Ask the Expert: Lean Leadership — When Is It Time to Automate a Process?
Question: How do you decide when it is time to automate a process?”
Answer: Many of our readers likely have faced this question in their own businesses so I hope some of you will share your experiences of how you answered this question. In the meantime, here’s my take on it.
Typically this question surfaces when the health and well-being of the workers and/or the business is threatened; where market pricing, minus the plant’s cost, is eating heavily into operating margins and threatens the survival of those products and possibly the business itself. This presupposes that the factory team has exhausted their good ideas and have improved the existing process to at, or near, the theoretical minimum cost possible. The conclusion: We can no longer compete for this business unless we radically change the process, the costs and recommit to the business long-term.
There are a variety of considerations:
- First, if a worker’s job environment is of a hazardous nature, automation becomes the No. 1 consideration as an alternative process. On the one end of the spectrum, automation is pervasive in the manufacture of automobiles. On the other end are outdated plants where extreme heat and danger are still givens. For example, I was in a client’s forging plant three years ago. It was shocking to see that men with asbestos gloves and other protection were manually carrying buckets with long handles to move molten metal to the next process. It’s safe to assume that the entire spectrum of work processes is still in use to one extent or another.These kinds of processes lend themselves to automation to eliminate the constant safety risks and often provide significant cost reduction as well. Further, safety projects often require a lower hurdle rate (the rate-of-return in years/months) for capital investment than a purely cost-reduction project that must typically have a payback of two to three years. The outcomes of these projects usually reduce the size of the workforce significantly and therefore are sometimes viewed negatively by workers themselves as well as the labor unions. There is always concern about whether or not any of these workers can be “repurposed.” Bottom line: Will the company make the investment or not? If the payback period is compelling they will, but if the payback is not compelling will they make the investment anyway? It’s a complex issue that may depend on the mindset of the C-suite and how they think about safety.
- The next option tends to be more readily understood and doable. If the product requires a high percentage of manual labor to assemble, then moving the business to a much lower cost part of the world may be required. Clearly that’s what caused millions of assembly jobs to leave the U.S. for Mexico, China, India, Vietnam, etc. over the last 25 to 30 years. Today, many of these jobs still don’t lend themselves to automation. (A major exception to this is in the automotive arena where Mexican plants produce high volumes of cars for sale in the U.S. and elsewhere using global automation technology.)
- Some companies find a way to do the machine-controlled processes in the U.S. and outsource only the assemblies. This is often done with maquiladoras on the U.S./Mexican border and has served as a model in the U.S. and Mexico to have the best of both worlds. Any renegotiation of the NAFTA agreement, of course, could change the future of this methodology.
- Often manual processes are associated with equipment that is two or more generations old and relies on antiquated (analog) control systems. In addition to high labor costs, these processes very often result in low first-pass yield numbers, high scrap and rework costs, and quality and delivery reliability problems with the customer base. These are great candidates for automation.
Once the decision is made to do a feasibility study on the pros and cons of automation, it’s time for some team meetings involving manufacturing, engineering, quality, plant controller, market/product owner, and other staff experts to answer a series of questions such as these:
- Based on the market prices for these products, what is the cost gap that must be closed so the company can take a cost leadership/high margin position for the business?
- How much growth can we expect to achieve based on a higher quality/lower cost for these products?
- What response do we anticipate from our competitors when we take them on more aggressively in the market?
- What will the engineering team do to: research the automation options for the company, in terms of system design, from various equipment suppliers; complete a due diligence process/visit sites using the same or similar equipment; evaluate the cost per machine/line, potential benefits, etc., with the assistance of the plant controller.
- What is the hurdle rate for cost-reduction projects? Is that feasible based on the research? (My experience is that cost reductions must pay back the investment in two to three years.)
- If automation is the chosen course of action, then I urge the team to develop a pilot process with the supplier to work out any bugs while the machine is still in their factory. Also, ask to visit one of their customers that is already using the same or similar equipment where there is no overlap competitively.
- The initial operators should also be trained in the classroom and on the machine by the supplier, preferably in their factory; or, if necessary, in yours immediately after delivery.
- And don’t forget the maintenance people. They’ll have a steep learning curve to learn their side of the business on the new equipment and set up the necessary spare parts inventory, PM schedules, etc. Supplier experts should also lead this effort. Make sure it’s in the contract you sign with them.
- Don’t forget the systems people who need to be knowledgeable and participative on how the machine controls will collect and pass data into a formal, authorized system for disciplined control.
If none of these solutions (or others that you may pursue) results in a satisfactory outcome for sustaining this part of the business, then a divestiture should be considered. In the worst case, the company may elect to simply abandon this segment of the market and exit.
“It is better to stir up a question without deciding it, than to decide it without stirring it up.” — Joseph Joubert
“If all experts were laid end to end—I’d be in favor of it.” — Al Diamond