Automate or Die? How to Make Smart Decisions When Analyzing Plant Automation Options
Dan Collins of Industrial Resources discusses key questions and issues to help wood packaging material operations evaluate whether or not they should automate.
By Daniel W. Collins
Date Posted: 5/1/2011
As a manufacturer and supplier of automated equipment to the Wood Packaging Material (WPM) industry, we have engineered, manufactured and supplied some of the most productive automated systems in the world. Those opportunities have blessed us with the privilege of working with a wide range of customers from start-up LLC’s to Fortune 500 companies. All of this exposure has shown us that automation is here to stay and in fact is just coming into its own with the WPM industry.
We often get the questions “how do I know that automation is right for us” and “why should I automate” and “how do I justify the investment?” All too often we see companies that don’t take the necessary factors into consideration to justify automation. Knowing when not to automate is as important as knowing when automation makes sense. You can’t answer these questions without understanding or defining your current-state of operations. This article will explore these key questions and issues to help you evaluate your operations to figure out whether you should automate.
As the need for automation increases so does the need to understand the steps to automate a process. Determining the cost of the project is no longer the only metric that we measure. In the pallet industry, the key is to determine the total cost per pallet in the current-state of operations as well as the desired or projected future-state after automation is implemented.
Defining the Production Process
The best way to analyze your current process is to start with a fresh pad of paper. Your experience and “gut feelings” should be set to the side for this process as it is very important to acquire a true and accurate current-state. We acquire the current-state of operations by defining the production process. This is a time-consuming process if done correctly. This process requires you to look at each operation of your process and define it.
Defining a process is not a bad as it seems but it does require you to list down each and every action that is currently being done. Don’t limit your analysis to only the area you are considering automating. Look at the processes up-line as well as down-line since they often impact the automation requirements. Remember, don’t list what you want to happen but list what is actually occurring. You will invariably see room for improvement. If you don’t come away from this process saying “I didn’t realize that was happening” or “why are we doing that?” then you did not dig deeply enough and you need to perform the exercise over again.
The list should include each task. Each task should then have supporting definition of the actions, products, materials, time, location, personnel, equipment and space required to complete. You will likely find other definitions as you proceed and add to the list.
Start with the larger categories and work your way down the line. When competed, you should be able to draw the process on paper which is called a flow chart.
The flow chart will allow you to graphically see the movements and locations of physical tasks. When comparing the tasks with the flow in the facility you will actually see areas to improve upon. It is hard to let go of the “that is the way we have always done it” mentality and be able to see new opportunities with the same old space.
There are three business sectors that today’s business owner should evaluate and justify to automate your process. Each sector plays a specific business role and can have significant influence on the design and purchase price of automation. The three business sectors to satisfy for automation justification are Safety, Operations and Finance.
Making or repairing pallets has always been a manual process. In fact, the WPM industry’s main competitor to automation is the manual laborer. Manual labor offers you fast expansion with very low entry costs and does not require a lot of planning to get started. Some of the largest producers today are still relying heavily on manual labor but are now realizing that they come with the additional burdens of work-related injuries, immigration issues, management requirements, human resources support, and additional administrative activity. Plus, manual labor approaches require constant training of new employees, which are all very expensive and time consuming to support. All of these factors have a negative impact on a company’s bottom line.
With manual labor comes work related injuries as well as the liability associated with these injuries. Work related injuries go beyond the physical and mental pain suffered by the employee. Additional losses are absorbed by the company in lost days, lost production, lost revenue as well as more expensive health and worker’s comprehensive insurance.
Industry experts say that:
Occupational back injuries make up nearly a third of all workers’ compensation claims payments, annually accounting for nearly 12 million lost work days and some 400,000 long-term disability claims. Half of all first-time claimants are reinjured within one year of their initial injury, and those who remain on the job with back pain still lose an average of over five hours per week in productivity.”
Back injuries are second only to the common cold as the cause for employee absenteeism in the general work force today. Approximately $30 billion is spent on workers’ compensation claims each year with an average cost per back injury exceeding $30,000 with no surgery and exceeding $40,000 with surgery. Even an uncomplicated musculoskeletal disorder (MSD) will exceed $500 without surgery and exceed $30,000 with surgery.
Indirect costs associated with back injuries are difficult to calculate but are “estimated to be four to seven times higher than the direct costs. Indirect costs include decreased employee morale, continual employee hiring and training, use of replacement workers, overtime, incident reporting and other additional paperwork, increased costs of workers’ compensation insurance, and increased employee health care costs.”
Automation can play a major role in limiting and controlling work-related injuries by taking into account the ergonomic aspects of the process. By automating and thus standardizing the process, significant safety gains can be acquired from common work related injuries such as:
• Reducing lower back, shoulder and neck injuries
• Lowering repetitive motion injuries
• Minimizing lifting and muscle related injuries
• General bruises, cuts, contusions and muscle injuries
All of these injuries can still occur, but the goal is to mitigate the actual as well as potential to these work-related injuries.
When automating, you will realize gains in production and quality. Production gains are a key driver for automating, but the justification comes in many forms. The overall increase in production is the first form. When incorporating your automation, you will want to compare your current level and costs of production to those being proposed. The whole process of implementation, management and monitoring of results are topics in themselves which we will reserve for a later time. Production increases alone should not be the only goal however. The real benchmark is to produce more while decreasing other fixed and variable costs. Direct labor is normally considered the leader in those costs that are most desirable to reduce and eliminate.
This is where you take the results of defining the production process. You will take each task and break them down to the simplest of movements. When you look at your operation in its smallest tasks you will begin to appreciate all of the areas of opportunity that can be addressed individually or as a complete overhaul to your business. Let’s look at a real world example that we see everyday in pallet repair facilities.
The Manual Pallet Repair Example
So many of today’s pallet repair facilities (“shops”) have operators standing along side a make-shift repair table. This repair table is often a stack of 9-block pallets with a piece of plywood nailed to the top. (See Diagram-1)
With the manual repair system, the forklift operator is required to go to each and every repair table twice, once to bring un-repaired pallets to the operator and once to remove repaired pallets. (This pattern creates a safety risk as the forklift is required to go to each repair table instead of a designated “in-feed” and “discharge” area.) Each repair table has a single repair operator outfitted with the necessary tools (hammer, nail gun, prybar, nails etc.). The tools are placed where the operator likes them and each operator has them in different locations in relation to the repair table.
Pallets are brought to repair tables via forklift and will be 15 to 22 pallets tall. The forklift will stack the pallets in a single row next to the repair table. Several stacks will likely be lined up behind the one closest to the repair table in a queue. This allows the repair operator to keep working when he finishes with the closest stack of pallets until the forklift operator is able to (blindly) push the stacks closer to the repair table (another safety concern).
The repair operator is required to either climb to the top of the stack of pallets or bend over to pickup the pallet depending on how tall the stack is at the time. Either way, the operator must pick the pallet up and carry the pallet to the repair table and then leverage the pallet up and onto the repair table. All of these actions can contribute to repetitive motion and safety issues. At the very least, these steps increase the liability of a workplace injury.
The Non-Value-Added Fatigue Factors-Weight, Distance and Time
The manual repair line can really wear a guy out…..literally. On average, a single repair table operator repairing 48x40 stringer pallets will repair 250-350 pallets per shift. Your average 48x40 stringer pallet weighs 40 pounds. This means that each operator is lifting 10,000-14,000 pounds to get the pallet and another 10,000 to 14,000 pallets to stack the pallet which in total requires every operator to lift from 20,000 to 28,000 pounds each shift. None of these figures take into account that he will still have to flip the pallet over on the repair table at least once, pound on nails with the hammer or lift the nail gun that weighs 8 lbs. as well. Let’s face it, this is a young man’s game. Be aware that any lifting that is required adds no value to the overall process in the manual system when you compare it to automation.
Not only is the manual system a weight burdened process but it also has a challenge when it comes to distance and time. We see shops that repair (or sort) into four, five and six categories every day. We also see a lot of shops that have up to 30 categories of finished product! Whether your business model is to offer the six most common categories or you are catering to a broad range of customers that require the massive category counts, the manual system requires the operator to stop processing pallets in order to stack them. In other words, the true value the repair operator offers is the actual repair. If the repair operator is not repairing, they are not producing and hence are not adding value to your business or bottom line.
The most common layout is to have the repaired pallets in stacks similar to the incoming (non-repaired) pallets so that they are parallel with the incoming stack. This layout forces the most popular category to be the furthest from the repair table so the forklift has the best access as it requires the most removal. This in turn forces the operator to carry the most popular category the furthest from the repair table. This results in an incorrect prioritization on transportation rather than production.
In a six category layout, with the pallets stacked 12” between them, the furthest category will be approximately 31 feet from the repair table. If the most popular category (#1) was 60% of the overall daily production rate of 300 repairs, then the total distance required to walk from the table with the repaired pallet, stack the repaired pallet and return to the table would be 62 feet total. Refer to Chart 1 to see how the remainder of the categories add a considerable amount of distance to the overall day’s task for the repair operator. In this example, the repair operator will be required to walk 15,900 feet just to stack the repaired pallets. This equals 3.011 miles per day of non-value adding tasks!
We see that on average, a repair operator going to and from the repaired pallet stacks will take a 2.5 foot step. When we define our process and look at the individual tasks, we require four seconds for the pallet to be placed onto the stack and straightened. Chart-2 further expands the timing issues involved in the process which results with 23% of the shift is spent walking back and forth in non-value added tasks again!
Another way to think of this is the next ad in the paper for an open position. See if you would apply for this job:
Wanted- Employee to join our fast paced environment with the following qualifications: Must be Safety minded and able to work with hands, hand tools and air tools. Must be able to walk 3+ miles per day, lift close to 30,000 pounds each shift at 40-70 pound increments as well as be able and willing to carry 40 pounds at a minimum for 1.5 miles all within an 8-hour shift.
This level of physical demand is one of the lead contributing factors to the high turnover levels that the WPM industry experiences today not to mention the work-related injuries.
We have seen so many companies that want to address their production issues yet really struggle with where to start. Through the years, we have developed some general rules that apply to nearly everyone that is operating in the manual mode.
When it comes to the high-level observations of pallet repair, we find the following to be true in most shops:
Pre-Automation Process Mix
• 35% Material Handling (getting pallet, handling pallet, removing wood and scrap)
• 15% Inspection of pallets
• 35% Prepping of pallets
• 15% Repair of pallet
By now you should be saying “hey, 35% of the time is spent either getting or removing a pallet in my operator’s day, none of which adds value to the process or my bottom line!”
Depending on the level of automation, you should expect a change to your process mix to reflect the following:
Post-Automation Process Mix
• 5% Material Handling
• 15% Inspection of Pallets
• 35% Prepping of Pallets
• 45% Repair of Pallets
This example will provide you with a 30% increase in the time allotted for repairing the pallets. The actual results are going to vary as it depends on the level of automation being incorporated into the process. For instance, you may only wish to automate the material handling aspect with conveyors to bring the pallet to the operator as well as away, which is standard in today’s environment. What can differ widely is where the conveyor takes the pallet and what happens to it after it is removed from the repair table. You may choose to have the pallets conveyed to another operator and have them hand stacked (cost is lower this way) or you may choose pallet stackers. You may choose to have the pallet stacker automatic, manually operated with push-button designation or bar code scanned for a truly hands off approach. The options continue and the “automation selection process” will be saved for another article.
Quality benefits from automation since it is easier to set and maintain a standard for your product. Whether you are concerned about type, color, size, components or construction; standards may be kept consistent with an automated system. With less weight, distance and time constraints, the turnover is reduced which reduces the overall level of training and management resources required to maintain full operations which all impact your quality.
This sector always gets the most attention during the pre-sale process. There is a common question that is asked when considering any type of automation or capital investment for that matter. The question being, “If I invest capital into a system, how long will it take to get my money back?” In other words, “What is the anticipated Return on Investment (ROI) for my investment?”
To answer this question, we often utilize ROI templates. These templates allow us to input your true current-state costs and compare them to the projected or desired future-state. Having detailed and accurate projections are not only important in establishing the goals of the project but may be the determining factor if you wish to borrow money. Today’s lending arms are still reeling from the financial chaos of 2008 and are just now starting to lend money without having to include your right arm in the deal. When it comes to equipment loans, remember good credit gets deals done while great credit makes deals happen.
Our ROI templates take your current-state costs and compare them against both production and financial metrics. A few of the metrics that we discuss, analyze and input into the templates include:
Labor Costs (direct labor): This is the number of people multiplied by their annual wages. With automation, you will generally have a lower labor cost which in turn helps pay for the equipment in a shorter period of time.
Labor Costs (soft costs): This includes all of the company’s costs associated with an employee such as federal, state and local taxes, unemployment insurance, worker’s compensation, vacation, sick days, health benefits, administrative costs, human resource costs and any investment or profit plans you may offer. These costs in total will run your organization between 20%-30% of the employees annual wages depending where you live.
Production Rates: We look at the wasteful and non-value adding tasks of weight, distance and time and see areas that will allow us to make production gains in excess of 30%. This has a very positive influence within the ROI templates.
Forklift Costs: We look at the costs associated with operating a forklift and input this very expensive factor into the template to see how this impacts the overall cost of production.
Existing Debt Load: We look at the existing automation and factor the existing costs associated from it into your cost of production.
These ROI templates produce an extremely accurate measurement of the current-state of operations that we can then use to compare against the rates expected with automation. This analysis will allow us to a) determine if automation has an acceptable ROI and b) at what amount does is it make sense to or not to invest in automation. Don’t forget, it is equally important to determine at what level you should not invest capital as it is to determine at what level you should invest.
By following these stages you will understand when the time is right for automation in your business. You will understand your current-state of operations and be able to formulate a future-state plan. You will lower your cost per pallet and increase your overall production rates. Your exposure to safety and work-related injuries will also benefit from automation.
We all face the same challenges of increasingly demanding customers, fierce competition, and rising business costs. The need to increase productivity and lower costs is overdue. Adding people is no longer the answer in most cases. We have to face the question presented by the title of this article, “Will my company Automate or Die?”.
Dan Collins is a freelance writer and the President of Industrial Resources, IR Kiln and WoodSave Ltd. He has been published in trade journals and international publications. Dan has over 25 years of manufacturing and consulting experience. He has delivered lectures and consultation to international companies such as Nestles, General Motors and Akzo Nobel.
Dan is a Michigan native and attended the University of Michigan where he received a Masters of Business Administration. Dan is married and has two young children.
Industrial Resources has been a premier supplier to the pallet industry for more than 20 years. Industrial Resources is a full-service manufacturer that has consulting and engineering capabilities along with manufacturing, installation and service expertise. It holds many patents for innovative products. Industrial Resources has a solid reputation for producing safe, innovative and robust equipment. For more information on the automation process or any of the other Industrial Resources products and services, please contact IR at (616) 791-7500 or visit its Website at www.irinc.us
So what is Automation?
The definition of Automation, according to Merriam-Webster’s is:
“the technique, method, or system of operating or controlling a process by highly automatic means, as by electronic devices, reducing human intervention to a minimum.
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