How to Determine Robot ROI

Feb. 29, 2016
As robotic performance continues to accelerate, now is the perfect time for mid-sized companies that have been waiting for a decline in robotic prices to deploy these automated solutions. Here’s how to determine the value of this decision.

While reading a report by The Boston Consulting Group, I learned that global sales of industrial robots rose by 23 percent last year, with deliveries expected to double to 400,000 a year by 2018. The report also predicted that industrial robot pricing will continue to decline over the next decade by more than 20 percent. If this holds true, it will make more applications viable for robots, thereby decreasing the investment required for integration—which is the primary roadblock keeping many manufacturers from moving forward with robots. In fact, the one question I hear most often from clients is: “What’s the ROI on my investment in robotic automation?”

That question serves as a good follow-up to my last blog post, which focused on how to choose industrial robots. Once you’ve identified the robot for your application, the next step is to determine the ROI surrounding this purchase. To get that answer, the simple ROI calculator outlined here will provide a good idea of how robotic automation could affect your bottom line over the course of a year. The factors needed for this calculation are:

  • Robot usage: How many shifts/day will the robot operate? Also factor in how many days a week and how many weeks in a year the robot will work.
  • Current labor costs: Calculate the annual labor costs and number of operators who will be replaced by the robot to determine the labor savings the robot will generate. Be sure to include the costs of all benefits.
  • Determine total system cost: It starts with the cost of the robot, which will be about a third of the cost of the total system. Multiply the cost per robot by the number of robots you will need and then triple that figure to arrive at a solid estimate of the total system cost for a basic, drop-in replacement of an operator. Multiple by four or five if a more extensive overhaul (such as added auxiliary equipment/conveyors) will be required to support your new robot(s).
  • Labor with robotic system: This figure relates to the operators you will need to operate the robot and interface with the system.

So, let’s use the ROI calculator with a real-world robotic automation example that assumes the robot will work three shifts a day, five days a week, 50 weeks a year.

  • Current labor costs: Two operators per shift x 3 shifts = 6 operators x $100,000/operator = $600,000/year
  • Total system cost: $255,000 (robot cost of $85,000 x 3)
  • Labor with robotic system: Estimate 25 percent of current labor costs, i.e., $600,000 x 25 percent = $150,000/year
  • Labor savings: Current labor costs ($600,000) less labor for robotic system ($150,000) = $450,000
  • ROI: $195,000 in the first year ($450,000 - $255,000)

Those numbers look pretty good, and that’s only for one-year. In fact, your robot will last for many years (one of our manufacturing partners has a planned robot replacement cycle of seven years). Therefore, once the initial robot cost is covered, the payback dramatically increases. A good rule of thumb is to target at least a two-year ROI, which will still drive five years of solid returns in a typical robot application.

And we haven’t even talked about gaining productivity, reducing scrap, increasing quality/consistency, minimizing rework, and improving safety. Each of which represent gains that contribute to your bottom line.

Robots offer peace-of-mind because they are predictable and produce high-quality work. They can also be repurposed for a broad range of applications and often remanufactured to extend their useful life. Another factor to consider is that robot programming and maintenance costs are lower than training and maintaining operators to do an equivalent amount of work.

Affordable robots mean more manufacturers will begin using them for more applications; those who hesitate could fall behind their competitors. If you’re nervous about determining how to make the best use of robots, you may want to consult with an integrator—a company that understands how to maximize robot output, design the work cell, and select end-effectors and a vision system that maximizes what the robot can do for you.

Michael Gurney is CEO of Concept Systems Inc., a certified member of the Control System Integrators Association. See Concept Systems’ profile on the Industrial Automation Exchange.

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