The ROI (Return on Investment) calculator is a new tool added to Setpoint System’s web site. This tool allows you to measure the viability of a potential automation project that Setpoint Systems could provide. The tool requires the following information.
First, you need to provide and estimate of the total cost of the automation project. This cost is more than just the cost of the equipment. It should include items like installation and support.
Second, the ROI tool requires your best estimate of the annual savings the automation will provide. These savings could include added profit from increased volumes, labor cost savings, lower scrap rates, floor space savings, and higher consistency in the output.
Third, you will provide the number of years the annual savings will be realized.
Fourth, you will provide the minimum annual interest rate return required for the automation equipment. This rate is often provided by your finance organization. It is a measure of the return that the money invested in your business should get. Some call this the hurdle rate or the cost of invested capital in your business if you want to use finance jargon.
Once you have entered these inputs into the ROI Tool, you will get an output report. This report will provide three ROI metrics that your finance guru will love. They are NPV (Net Present Value), Payback, and IRR (Internal Rate of Return).
NPV measures the amount of money the project returns in today’s dollars when compared to the initial investment. A NPV below 0 means you are better off rejecting the investment because the benefits of the automation in today’s dollars do not cover the initial costs. On the other hand, a positive NPV tells you that this investment beats your initial required rate of return in using current dollars.
Payback simply tells you how long it will take to get your initial investment back - clearly the shorter the payback the better. Payback is a simple tool that is used for a reality check. Since it does not consider the investment to the return in current dollars, it is considered inferior to NPV and IRR.
IRR measures the rate of return that the project pays out based on the initial investment and the return information. If the IRR is higher than the minimum annual interest rate, then you are getting a better return than the minimum. IRR method is a terrific way to present a project to management. If your IRR is 25% on a project and your minimum required rate is 12%, you can say that this investment beats your required rate by 13%. You would be crazy not to proceed with this project.
So have fun with this exciting tool. I know a lot of you working on automation are technical. I hope that you realize that this tool can be as exciting as running calculations on your old HP 11C calculator. It can also help your company make more money.
Do you really want to just “hope that it’s right”?!?!
Over the past 30 years or so manufacturing processes and techniques here in the US and abroad have improved significantly, giving us a higher level of quality and consistency in the products that we build, as well as keeping manufacturing costs (and in turn, retail prices) down. One of the key items that has evolved significantly in the last 3 decades is the use of non-destructive testing (NDT) integrated directly into the manufacturing process. NDT is not really a specific type of testing per se, but more of a mentality. The philosophy is that you are able to inspect for critical defects in components or workmanship, often in areas that cannot be seen by an unaided human eye, and during the inspection you do not damage or destroy the part in any way. Some of the more common techniques of NDT are Real-Time Radiography (X-ray), ultrasonic testing, eddy current technology, magnetic particle testing, and liquid dye penetrate testing. While each of these various methods are very different in their core technologies and application, the end goal of each is the same: Verify and validate component quality in areas that are difficult or impossible to see otherwise without damaging or destroying the part in the process.
Industrial radiography started to show up in mainstream manufacturing shortly after the end of WW2, and we’ve been finding new uses for it ever since. A very good example (and one of the more mature applications) of this is the use of radiography in welding inspection. It’s very easy for a welder to lay a very pretty cover pass over inferior root and/or filler passes. With just a visual inspection, the weld in question would probably pass with flying colors. But once you shoot an x-ray of the weld, all the ugly stuff inside is on display for the whole world to see. Critical welds in building, bridge, and pipeline construction have long been inspected in this manner to confirm that the finished weld is a solid structural union of the parent metals.
While NDT solutions have long been a key part of manufacturing, it wasn’t always real-time feedback as it now can be, and it wasn’t always integrated directly into the manufacturing process. ‘Spot check’ NDT procedures were once the norm (and can still be found in many manufacturing processes today), where a small percentage of parts were randomly NDT inspected after completing the entire manufacturing cycle. If all of the parts pass the spot check with flying colors, life goes on as usual. If failures showed up during NDT analysis, then things get complicated. Huge lots of parts need to be quickly quarantined and 100-percent NDT inspections on the quarantined lots will usually follow. Needless to say, NDT spot checking any of your mission-critical components post-manufacture is a sketchy thing at best and a costly nightmare at worst.
Using a lean automation mindset, integrating “100 percent” NDT inspections into critical processes allows validation of component quality prior to adding any additional value to the part. Rejected parts are offloaded at the point of failure instead of later down the line, with no additional work being performed on the flawed part (and consequently no additional costs absorbed). This also minimizes or completely eliminates the need for component backtracking or quarantines of part lots that would normally occur if a problem wasn’t caught and dealt with at the point of failure.
Critical components such as automotive safety components, implanted medical devices, and many other complex manufactured items have long relied on integrated NDT solutions to assure reliable, life-saving performances over and over again. If your mission-critical manufacturing process truly is a matter of life and death, it’s very probable that an integrated NDT solution in your manufacturing process may be a wise investment for your company.
Six Sigma helps to achieve an increase in quality by eliminating defects and variation while increasing yield. Automation is not only a good way to increase production, but it helps meet the criteria of Six Sigma. One of Six Sigma’s goals is to get rid of defects, and defects are anything that could lead to customer dissatisfaction. With lean automation, productivity will increase along with customer satisfaction.
Customer satisfaction is a major goal in Six Sigma. Therefore the product that comes off the line must be free of defects. There are many ways to identify and remove product with defects. One way is to have a final inspection of the product. This method is usually done by people with instruments or other devices to help them spot the defect. This is not the best method. Even with instruments, humans make mistakes. An automated process could have inspection stations set throughout the process. This method allows the inspection to be simplified since the machine is only looking for one defect at a time. Since the inspections are placed throughout the process we can tell the machine to stop doing work on a defected part. This not only keeps the machine form doing unneeded work on a defected part, but also helps identify where in the process the defect took place.
Automation not only allows you to inspect the product throughout the process, but it allows you to get rid of some inspections. For instance, consider a cylindrical part that needs to have a feature accurately placed in the center. An inspection could be set up to measure the concentricity of the outside of the cylindrical part and the feature, or there could be a guide for the punch tooling built in such a way that it is impossible to place the feature out of the tolerance range. This is only one of many ways to eliminate an inspection.
As stated earlier, eliminating people from doing the inspection is a good way to eliminate defects from making their way to the customer. The same principal goes to the actual process of making the product. One of the steps in Six Sigma is to eliminate variation. An automated process will do just that. The machine will make the product the same every time. For instance, say that a step in a process is to place and fasten a screw in to place. A person would place the screw in and torque it down differently every time. If the screw was not torque properly the product could have a failure. With an automated process the screw would not only be torque to the right value, but verified that is was torque correctly. This is just one simple case, but it shows how an automated process would eliminate variation.
Automation and Six Sigma are a good fit. Automation helps fix the root cause of a problem, and eliminates defects and variation by simplifying the process and taking out the human errors.
If you have a process for assembling or inspecting your parts, how do you know if automating the process makes sense? Setpoint has been discussing this question with companies since 1992. In our YouTube clip, Does Automation Make Sense, Clark walks through the issues a company needs to look at before automating a process. In order to solve your problems, you need to know what they are. Watch the video below as Setpoint discusses the steps of getting all the issues and opportunities out, setting a budget, determining your ROI (Return on Investment), and more so you can decide if automating is right for you.
A normal day in the purchasing department consists of many different tasks and in order to maintain accuracy they all must be followed. From getting quotes to the actual order process there are many steps involved which seem to all be equally important. It is so easy for me to skip some of the steps if I’m in a hurry or get interrupted. When these crucial steps are overlooked I always regret it later because I can’t retrace my steps when an error or question arises.
One of our main focuses at Setpoint has been to make the Lean transformation and cut out as much waste as possible in our daily tasks and ongoing projects. Purchasing is a huge part of Setpoint’s business so to cut out wastes is a huge deal and any savings that I can generate automatically goes to the bottom line as profit. It’s a huge task that I want to achieve success at; therefore I’m always thinking and looking at ways to change what I do to make it more efficient and achieve the same, if not better, results with myself, Setpoint, the vendor, and my customers being satisfied.
In the past five years that I have been in this department I have seen some dramatic changes for the better but I know it can still be better and leaner. Success has yet to be achieved and that is my ongoing ultimate goal.
Managing a project consists of many tasks that need to be scheduled, delegated to the members of the team, completed, and followed up on by the project manager in order for the project to be successful.
One of the main tasks of the project manager is to track the overall progress and profitability of the project by the total hours and cost of goods charged to the project compared to what the bid has allotted. At Setpoint we have an open book policy for all projects. Anyone can go to the team board and see exactly what the progress is of any project at any time. This board shows the project revenue, the bid cost of good sold (COGS), actual COGS, project gross profit (GP), earned GP, percent complete, the week’s hours, the week’s GP, the week’s GP per hour, and the GP per hour to date for each project.
Reporting these numbers can sometimes be a tightrope walk for the project manager who reports the progress of each of his projects to management and the team of assemblers and programmers working on them. The management team wants answers to why the progress of the project is behind the forecast numbers he gave them at the beginning of the month. The assembly and programming team members working on the project are wondering why the hourly rate is so low or they are expecting the percent complete to be much higher. There are usually good answers for both teams.
As a project manager, I take the conservative approach. Sometimes a projects progress is well ahead of the hours that were in the bid, and sometimes the cost of goods is less than what is in the bid. This doesn’t often happen, but when it does I don’t like to take all the “good news” on the progress report until I am sure that all the parts have been accounted for in accounts payable and the majority of the debugging has been done on the machine. Some people might call this “sandbagging,” I call it proper project management. Can you be too conservative? Sure you can. But I ask you this; would you rather take all the “good news” at the point of discovery and find out later that one of the key, and very costly, components was not accounted for or was overlooked in the procurement state? Maybe you find out the scope of the project was not communicated to the programmer correctly and you now have two more weeks of programming to do. This is usually not the norm, but it happens. You now have costs or time you need to “give back” on the next progress report, or several reports, making it look like you have made no progress when the team is still working hard on the project.
Yes, in reality the end result should be the same; but let’s say your team can earn bonuses for completing projects ahead of schedule and below cost. I for one do not want to get the team excited about their efficiency and the prospect of getting a bonus for their efforts one week just to have it taken back the next. It doesn’t help the morale of the team. There is a “happy medium” for claiming the ‘good news” that differs from project to project. This is one of the hardest tasks to conquer for a project manager.
First of all, be safe. There may be a lot of different people working on the same project, so you might finish wiring the panels and pneumatics on the machine that someone else started. After the machine is complete and before you power up the whole machine, start your check out by pulling all the fuses, circuit breakers and such one at a time. This way you can check different parts of the machine at different times, which can save you from running into bigger problems. If you just power up the machine without doing this step and there’s something wired wrong, you could create a problem throughout the entire machine.
When you power up the machine, check the voltage one step at a time by plugging in the fuses and circuit breakers for the area you are checking one by one. Check each component for their power, check the D/C (direct current) power the same as the A/C (alternating current). If it doesn’t smoke you did a Good Job!
If it does smoke, look for what smoked. Look for blown fuses or circuit breakers and such. Look for incorrect wiring or voltage. If the problem is found, fix the problem. If no problem is found it could be a defective part.
Troubleshooting is just that, looking for the problem and going step by step to find out what is causing the problem. Each machine is unique and different, sizes and ranges of voltage can differ as well as components.
Waste elimination is one of the most effective ways to increase the profitability of any business. Processes either add value or they add waste to the production of a good or service.
To eliminate waste it is important to understand exactly what waste is and where it exists. While products significantly differ between factories, the typical wastes found in environments are quite similar. Anything that is unproductive, or doesn’t add value that a customer will pay for is considered muda or waste. For each waste there is a strategy to reduce or eliminate its affect on a company, thereby improving the overall performance of the company.
Inventory is a waste that you see in many companies. Inventory is the amount of materials or work-in-process (WIP) within the system. Materials or work-in-process that hasn’t been sold to a customer represents unrecognized value. Accelerating the process of converting raw materials into a product or service helps increase cash flow. Reducing inventory or work-in-process reduces lead times and the amount of labor and capital. There are many reasons why companies have excessive amounts of inventory, but in a lean system the reasons need to add value.
Examples of inventory waste could include some or all of the following:
Parts not needed (over-orders or not figured out yet)
Material ordered too soon
Material and tools on hand but not being used (spares)
Material and tools not needed (extra)
Material and tools over-purchased
Material and tools purchased for “just in case”
Material and tools lost, or not returned
Not returning excess for return credit back to a vendor
Not completing paperwork associated with returns to vendor (RMA)
Over-purchasing of supplies, forms, envelopes, marketing material, etc.
In today’s economy lean automation provides a better solution to manufacturing than its non lean counterparts. In our newest YouTube Setpoint talks about SMED (Single Minute Exchange of Dies) and has a great video clip from a recent machine of the tooling change out. We also talk about Poka-Yokes and making sure that the pieces you add to the machine can only be fitted in one way. Making a machine portable with easy access for maintenance is also another important lean feature. One of the biggest differences lean can make is the size of the footprint. We have a picture of a functioning machine produced in Europe and an overlay of the lean system Setpoint designed and built that does the same thing.
Though tools are expensive, it’s important to use the proper tools for the job you are doing. If you don’t have the right tools you can run into many problems. Rounded off or stripped out bolts, wrong sized holes, and broken taps are a few of the problems you may face.
Using the wrong tool for the job makes disassembling parts, or changing out parts difficult. Also, the cost of replacing parts that may be ruined by using the wrong tools is avoided by using the proper tools.
Using power tools and air tools when possible is more efficient and can lower your costs in hours. Who wants to stand around and build something using a hammer and nails when you can use a nail gun instead?
Having the right tools for the job helps everybody deliver a quality professional product for their clients and reflects well on your company.
