Case Study: Cost of Automation vs. Manual Labor

June 26th, 2020

One of the greatest benefits of switching to automation is the immediate reduction in labor dependency and cost. However, many companies are often turned off by the initial cost of an automated system. We illustrated this case study to compare the costs of traditional manual labor with automation, as well as the Return on Investment. 

In this case study, the customer's current process utilized 3 operators a day x 3 8-hour shifts a day, at a $17.55 hourly rate. The average number of employee turnovers a year was 9, costing roughly $2,500 to re-hire an hourly worker. We calculated the absenteeism to average 9 times a year; average absenteeism costs $3,600/year/hourly worker. We also considered quality costs due to human error which include rework and customer recall. Rework, costing ~$10/part, averages 1000 parts per year and customer recall costs $25,000 on average. 

Our proposed solution utilizes 1 operator x 1 shift a day. This shows an annual labor savings of $280,800. The mitigation of labor risk that comes with implementing an automated system produces annual ergonomics savings of roughly $49,410. Lastly, due to improved repeatability and consistency, the automated system creates ~$10,000 in annual quality savings. Based on a proposed project cost of $500,000, it will take 1.47 years to see a Return on Investment. This is just one example of cost justification for an automated system and clearly there are multiple factors involved.

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