone line as a test bed. Expand to other lines only after all the bugs have

been weeded out.

References

1. Desai, M. & Staus, R, 2001. Three Piece Can ManufacturingProductivity Improvements Through Control System Upgrades.

Presented at ISA 2001.

Exercises

14-1. An older assembly robot is replaced by a newer version. The assembly taskis to insert a part and lock it in place by tightening screws. The olderversion had trouble with misaligned workpieces, so the new one includes aposition sensor and software that requires that the part be sensed to be fullyinserted before screws are tightened. Is this

a) automation, b) control, or c) something else?

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14-2. In Example 14-2, would automatic furnace charging be a good investmentif, instead of producing a higher percentage of rejects, the molding machinejammed up 5% of the time?

14-3. In Exercise 14-2, what additional charges might be incurred by repeatedjamming of the molding machine?

14-4. In Example 14-3, mechanized layup is not the only alternative. Layuprobots, which cost $1,000,000, would allow production to be increased to30,000 units/year without increasing total labor costs. Marketing says itcould sell 22,000 units/year for five years at $100 apiece. Draw a cash flowdiagram for this alternative.

14-5. Would the layup robots mentioned in Exercise 14-4 be a good idea?

Compare their economics with those of mechanized layup using a criterionof Net Present Value with a discount rate of 20% (see Equation 6-5).

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