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UNIT 14
Economics of Automation
This unit shows how the concepts and methods described in Units 1-12
can be applied to automation. The economics of discrete part manufactur-
ing automation are similar in many ways to those of continuous process
control, but differ in certain key respects.
Learning Objectives When you have completed this unit, you should:
A. Understand the differences between automation and continuous
process control.
B. Know which benefits are most likely to be realized by automation.
C. Be able to estimate economic performance improvement from
discrete 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 or
equipment so that less human intervention is needed. Process control is
usually considered to be the regulation or manipulation of the variables
that influence a process in order to keep controlled variables at their
desired values. It is obvious that these concepts are related but far from
synonymous. Automation may or may not include control; control may or
may not include automation. Automation is a primary consideration in
manpower-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 more
widely 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 and
training. Most sensors and actuators are on-off devices. Hard automation
is 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 and
variable sequences. To reach this capability, additional equipment and
services must be provided. Hardware will involve more extensive use of
electronics, and some computing capability, including but not limited to
PLCs. The operator interface will probably be computer-driven. Some
continuous sensors and actuators are likely to be used in addition to on-off
devices. Application software will be an added cost.
Automation and process control costs are on converging tracks. Ten years
ago, when the first edition of this book was written, software was already
the largest single cost factor in many if not most process control jobs, but a
much smaller fraction of automation projects. Today, software is the dom-
inant cost factor in a still higher percentage of process control jobs, and
also in a large fraction of automation projects. By 2015, software seems
likely to be the principal cost component in both areas.
One task that must be budgeted in many flexible automation projects is
training of devices, particularly vision systems and robots. Vision sys-
tems must be trained to recognize features and defects; robots must be
taught a specific sequence of movements and actions. If the project entails
using the same equipment for production of a large variety of different
objects, 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 as
those for process control, but a closer look will find differences in the
methods of achieving these benefits and in one case, a difference in the
meaning of a description.
Higher output can be achieved by performing an operation faster, or by
reducing 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 automation
projects have produced substantial benefits by introducing devices that
shorten this interval. A very early example would be the turret lathe,
which allows cutting tools to be switched with minimal delay. A more
modern 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. Labor
accounts 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 turn
out 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, manual
sorting, and manual transfer to any of five packaging areas. It was decided
to 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 tape
assemblies 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 higher
price. The phrase has a different meaning in discrete manufacturing; it
usually refers to making a higher percentage of acceptable product. This
has much more effect on cash flow, so quality improvement is heavily
emphasized in the discrete manufacturing environment. Many companies
have made large investments in programs such as TQM (Total Quality
Management) 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 a
key operation, thus slowing down production. Speeding up production
may 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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146 Unit 14: Economics of Automation
Production is limited by the curing furnace. The bottleneck can be
removed by spending $50,000 to automate furnace charging. This will
allow 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 of
1000 parts/day ($0.60 + $0.20) is $1000/day. This is a highly attractive
return on a $50,000 investment. But what if the higher production rate
affects the precision of the molding machine, increasing the reject rate to
15%? 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 labor
needed per unit of production. Realizing the full benefits of automation
often requires increased production, which may affect the market for the
goods sold.
Parts/day $/part Cash flow, $/day
Sales 9900 2.00 19,800
Costs
Labor 6,000
Raw Material 11000 0.60 6,600
Utilities 11000 0.20 2,200
Total 5,000
Table 14-2. Plastic Part Daily Operating Summary, Automatic Charging
Parts/day $/part Cash flow, $/day
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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Unit 14: Economics of Automation 147
Example 14-3: Reinforced plastic, usually known as fiber glass, is molded
into a variety of products, ranging from boat hulls to shower fixtures.
Low-volume products are often produced manually, using a technique
known 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 for
labor ($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 labor
costs. Marketing says that to sell this increased production for the next five
years, price must be cut to $100/unit. Figure 14-1 shows cash flows for
hand 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 to
20,000 $50 = $1,000,000/year. Mechanization is still attractive, with an
initial 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 be
maintained at $200/unit.
Automation is especially profitable if the labor that is saved is expensive.
Desai and Staus (Ref. 1) describe a control systems upgrade to a can manu-
facturing line. The line had been controlled by a combination of an obso-
lete PLC and relay logic. Outages were frequent, and an electrician was
Fig. 14-1. Cash Flows for Hand and Mechanized Layup
Year
Labor
Other
0 1 2 3 4 5
Labor Other
2.0
1.5
1.0
0.5
-0.5
-1.0
-1.5
0
CF,M$
Manual
Mechanized
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148 Unit 14: Economics of Automation
required to diagnose all but the simplest faults. After the system was
replaced by a new PLC and an operator display, the operator could take
care of most problems without assistance.
Quality improvement is particularly important in discrete manufacturing,
since it both increases production and lowers unit cost. Off-specification
product 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 be
economical even if technically possible.
Example 14-4: A very young engineering student took a summer job at a
major 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 and
the bottles tossed into a hopper for rewashing. It was gently explained to
him 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 of
wasted beer.
All engineering projects, including automation, should avoid unnecessary
risk. Risk avoidance involves the same strategies discussed in Unit 11.
Avoid unnecessary novelty, keep it simple, test key components, model
and simulate. If you are fortunate enough to have a multiline process, use
one 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 Manufacturing
Productivity Improvements Through Control System Upgrades.
Presented at ISA 2001.
Exercises
14-1. An older assembly robot is replaced by a newer version. The assembly task
is to insert a part and lock it in place by tightening screws. The older
version had trouble with misaligned workpieces, so the new one includes a
position sensor and software that requires that the part be sensed to be fully
inserted before screws are tightened. Is this
a) automation, b) control, or c) something else?
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Unit 14: Economics of Automation 149
14-2. In Example 14-2, would automatic furnace charging be a good investment
if, instead of producing a higher percentage of rejects, the molding machine
jammed up 5% of the time?
14-3. In Exercise 14-2, what additional charges might be incurred by repeated
jamming of the molding machine?
14-4. In Example 14-3, mechanized layup is not the only alternative. Layup
robots, which cost $1,000,000, would allow production to be increased to
30,000 units/year without increasing total labor costs. Marketing says it
could sell 22,000 units/year for five years at $100 apiece. Draw a cash flow
diagram 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 criterion
of Net Present Value with a discount rate of 20% (see Equation 6-5).
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