Articles

A 3 Part Guide for Accurately Capturing the Cost and Value of Your Next Automation Project

By Aren Buresh
Posted In : Automation, packaging automation, Labor, cost

One of the first questions you may ask yourself when evaluating an automated packaging solution is: 

How much is this going to cost? 

The answer is more complex than a sticker price. We’re going to break it up into 3 parts below: 

  1. Evaluating the cost of your current packaging system 
  2. Assessing the full range of automation costs 
  3. Quantifying investment value 

Evaluating the cost of your current packaging system. 

Before you dive too deep into the cost of automation, it’s important to understand what your current packaging system is costing you today. Even manual solutions may be more complex than you think, and that is often reflected in increased costs. 

Capturing an accurate baseline of current parameters, from package design to operational factors upstream or downstream of packaging operations is critical to developing a reliable financial analysis.  

There are several important tasks for establishing this baseline: 

  • Quantify product per minute requirements and performance metrics. 
  • Evaluate costs associated with existing packaging design, including void fills, protective barriers, and required manual touchpoints.  
  • If possible, calculate labor spending for each interaction using task breakdowns that outline each action required to get an order packaged. Time them and use the information to calculate the amount of labor time that goes into each package, particularly repetitive, simple tasks.   
  • Account for any indirect labor to keep the automation equipment properly stocked: label applicators need blank stock, glue reservoir levels need to be kept up, and printer trays need paper.  
  • If packaging configuration or volumes will change, quantifying current warehouse space cost per square foot can be factored in. 
  • Calculate how much time is spent on inventory control. Are inventory turns or obsolescence key metrics for your product? When volume or package configuration changes are expected, shipping and transportation costs should be added to the baseline.  
  • Add up the cost of errors produced using the existing system – quantifying the real cost and frequency of an incorrect order due to packaging error can have significant impact on your analysis.  
  • Account for soft factors such as your ability to reflect desired branding on your packaging. 

A quick note before we move on to quantifying the investments and benefits associated with new packaging automation: you’ll want to establish your solution requirements and conduct a feasibility analysis in addition to calculating your existing cost baseline.  

Assessing the full range of automation costs means no surprises. 

This phase is often undertaken with one or more packaging solution vendors. They can help identify innovations or improvements in packaging line efficiency, cost reduction, and productivity that you may not otherwise recognize.  

Nonetheless, compiling an internal checklist of potential impacts helps ensure all proposals are complete and evaluated with similar criteria. This approach can also reveal potentially costly problems and help establish the right internal expectations for migrating to a new packaging automation solution. 

Consider these additional factors as they may help you develop a more complete budget and project justification: 

  • Ancillary equipment & wiring 
  • Network & connectivity 
  • Infrastructure needs 
  • Critical documentation 
  • Miscellaneous Installation & Commissioning 

We’ve written more in depth about these costs in another article. 

In most cases, the time and effort invested in your feasibility and investment evaluations will be directly proportional to overall project success. 

Quantifying Investment Value 

Once you have documented existing system cost benchmarks, defined solution requirements, and understand both scope and potential impact (feasibility analysis), it’s time to “run the numbers.”  

Calculating return on investment 

Since there are several ways to present investment value, it’s a good idea to understand your organization’s preferred formula. The most commonly used methodologies (and simplest) are Return on Investment and Payback.  

Cash inflows generated by throughput, quality, or labor improvements are common, but don’t overlook the more difficult to quantify impacts, like brand enhancements, the ability to meet peak demand requirements, reduced rework or waste, improved worker safety, and reduced training costs. 

Quantifying these less obvious factors will help you build a more comprehensive and reliable justification. 

Total Cost of Ownership 

Another aspect of ROI/Payback that is being factored in by industry leaders is the Total Cost of Ownership (TCO). TCO incorporates the expected solution lifetime, warranty periods, and costs associated with future maintenance and support expenses or savings.  

This may be expanded to consider the solution provider’s reputation and staying power, parts availability, breadth of service capabilities, and service level agreement/response timeframes.  

A Smart Connected Platform 

If you’re considering a smart connected automation platform, they bring some new twists to the calculation as well. These platforms typically embrace accepted industry standards, which translate into faster and easier integration with a broader range of software applications. These applications offer improved insight and decision support capabilities that could help your company adapt to changing needs.  

Perhaps even more important is easier integration with emerging disruptive technologies such as augmented or virtual reality that promise to dramatically reduce maintenance expenses. Selecting the right technologies and data infrastructures not only helps to address current needs, but significantly affect responsiveness to future or transient requirements. 

Automation is a significant opportunity for processors to control costs, improve production performance, and increase the consistency and reliability of perishable food packaging. As a processor, chances are automation is in your future – so understanding what it will impact, who to involve, and how to reliably justify a packaging automation investment is an advantage you can’t afford to overlook. 

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