ROI - Return on Investment - pre-pandemic vs post-pandemic. How ROI looked before the pandemic is completely different in a post-pandemic world. Does your perspective on ROI need to change as well?
Traditionally, the focus for production engineering was to increase production. Automation was trying to increase production which meant getting more out of the line without adding people. And, in some unfortunate instances, there were times where it reduced the number of associates.
Increasing production is a good goal to have. But is it the correct goal in a post-pandemic world when labor is difficult to find?
When there are lots of job openings but no applications coming in, the whole ROI has to turn on its head. In the absence of labor, the goal should be the creation of labor. It's all about survival at this point.
Automation in today's world doesn't mean reducing labor; it's reclassifying the labor you already have to processes that are more expensive or impossible to automate.
In the past, automation was expensive. Now as we're reemerging from the pandemic, can you afford not to automate?
elliTek's mission is one of empowerment. Whether you're a local customer or across the planet, we are here to help.
Reach out to us with any questions or future topics!
If you don't want to click on those links, pick up the phone to call us at (865) 409-1555 ext. 804.
Here is the link to the Control System Integrators Association, https://www.controlsys.org/home. Here is the link to the Exchange where you can find Integrators and Suppliers, https://www.csiaexchange.com/.
ROI - Return on Investment - pre-pandemic vs post-pandemic. How ROI looked before the pandemic is completely different in a post-pandemic world. Does your perspective on ROI need to change as well?
Traditionally, the focus for production engineering was to increase production. Automation was trying to increase production which meant getting more out of the line without adding people. And, in some unfortunate instances, there were times where it reduced the number of associates.
Increasing production is a good goal to have. But is it the correct goal in a post-pandemic world when labor is difficult to find?
When there are lots of job openings but no applications coming in, the whole ROI has to turn on its head. In the absence of labor, the goal should be the creation of labor. It's all about survival at this point.
Automation in today's world doesn't mean reducing labor; it's reclassifying the labor you already have to processes that are more expensive or impossible to automate.
In the past, automation was expensive. Now as we're reemerging from the pandemic, can you afford not to automate?
elliTek's mission is one of empowerment. Whether you're a local customer or across the planet, we are here to help.
Reach out to us with any questions or future topics!
If you don't want to click on those links, pick up the phone to call us at (865) 409-1555 ext. 804.
Here is the link to the Control System Integrators Association, https://www.controlsys.org/home. Here is the link to the Exchange where you can find Integrators and Suppliers, https://www.csiaexchange.com/.
Brandon Ellis 0:01
Hello, everyone and welcome to "Industrial Automation - It Doesn't Have To"; this is Brandon Ellis. In today's episode, we've been talking about overcoming labor shortages, and how money is cheap. But we need to talk about return on investment, ROI, and what does that really look like with today's reemergence from the pandemic. So, join us. Hello, everybody, and welcome to "Industrial Automation - It Doesn't Have To". In case you're new, I'm Brandon Ellis and I'm your host and also the owner of elliTek. As we jump into today's episode, I just want to ask you to hit that follow button and Subscribe Button depending on the platform that you're listening on. And if you're listening on Apple podcast and you enjoy what you hear today, please go to the Show page, scroll to the bottom and leave the podcast a five-star rating and review. Now that we've got the marketing out of the way, I want to say thanks for tuning in. So, let's get started with today's episode. Welcome to "Industrial Automation - It Doesn't Have To". I'm your host, Brandon Ellis, and I'm here with Miss Beth Elliott, our marketing manager. Hey, Beth,
Beth Elliott 1:03
Howdy, Brandon. Hey, everybody, how are ya?
Brandon Ellis 1:05
It's July.
Beth Elliott 1:06
Oh, it's nice and hot.
Brandon Ellis 1:07
Welcome to July, everyone, if you're getting this podcast on the day that it released, which hopefully you are, it is July. And the heats been with us already, especially in the upper Northwestern United States. They've been having record, record temperatures, so probably wreaking havoc on some of the condition monitoring systems up there in Seattle and Portland. Because suddenly, those systems are thinking maybe a bearing’s going bad when the fact is the whole weather is bizarre. So hopefully you haven't had any Chicken Little incident incidences up there if you've got those systems in place. But hopefully that's an anomaly as well. But hey, I just want to do a quick shout out if I may.
Beth Elliott 1:53
Please.
Brandon Ellis 1:54
To our employees, elliTek employees, so we have been blessed by the Lord above with a lot of good work over the last quarter. And I'm happy about that and thankful for that, but I also realize that it's a lot of hard work. And so, guys, thanks for all you do for elliTek. So, Joe, Alan, Todd, Julie, Brian, you Beth, Timberlie
Beth Elliott 2:16
Wesley.
Brandon Ellis 2:18
They're all doing a great job for us. Those in particular, because they've really got a lot on their shoulders. So, thank you very much for all you do. I just want to acknowledge that today. So, anybody you want your knowledge or anything?
Beth Elliott 2:32
I just am appreciative for
Brandon Ellis 2:35
Happy about life.
Beth Elliott 2:35
Yes. And I do appreciate the team that is together. They're, they're, they're fantastic.
Brandon Ellis 2:40
Go team.
Beth Elliott 2:41
Yes.
Brandon Ellis 2:42
So yes, thank you very much for that. So, it's been an interesting June, as we've rolled to the end of June, and then we're going into July, a lot of interesting things happening. We continue to be in the throes of the material shortages we discussed, semiconductor shortages, which we're supposed to remember my news program a couple podcasts ago told me June 15.
Beth Elliott 3:05
Yeah.
Brandon Ellis 3:05
Didn't happen. And so here we are. And we're still enduring this. And then of course, the resin shortage continues. A lot of shortages on tool steels and aluminum are still undergoing. And you know, a lot of that I think, if we break it down to brass tacks, is an extension of what we've been talking about the last two podcasts, which is labor shortage. It's just difficult to make the truck. It's different. It's not that they're we've run out of aluminum in the ground. It's not that, you know, the silicones run out or anything like that, or the resin trees or whoever makes resin, wherever that comes from has run out. It's just that the people to be able to produce that is part of the question, or part of the issue. And so that kind of brings us into
Beth Elliott 3:52
Today's title.
Brandon Ellis 3:53
Today's topic.
Beth Elliott 3:54
So, today's title is "Industrial Automation - It Doesn't Have To... Be a Loss", we're going to be talking about return on investment. So
Brandon Ellis 4:06
ROI. No, that's not it either. No, see this happened last time. I'm gotta label these.
Beth Elliott 4:17
That's perfect.
Brandon Ellis 4:19
There it is. ROI.
Beth Elliott 4:22
Okay
Brandon Ellis 4:22
So, for those of you who are new to the program, I have control of the sound pads and have because Beth has not figured out a way to take them away from me. But we've had some kind of serious podcasts, the last few and so the last one I actually made up for my sound pad use or lack of, lack thereof, but I don't have them labeled. But this sound pad is reserved for acronyms. And so, this acronym ROI stands for return on investment, and we love acronyms in this industry. And so, but return on investment, ROI, is what we're talking about, and how that looked. The focus is going to be how, how that looked before the pandemic.
Beth Elliott 5:10
And then how do you adjust now.
Brandon Ellis 5:12
What's your perspective needs to needs to be today. And, of course, the major difference, other than the fact that we went through a horrible pandemic, as a country and as a planet. What we're dealing with right now, on top of, as if there's not enough of the material shortages, and things of that nature, is also a labor shortage, severe labor shortage. And so, it I think, Brandology, I think that you are forced to change your perspective, not stop doing an ROI calculation. But change your perspective on what that calculation or the emphasis of that calculation needs to be compared to what we used to do. And so that's what we want to discuss today. But first,
Beth Elliott 5:56
Yes.
Brandon Ellis 5:57
The training center has opened.
Beth Elliott 5:59
Yeah, we had our first training class for the Red Lion.
Brandon Ellis 6:03
Yeah, Red Lion Controls, and I actually had the privilege of teaching that class. We had a great group, smart guys. Did a lot of great things. And so I just love, I love getting to teach those classes. Now that why Brandon, were you teaching the class? Well, I've used Red Lion for the longest of anyone in our company, I've been using Red Lion products, implementing them, selling them, whatever, for probably 20-25 years.
Beth Elliott 6:27
So, you know, a thing or two, huh?
Brandon Ellis 6:28
Well, I do know a thing or two, but in this case, their plant has older systems. And so, both of their plants, it was same company, but two different plants. And so, I'm the only one old enough to remember how the older systems worked. And so, we kind of made it pretty cool. We went through the older systems. But then we also looked at the newer ways of how it would be done with the new equipment. We talked about obsolescence and transitions and those kinds of things. We had some extra time at the end. So, it was a good training overall. And I really enjoyed it. They pressed me, stretched me a little bit on my memory and capability. But we learned together on those little spots and had some good times. And then the concessions, of course, everybody, hats off to Beth Elliott, because Beth takes care of our training center. And so, she's kind of the behind the scenes, the woman behind the curtain, if you will, when it comes to that. And so, you had the concession stand in full effect, had the drinks, the snacks. We had the popcorn machine all fired up and ready to go. But this group turned out wasn't a popcorn, weren't popcorn fans. They didn't really want the popcorn. They wanted to stick to the snacks. Actually, they were a healthy bunch.
Beth Elliott 7:34
They were because there's a lot of snacks left. I tried to push them on 'em. And they wouldn't take 'em.
Brandon Ellis 7:39
Yeah, but I put a dent in them, myself, so I've got a sweet tooth. But thank you for that and the great job you did; it was it was fantastic. I think they really enjoyed it, we got great reviews. But the training centers now open. So, we have not thrown out our schedule yet. But we'll be putting that together soon as we start revamping so. So yay, elliTek University.
Beth Elliott 8:00
Fantastic. Looking forward to getting that; it was nice to get it dusted off and see people in here again.
Brandon Ellis 8:06
Well, that, and make sure everything still works. So, we had some cobwebs to get out of the system. But today we're talking about ROI, return on investment. And so, automation in general, traditionally, we most any of your production engineering, production engineering, or business unit managers, plant managers, we do a return-on-investment calculation, or they do, but typically anybody in the industry does a return on investment. So, and basically what that means is, I'm going to make an investment, what's my return gonna be? How quickly will I, will I get the money back into my pocket based upon savings or increased production or increased profits, those kinds of things. And so, traditionally, we, in automation, we have focused on one of the, it just so happens that they have focused on one of my four reasons to automate for my Brandology. And from that you can equate, you're trying to equate value, right? In order for the return on investment may not be dollar for dollar as far as I'm gonna give you 10 you give me 20. It could be I'm going to; I'm going to invest ten but through increased sales and through increased production, quicker setups, lower changeover times, those kind of things; we're getting more product out the door, therefore, it's equating to more profits, which that's where your return comes into play. And so, it may not be an immediate I send $10 out and you mail me $20 back. It, you have to look at it different ways. And so, we've always had to do that. But the focus is almost always been increase production, increase production, increase production. You've heard the adages and if you're an associate working on the line, you've probably even been guilty of saying it or thinking it at least, automation means they're trying to replace my job, they're trying to get rid of me. In the past, automation meant we're trying to increase production, which means get more out of the line without adding people. Or maybe, unfortunately, there have been times that they have reduced people. That's not where we are right now. The focus, if your focus is still on increase production, you're it's a good goal to have, but it's not necessarily the correct goal, in my opinion. My opinion is, and it's not on, again, we traditionally always have said, reduce labor. But we've been, you and I've been saying that doesn't mean reduce labor, get rid of them. That means reclassify labor. So, we're changing Brandology, point number three, to reclassify labor. You have to change your mind, get your mind around that, because today, we have a labor shortage. And so increasing production is not the goal. Creation of labor is the goal. And I say creation, not just reclassification, because there's companies out there with job openings that have no applications coming in. So, it's an absence of labor. And now the whole ROI has to flip a little bit on its head, because it's not about what's my return on investment. It's how am I going to survive?
Beth Elliott 11:23
Yeah,
Brandon Ellis 11:24
And survival is a whole different picture of an ROI. And so, I want to talk about some of those things, you've done some great research on this. You know, so we talk about understanding the full investment of what's involved. You need to do that; you still need to do that step. So, walk us through that step, understanding the investment.
Beth Elliott 11:42
Oh, well, you know, all your safety and your vision systems and your end of arm tooling, that's got to be involved in the total cost. As well as you know, getting the robot or the machine, and the integration, and then you know, your ongoing maintenance for that. It's got to be considered as well.
Brandon Ellis 11:57
So those, those costs need to be considered. But also, I think you're starting to kind of act like me, in some regards, because what I think you're trying to say is, you got to take the salesiness out. And when I say that I say this, if someone shows up and says you can have this robot for $50,000, $45,000. That's not your whole cost. So, you have to look at and that was true, just as true before as it is now. You got to understand that, honestly, a lot of what folks do, I do is if someone says give me a quick ballpark budget for what this is going to cost, I do a quick roll up of what I think the hardware cost is going to be, and I multiply it by three. Usually, your hardware cost is roughly a third of the overall cost of the of the project. Now that that often will give a high watermark, especially if your integrators, machine builders, distributors are allowed to come in and work with you, and kind of sharpen their pencils, we say and get things worked out. Especially, as we do, come in and sit down and say, okay, what parts can you do; can you provide; can you do this cheaper than we can or for less, less expensive or using your people, your facilities, management people, your folks to do this stuff, so you don't have an outside person having to pay them to do it. Now, if you got a labor issue, you may not have that; it may not matter. But sometimes it's about what forms of labor are we suffering from. Right? So, you may have ample maintenance teams. And if the lines aren't able to run because of we don't have line associates, production associates to run the line. If that's our labor shortage, then we may have maintenance people that are kind of not having much to do, because they don't have lines to running. So, we can use them to do what they're skilled to do, to run communications cables, to run I/O cables, to wire things up, to hang things in the ceiling, to do power drops, air drops, those kind of things. So, you can certainly get that down. But if you want a high watermark for an outside integrator, usually three times just make sure your hardware estimation is correct. And that's to your point, safety vision systems, end of arm tooling. A lot of times when we're thinking of a robot, we might forget about, you know, having to put light curtains or guarding or anything around it. Might forget about the stand that it's got to be on, having to fabricate that. Fixturing and all that kind of stuff, the end of arm tooling course, but also the fixturing, that's going to hold the part - in feed, out feed, material handling, all that kind of thing. And so, all those things need to be figured in. But once you have that and kind of rolled up in your in your mind, multiply it by three, and that'll give you an idea of what that's going to cost you by today's standards, I think that's still adequate or accurate. So that that determines then your overall investment. But now, what is your reason for automating? And so that's where you get to come in and talk about what are you expecting to get from it? Traditionally, like I said, I think we always look at increased production, production gains. That seems to be the first thing everybody would look at. If I make this investment how much more things can I get out the door?
Beth Elliott 15:01
What are you hearing now? Are you hearing increased production? Or are you hearing we need people?
Brandon Ellis 15:07
I'm hearing we need people. I'm hearing, we can't even make the truck. We're not even looking at increasing production, we're looking at maintaining, just making our production numbers. And then they're also trying not to have all their people quit. Because many of our customers that I've talked to, I was recently, it was earlier this week, they're running 125-150% production with the people that they've got. So
Beth Elliott 15:38
What does that mean?
Brandon Ellis 15:39
That means you're not working,
Beth Elliott 15:40
They're going way over. They're going way over, aren't they?
Brandon Ellis 15:43
That means everybody's working overtime, which means you're working seven days a week, sometimes three shifts, seven days a week, people are getting paid overtime. But us as human beings are, we're not going to work all the time. Even in the Bible, you know, the Lord took a day of rest. So, you, you got to have at least one day off a week. And there's a lot of people right now that are that are having, forcing, you know, just to make the trucks to meet. Because there's a demand.
Beth Elliott 16:10
There is demand.
Brandon Ellis 16:11
And there's supply, doggone it. There is. There's resin. There's semiconductor material. It's just who is there, the in between to make it all work. And so, labor is extremely important. But if it's in short supply, what do you do? You have to create labor. And so now that's where everyone starts thinking, okay, I have an application, I can automate it. Let's say that that automation is in the form of a robot. I'm not even going to get into industrial versus collaborative right now. I mean, it doesn't matter. It's got cost. If your viewpoint is my focus, my problem is I don't have enough labor. I don't have the time. I can't make the trucks. I don't have the money to focus on or spend on automating right now. I think that's a that's a pretty doom and gloom choice. Because what are you saying? What's going to happen? You can't keep killing the people that you're working, they're gonna quit. And you can't keep just pretending like there's not a problem when you're missing trucks. You're in a downward spiral at that point from just a profitability and general business management standpoint. So, what are we talking about right now? Well, if the rates were 10, 15, 20% interest right now, I'd probably be with you. You can't, you can't afford that easily. But they're not. And so that's what we're going to talk about some more as we go on. So, you got to examine your current processes. And you've got to decide what makes sense and what doesn't. And so, we're going to get to this, but I'm gonna go ahead and give you a little bit of a spoiler. We're talking about reclassification of labor by the creation of labor through automated systems. That means we can reclassify. If we can reclassify a person that had a cost that has a cost as a person, as far as their general costs, their payroll, their benefits, all the things that come into play, if we can reclassify that person, to now have an extra load of people on a process that actually it does cost, you know, your hardware, when you add it up, take it times three cost in the millions, versus one that cost in the, you know, quarter of a millions $100,000 to $200,000. Then now all of a sudden, you get in, you get an extension of your ROI is the fact that now I don't have to spend multi millions to automate this product, because now I have people that can work on it because I've reclassified them there. And so, we can put them there. And that longer ROI is not something we have to endure. But in doing that, and moving them maybe doing a quick retrain, or something like that, to get them under those processes, we can now take these lower level, more menial tasks, automate them at lower cost, and our ROI now suddenly, is less than a year. And we're gonna go through the numbers, but moneys cheap. But more importantly, you're taking a fixed asset person, even if you give them a raise, and bump in raise, and you put them on a system that used to have a two-year, three year, four year ROI, because it was so expensive to automate but now you have people to work on that. Then you're offsetting that spending requirement. And so that in itself should be figured into an ROI. Before COVID where we had 135 job openings and 200 applications, that's probably doesn't make sense to even think about. But today is different. And that's the point of today's podcast, "Industrial Automation - It Doesn't Have To... Be a Loss." And what we're talking about a loss on your return, because right now your return is instant. If you think about the fact that I'm in a downward spiral and this is going to save our business. Because now if you're if you're not, if you don't have demand,
Beth Elliott 20:07
Then you don't have a problem.
Brandon Ellis 20:10
Well, you have a big problem. You don't have a customer base.
Beth Elliott 20:13
It's bigger than the ROI.
Brandon Ellis 20:15
But the vast majority of people that we're talking with in manufacturing right now have ample demand, their problem is getting their products produced fast enough to get it on the truck. And without killing their people. And then a shortage of people. And so, I know I'm belaboring this, but it's different. It's just a different problem that we have. So how to calculate your ROI with automation?
Beth Elliott 20:39
Yeah. Do you want to go through that?
Brandon Ellis 20:41
Let's go through the traditional means. And I'll try to not jump in. But I may jump in a little bit when I say, you know, that's got to change, or this could change, but walk us through it.
Beth Elliott 20:48
Okay, so the traditional way is, so you look at the robot system usage. So how many shifts? You know, how many days will it operate? And how many weeks in the year will it operate? So, if you take the current annual labor costs, and you include the benefits and all that stuff, so if you have two operators per shift, and they're running three shifts, that would be six operators, right? And if they cost, you know, 45 grand a year, then you multiply the 45 grand by the six operators. And that's $270,000. Now, that's pre COVID.
Brandon Ellis 21:26
This is well, that's a huge point, I thank you for making that point. Because why is that pre COVID? Well, what are we having to do? If you, good for you, if you have not, if you if you live a lifestyle of stay away from social media and the news. But it is fairly accurate that a lot of a lot of manufacturers right now are having to offer bonuses, they're having to increase hourly wages, they're having to provide benefits where they maybe didn't before, didn't have to before, these are all this is real money. And they're having to do that to attract labor to attract people to come to them versus someone else. Unfortunately, when they pick somebody away and they win a person, somebody else is losing an opportunity or person. But what that means is, I would say that that estimation, and that's an average, across the whole United States, I'm sure $45,000 for, you know, a production worker. And again, now production workers, that doesn't mean that you're making $45,000 a year.
Beth Elliott 22:25
Oh, no, that's all the benefits.
Brandon Ellis 22:26
Includes benefits and all that kind of stuff. So, you know, I'm not trying to say that maybe you do deserve $45,000 a year, that's what we're talking about, what we're talking about is just a general calculation. And so I think that that $45,000 a year we're gonna see this as 2021 progresses, we take new averages into the year it's probably gonna bump up some, I don't know how much, maybe it bumps up to 50, maybe as much as 55. But let's leave that the same for now. Let's assume right now, labor costs the same as it costs, on average, pre COVID. And let's, let's walk through this.
Beth Elliott 22:58
Okay. All right. So that was $270,000 for the labor.
Brandon Ellis 23:03
Again, two operators per shift on running a process. And then there's three shifts. So that's where you get six operators 45,000 a year with, including benefits is going to basically that process, you know that running that machine for three shifts a day, annually is going to cost you $270,000. Right. Okay.
Beth Elliott 23:24
All right. So, so you determine the next step is to determine the total cost of the system. And like you said, so the cost of a robot, you take that and multiply it by three, basically.
Brandon Ellis 23:37
And again, it's not just the cost of the robot, it's cost of all those other items as well, right? All the hardware?
Beth Elliott 23:43
Yes, yes, yes. So
Brandon Ellis 23:45
Let's assume we can do it for the cost of the robot.
Beth Elliott 23:46
The cost of the robot and you multiply the cost per robot by the number of robots and then triple that figure to get an estimate of the total system cost for a basic drop in replacement of an operator. That does that make sense to you.
Brandon Ellis 24:00
It does make sense. But remember when we're multiplying by three, we're not just saying this is how much a robot would cost. We're saying, this is the cost of the robot, the cost of the end of arm tooling, the cost of the safety, and engineering and programming and integration and all those things. So, this is what you're, this is an estimator of your total, this is this is what you're going to write a check for, to an integration company or machine build company. You're trying to get an estimate on that.
Beth Elliott 24:27
Yeah. So
Brandon Ellis 24:27
Now you can certainly go out and have people come in and quote it and all that kind of stuff. That's the best way to do this. But if you're trying to do a quick assessment, but if you say the robot and everything cost $45,000, including integration and everything you may be off if you didn't include
Beth Elliott 24:45
All that other stuff
Brandon Ellis 24:46
Now and I'm not talking about, so what you're trying to, you're trying to use the hardware to estimate all of the integration and startup cost, okay. And so, usually that comes down to engineering and labor, right? Engineering is design, programming, all that kind of stuff, and labor is just what we had to do to put it all together and install it and that kind of thing. And so, if you're if you only figure the robot's 45,000, and don't figure everything else and take that times three, then you have forgotten safety, guarding, again, this the end of arm tooling, and all the stuff that we said, and it's not getting figured in, so you're going to be too low. But for me, and you today, we're gonna say, let's just use 45,000, based upon the system, which is probably the cost of just the robot.
Beth Elliott 25:33
Okay,
Brandon Ellis 25:34
Maybe it's a little, cost of the robot plus a little bit of arm tooling. So maybe it's a collaborative system. So, we're gonna assume we have minimal guarding.
Beth Elliott 25:42
Oh, yeah, gotta have a little bit.
Brandon Ellis 25:43
$45,000 is a heck of a deal to automate a process. If you can get the process in there for 45,000. For the, you just, that's your total hardware cost. And then you take that times three, what's it gonna be, 135,000.
Beth Elliott 25:55
Yeah,
Brandon Ellis 25:55
If you can get that done, what we're gonna show is. What I'm gonna show you is your ROI is so, so, so, so stinking short, in by pre-COVID numbers, then we're gonna apply that to where we are now.
Beth Elliott 26:09
Do you think that that's low balling the robot system? The 45 grand?
Brandon Ellis 26:13
I think so because the robot itself cost 45, you still got to do end of arm tooling, programming, installation. But your example let's go with it. Let's see where this goes. So just so everybody, listeners understand, Beth has said, the cost of the robot itself is $45,000. I think that's accurate.
Beth Elliott 26:32
But you have to have the whole system.
Brandon Ellis 26:33
I think we're not figuring in all the rest of the system, but let's use that number and see where we go. And, and just have fun with it. Also, because you got all the math done and I don't have to do math.
Beth Elliott 26:42
Okay. Well, you already said it, it's 135 grand.
Brandon Ellis 26:45
$135,000. So that's three times 45,000. We're saying our hardware basis cost is going to be 45 grand. So, if you're trying to do budgets, before you call anybody and say come in and look at this process, you're trying to do budgets, we're going to do that based upon $135,000. Again, I think that's a little on the low side. But let's just see what happens.
Beth Elliott 27:06
Okay. So, then there's gonna have to be somebody that operates that or maintains that robot system, right? So, you estimate, you know, 10 to 25% of your current labor costs.
Brandon Ellis 27:19
So, take the high number 25%.
Beth Elliott 27:20
Twenty-five percent, so your labor costs were 270,000, and you take 25% of that, it's 67,500.
Brandon Ellis 27:29
So, what you're saying is, is that just because you automate a process,
Beth Elliott 27:33
It doesn't mean you're, all your labors gone.
Brandon Ellis 27:35
Right. You don't, you don't realize 100% reduction in labor in that and that's absolutely true. Because somebody, even if somebody, somebody's just got to, you'd mentioned maintenance, but even if the robot doesn't have any problems, it can't go out and get, you know, a box of new material and carrying over to it's
Beth Elliott 27:50
Wait a minute, what about an AGV?
Brandon Ellis 27:52
Well, okay, but now you're on your hardware cost has gone up. But let's leave that as a secondary project, secondary problem. Let's assume we're going to retain a person to be what I refer to and I've always heard referred to production engineers, manufacturing engineers, as a water spider, basically, you've seen a water spider on the pond and how it moves around really quick. Their job is to, and a lot of times they're riding things. Now AGVs are starting to be using in conjunction with them. But their job is just to run, basically to run a path. They're like the mailmen, mailwomen, postal workers. They're, they're running a path and delivering product, and then picking up product that's finished and, and they drop the finished goods off in the finished goods area, or at the next process or whatever, then they run around and pick up raw materials and bring that back and start loading that in. And so they're tending the system. And so that's where we're, that's where I think that 10 to 15, 10 to 25% of labor, you're still going to need somebody to tend the machine. Okay, so, so that means we can, raw numbers $270,000 reduction, but we're not going to lose all of that we're gonna have to maintain 10 to 25%. You took the high number on this. So, we went low on the hardware, high on the people, you know, the labor reduction. What we're doing is we're doing a worst case, right? And if it still makes sense after this. You need to go ahead and write the check today, okay. So, let's keep rolling. So, we're gonna, we're gonna say, we still are going to have to spend $67,500 on labor.
Beth Elliott 29:28
Yeah, but your labor savings are $202,500.
Brandon Ellis 29:33
270,000 was the total if you could get rid of it all. Minus 67,500 means that we're going to realize our realized benefits gonna be 202,500. Okay.
Beth Elliott 29:44
Yeah, yeah. And so, you take your labor savings, and then your operator for the cost of the system and subtract that and it's
Brandon Ellis 29:55
$135,000
Beth Elliott 29:56
In the first year.
Brandon Ellis 29:57
So that's your return. That's how much money you make back. So, you've invested 135,000, and then you're going to get the $135,000 back in a year, so it's one year ROI. And so again, most the time, traditionally, we would look at this in terms of increased production.
Beth Elliott 30:15
Yeah,
Brandon Ellis 30:16
That's where the rub comes in. We just talked about that increased production; it can be your focus. But that means you've got all the labor that you need.
Beth Elliott 30:25
Yeah.
Brandon Ellis 30:26
Okay. And if you're that plant, congratulations. Yeah.
Beth Elliott 30:30
Take care of the people you got.
Brandon Ellis 30:31
Yeah. I don't know a plant like that right now. All the plants that I'm coming to contact with have severe labor shortages. And so now all of a sudden, increasing production is not what they're saying. If I come in and say, are you looking at, how are you looking to increase in production? They're going to say, we're just trying to get back above water. 100 running 150% means that you're not, your head's not above water, and you're gonna have to come up and take, take a breath of air. And your people are too. I mean, you gotta have, you gotta have that. So now all of a sudden, it's a focus on creation of labor. And so how can we go about doing that? Let's run the numbers here. So, you've been hearing me say money's cheap, money's cheap, money's cheap, now's the time, now's the time. Rates will go up. You know why, inflation. And if you're pretty much anywhere in the United States, but definitely here in eastern Tennessee
Beth Elliott 31:25
You see it already.
Brandon Ellis 31:27
Houses are selling for 100,000 more than people paid for them just a few years ago. Guys, that's not that your house is suddenly more valuable. It's because the dollar has less purchasing power; we call it inflation. It's taking more dollar bills to purchase what it took, when it took, you know, some years ago.
Beth Elliott 31:48
There's also a lot of demand here as well.
Brandon Ellis 31:50
There's huge demand. And so, you have demand, you have no supply. So, first rule of economics, supply and demand. So, prices go up from that as well. But really, what that comes down to is, is that's inflation. If we, if our, if we can never get the supply demand
Beth Elliott 32:07
Equaled out.
Brandon Ellis 32:08
Equaled out or in balance, then everybody's just spending more and more money. And now the cost is inflating. And it's taking more dollar bills to buy that house, which means now you can invert that and say money is worth less than it was some years ago and that's the definition of inflation. And unfortunately, as inflation works, that the more things that get affected, we're talking about housing, but the more things that get infected, affected, it hurts more people, like for example, 401K's, retirement accounts and things of that nature. Because if 10 years ago, $100,000 could buy this home. But today it takes $200,000 bills to buy this home, then if 10 years ago, you had $100,000 in your retirement account. And today, it's not worth it's only worth half that and that's worth $50,000. So, you've lost value. And if you're getting close to retirement, that's no bueno. And so that's inflation. And so, inflation has to be figured in, but right now, and so as inflation goes up, traditionally, rates will go up. So, I don't know that there's a economic analyst out there that's not saying rates are gonna go up, and they're expecting them to go up next year, 2022. Labor shortages here today. If I can show if you're a manufacturer, and you can show I've got ample demand. Hello, Mr. Banker, I have ample demand. I have ample supply, but I'm lacking in labor. I can create labor by spending, what do we say here? $135,000. Can you give me a one year loan at prime plus one, prime plus two. Prime right now is 3.25%. That's the bank cost. So prime plus one prime, plus two, so you're looking at three, say four to 5% interest. If you run the numbers on that, your total interest payout, even if you figure in a small inflation and stuff like that on that over a year, you're probably looking at $6,500 to $7,000 in interest, is not much, that's much not in a year. That's a car loan. I mean, that's what, that's what you pay per year on your car if you're paying 4% interest on your car loan. The bank will be like, I mean, you can pay just the interest only loan on that as long as you can show that you're gonna have an ROI. Well, the ROI isn't about increased production. It's about making the truck. You have ample demand. You have ample supply. You need to get it out the door. So, if we run that, here's what we come down to. So, if we're replacing, you said six operators.
Beth Elliott 34:45
Yes.
Brandon Ellis 34:46
But we're really keeping one.
Beth Elliott 34:47
Yeah.
Brandon Ellis 34:48
So, replacing six operators. If we got them all would be essentially with one robot system for or automated system for $135,000 would be essentially like having one employee that costs you, including benefits and everything, $22,500 per year.
Beth Elliott 35:05
Now break that down.
Brandon Ellis 35:06
That's cheap.
Beth Elliott 35:07
It is. So, you took the 135 grand, and divided it by six.
Brandon Ellis 35:14
Divided by six.
Beth Elliott 35:15
Okay
Brandon Ellis 35:15
Which isn't, isn't entirely accurate, because you said, we're going to have to have, we're gonna have to retain at least one of those six to tend the machines. So now we divide it by five, that's still $27,000. So, getting a person, including benefits and everything for $27,000 a year.
Beth Elliott 35:31
That doesn't call in sick.
Brandon Ellis 35:33
Well, that's true. But being able to reclassify those other people.
Beth Elliott 35:40
Oh yeah, to that more expensive system,
Brandon Ellis 35:42
It just begins to compound and pile up. And so suddenly, you're basically getting a person for $27,000 a year. And if I mean, if they were available, and you could get labor for $27,000 a year, that would be a no brainer, well, I'm not saying you need to pay your people less either.
Beth Elliott 36:01
No.
Brandon Ellis 36:02
We're saying take the people you have, take care of them, reclassify them, move them to that where the ROI is way out there, retrain them a little bit, send them here, we'll retrain them, whatever, retrain them on their on the processes, retrain them on the stuff that they're using, retain them on their maintenance side, whatever you got to do. Make those investments now for this cheap, cheap money, and then look at what you're getting. Because that $135,000, then you just showed had a one-year return. So that means in one year, you have, you've made your money back, okay. So, what's the cost in year two? Zero.
Beth Elliott 36:37
Nothing. Well, energy, maybe.
Brandon Ellis 36:41
Maintenance and energy. So, you're gonna have but I mean, that comparatively, is you're starting to get way down there. So, everything past year one other than maintenance and upkeep is profit. So now you can start thinking, well, what if I put two of these in, I replace instead of five operators, since we're keeping one. If you do another one, you, you might still actually because it's really not a full operator. Right? But let's say it is, you're replacing 10 people, you're reclassifying 10 people. So now you got 10 people to go move to the higher longer, longer return, basically, the automation doesn't make sense kind of processes. And that just is again, to compound. It's 10 people you didn't have to hire.
Beth Elliott 37:25
Yeah,
Brandon Ellis 37:26
So that's real money. And now, your payback on each of those systems is a year. Except that if you buy two, if they’re identical lines, identical robots, identical deals, I promise you, of having come from the machine building and systems integration world, you can have, if you buy that together, if you go to the bank and say I want instead of a loan for $135,000, I want double that. Then was 270,000, which by the way, is the cost, the original cost basis of the six operators. But if you say I want two of those, now instead of what $6,500, you're at $13,000 in interest, that's cheap.
Beth Elliott 38:08
Still pretty good.
Brandon Ellis 38:09
You still haven't even gotten to the cost of a single person. And then after year one, you're just, that's just money that's coming right back that you can start using the next ROI, the next automated processes. And so why is this such a big deal? You have to if you're not, if you've got ample supply, do not fall into the trap of saying we can't make the truck therefore we don't have money, and we can't make these investments. Now is the time because if you decide to wait until 2022.
Beth Elliott 38:40
It could be too late
Brandon Ellis 38:41
It's not going to be four to 5%. It could be 6, 7, 8 percent, we don't know. But if we're fairly certain it's going to be higher. So that also comes in not just automating processes, right? What else? We've talked a lot about condition monitoring systems and things of that nature. So, if you, money's cheap right now. So, downtime is a real cost. If you're having to spend more, if it's just this can't be automated, or I'd like to automate it, but I need the extra cash, I can't get the loan or whatever, making investments that maybe, maybe smaller, probably should be smaller investments into things like predictive monitoring system, predictive maintenance systems, that can now start predicting and reducing downtime occurrences. That's real money. So, if you avoided downtime, cost, how much would that cost had been? I spoke to a person yesterday, a customer yesterday about a condition monitoring system and they said that if they can monitor what's going on with this specific, very intense process, and they can monitor, I don't know, let's say chillers or something like that cooling system, something. If they can monitor those compressors or those bearings on those drive systems and they can adequately predict and do a predictive shutdown and replace them before losing whatever the item is that they, you know, that's really susceptible. A downtime event, an unscheduled downtime event for that could be as much as $150,000.
Beth Elliott 40:12
Oh, my goodness, that's incredible.
Brandon Ellis 40:14
That's the cost of this. So that's money that you didn't have to spend. And then by reducing those downtime or managing and protecting those downtime, downtime events, assuming you're budgeting for those, you can avoid the spending on those, and you'll find yourself with a bit of surplus. Take that if you can't automate, take care of your people, you know, raise their wages, give them a little bit more benefits, that kind of stuff, make it worthwhile to keep them. Or if they're happy, and you're already doing that, start looking at this at automating. Augment your interest only loan or use it to pay the interest, you know, those kinds of things. I mean, just reallocate your budgets. The point being ROI is extremely important. How you calculate it is still about the same. But how you perceive those calculations has to change. Because we're not trying to increase production. We're trying to get our head above water, so we can make the truck so we can meet the demands that are being placed upon us. Ample supply, more than ample demand, we need more hands-on deck, and they don't exist. So, we're creating labor. And money's cheap. Please, please, please consider that. Whether you consider it from elliTek or anybody else who's in your local area. If you're looking for an integrator that's that knows their stuff or machine builder, and you're not sure where to go. We invite you to go to CSIA. Is it org?
Beth Elliott 41:44
I don't know exactly. It's Control. The Control System
Brandon Ellis 41:49
System Integrators Association. I'm sorry, put the link on there. I'm grabbing my phone. I'm not supposed to. Beth told me never to do this.
Beth Elliott 41:57
It should be, I think it's Controlsys.org.
Brandon Ellis 42:01
Is that it? Yeah, I think you're right. Yeah. CSIA.org is Chimney Safety Institute. Don't call them. Let's see the CSIA. Hey, Lisa, I'm hollering out to you. So, because I'm dancing right now. So, Lisa Richter, if you if you know Lisa, she is she's the marketing person over there. So, I'm sorry, Lisa, I know this answer. But I can't. I can't get that, can't type and talk about the same time. So here we go. It's going to be dag-nab-it, that's one of your words isn't it, Beth? This is CSIA Exchange. We will get that link on for you. I'm sorry, I pulled this on you, Beth. Is it controlsys.org? Is that what you said? Yeah, so www. I'm sorry, I embarrassed you.
Beth Elliott 42:41
What are you talking about?
Brandon Ellis 42:42
Well, I just wasn't prepared, and you're extremely prepared. And but that's the name of the game with our podcast, right? This is freestyle. So here we go. Where's freestyle?
Beth Elliott 42:55
Not that one.
Brandon Ellis 42:58
Anyway, we're freestyling. So yes. If you're looking for, seriously, if you're looking for machine builder, systems integrator, control systems, ControlSys.org, is where you would go. Look at what's there. Look at the people that are that are members, a lot of great, great qualified people. But if you have people in your local area that you're working with, I guess what I'm saying is don't let, don't let the money the investment scare you. If you've got the supply. If you've got the demand, call the bank. I mean, a local bank, this thing you put here, the local bank will cover you on this. I mean, unless something's just really wrong, you can get through this. So, no matter your size, whether you're 50 employees or less, whether you're 5000 employees or more, now's the time to do this. But change your perspective. Thank you so much for putting this together, Beth.
Beth Elliott 43:47
Absolutely
Brandon Ellis 43:47
ROI and what it meant pre COVID versus post and reemergent COVID. So that said, what else do we need to talk about? There's more to our outline. We've got other things that Beth has laid out here. So other benefits that you can get. I've been belaboring this thing about recreation of labor, creation labor. That's the number one thing create labor, reclassify, take care of the people you've got.
Beth Elliott 44:14
I just thought you might have some tips that for considered for people might consider when they're automating, but
Brandon Ellis 44:21
Hey, just for funzies you know, most the time we for ROI we would say traditionally, a two year.
Beth Elliott 44:31
Yeah, that's what, that's what it was on there. But that's not the case right now.
Brandon Ellis 44:35
For funzies, go ahead and say we need a one year ROI, you will find it today. You will find it right now, today. I promise you, you will because you know why, you don't have labor. And so, the payback is nearly instant, if you can get it. The other thing is you will increase productivity, you will decrease waste, you will increase your quality and consistency. You will improve the livelihoods of the labor that you have. You will likely increase your flexibility and quick setup. If you do the condition monitoring, you will improve your downtime, your classifications and things of that nature. So, automation, if used correctly is extremely powerful. It has been in the in the past expensive, but the return now is a whole, this new reemergent, Beth, honestly, it makes it, it just puts a whole new perspective on things.
Beth Elliott 45:29
Yeah. And just don't forget the company that you work with, make sure that they understand the end of arm tooling, and the vision systems, and the work cells so they can maximize the robot’s output.
Brandon Ellis 45:40
Yeah, that's right. So now on your $45,000 estimation, if I was putting that together, that would be the cost of the robot, we still got the stand and all that kind of thing. So, it's according to how big the robot and now a $45,000 robot's a pretty smart robot, okay. That's probably a, you know, say a four-to-six-kilogram robot. So, if it's, if we're doing palletizing, or something like that, we may need a 50-kilogram robot, something, you know, 50 kilograms.
Beth Elliott 46:06
That's industrial
Brandon Ellis 46:07
Well, they're all industrial robots, even I'm using pricing on the industrial robot. You can get a collaborative, for that, roughly $45,000, that's actually probably a little on the light side as well. But that's not including end of arm tooling and stuff you're talking about. And so, you definitely are going to be thinking about more than that. So, it needs to be figured into your ROI. Again, I just showed, you just showed us how $135,000 automation project has a one year, actually less than one year ROI. So have fun and go even if you change a rule and say no, two-year ROI I'm not even looking at that, it's got to be one year or less, you just showed them how to do that. So, it's gonna be small, that means a light parts. You know, it can be quick for that amount of money. That can be industrial robot there and be fast and accurate. It just doesn't have the payload. And then the reach, it needs to be somewhat close. So, if it's, you know, $45,000, our Hanwha product, the robots, you know, 12 kilograms and 1.3-meter reach is at $41,000. But they've got the best ROI of anything out there. And they're collaborative. But you still need to guard it and end of arm tooling. So even with our five-kilogram robot, it's a 900 millimeter each. That's $30,000, $31,000, I think, dollars for that robot. So now all of a sudden, you could get, now you could get to that $45,000, potentially. So, I didn't consider that. And so, it really comes down to those kinds of things. But it's attainable, it is attainable. And then if you're really, really not sure, go to elliTek.com, elliTek.com and check out our pre-engineered robotic work cells. And again, we're assuming in this case, we're really focused in on robots. But there's other means of automation, our Cartesian systems, things of that nature. And we have those as part of our pre-engineered solutions as well. So, whether it's robots, whether it's Cartesian robots, whether it's articulated arm robots, SCARA robots, whatever it is collaborative robots, or just general pneumatic cylinders, bang, banging along with a PLC, front end, whatever, automation is more necessary today than it was pre COVID. Because we had ample workers then, and we don't now. And that's not just young workers. That's, that's the old folks. They're taking early retirement; the baby boomers are on their way out. And we're losing a lot of experience and that kind of stuff. So, things are getting different, really fast. Capitalize on it now. That's the best thing to do. And then the other thing that you have down here that you listed was green initiatives. Green initiatives, a lot of people pre-COVID, some people would roll their eyes at green initiatives. It's, you know, why are we going to spend money on that, you know, to be greener, less energy, because honestly, we had plenty of labor, we had plenty of demand. We were kind of, you should, we saw how we were kind of on a down, but we had been in an up overall, so production, manufacturing in the United States was really strong. But now we have labor shortage. So, labor shortage means we might have to if you can't automate it, you're going to have to get people in place for that. If you don't have those people and you can't automate it, the now you're going to spend money on people to attract them to you. So where are you getting that money? Green initiatives means energy savings. That's real money. We talked about energy audits, that's real money. Robots, just like this, but even people. If you look at your process, as far as energy usage, you mentioned that earlier, making this widget on third shift versus first shift when utility rates are lower. That's real money savings. So, it's not about just sticking that in the company's pocket and put it in the company's wallet, reallocating that budget, to take care of their people, to automate and that kind of thing. So, all these things should be considered in the post COVID ROI equation. The traditional equation which you've laid out very beautifully here, of what you gonna, and what's your, what's your labor usage, how many people it takes on a process and how many shifts and what that cost is, what your total hardware cost and installation costs going to be. And then we do the math to pull that out and see what the ROI is. What you've shown here now is by post COVID requirements, we need to start looking at how to reallocate budgets, how much the ripples actually affect. Automating this pulls, not just reduces people, but it takes us someone away from that process and reclassifies them to a more expensive, longer ROI process, which now in effect is money we didn't have to spend. And absence of spending is making money. Right? Some would say the federal government could take a, take a bit of advice from that, but that's real. So that's what we're talking about. So, this is a great topic for today. Great topic. You got some references here.
Beth Elliott 50:53
Oh, no, that was just for my internal.
Brandon Ellis 50:56
Well, let me give you a reference www.ellitek.com. Give us a call. Even if you're not in our region in our in our area, we would love to hear from you. We would love to help you. Our mission statement, of course, is to empower our clients, our customers, and if you're within reach of this podcast, which means you're pretty much on planet Earth, then you qualify as someone we want to empower. If you're in the in the automation or manufacturing industry, hopefully we can help you and provide you with some of our experiences. We don't know at all. But we know some and that's our that's our goal. Second of all, if you are in our region, and you want training, go to our website, check out our training side, there's a there's a form there that you can fill out. We'll have our schedules updated soon and start laying those out. Beth does a stupendous job with our website, but also with our social media. And so keep an eye on LinkedIn and things of that nature. And you'll be able to see when those, I'm sure you'll post when those come out and all that kind of stuff. And what am I missing?
Beth Elliott 52:00
I don't know. If you like what you hear, give us a five-star rating and review. If you listen on Apple, give us a five-star rating and review. Don't forget to share and like and follow us. Thank you for listening.
Brandon Ellis 52:13
Yep. All right. So, Beth, thank you again for this for this topic today.
Beth Elliott 52:17
Thanks for your unique perspective.
Brandon Ellis 52:20
I hope it's correct. I think it is. So, it qualifies as Brandology. So, this actually got it, got a good helping of Bethology in here as well. So, thank you for your research. And thank you for your help today.
Beth Elliott 52:35
Hey, thanks for your insights. And thank you all for listening.
Brandon Ellis 52:39
So guys have a fantastic first of July. And we will see you near the end of July again with our next podcast. So, stay tuned. Also make sure you subscribe, like she said, and you can hear about what the next things are going to be. We publish every two weeks every other Tuesday. So "Industrial Automation - It Doesn't Have To". I'm Brandon.
Beth Elliott 52:57
See you later.
Brandon Ellis 52:58
See you later alligator. Thanks
Transcribed by https://otter.ai