Industry 3.0 - Why, What and When to Automate

The road to Industry 4.0 goes through Industry 3.0 …. There are No Short Cuts!

Manufacturing automation, found in all our plants falls under the capital costs factor of the manufacturing inputs equation. ??Automation leverages our competitive advantages and makes our products economically viable by creating an optimum mix of the three factors of production, capital, labor and materials.

Capital in the form of automation is our control dial and is the most responsive control point so that we can “dial in” our resultant manufacturing costs. As materials and labor are commodities in the global markets, automation remains our most responsive competitive advantage coupled with a market responsive strategy.

WHY DO WE AUTOMATE?

We automate for several reasons:

1) To eliminate the process variation inherent in manual operations;

2) To protect workers from safety hazards;

3) To substitute variable labor costs with controllable capital costs;

4) To achieve faster cycle times; and

5) To produce at a predictable rate.

Implicit in the reasons to automate, is to create the most economic production so that we can compete with an optimum mix of material, labor and automation (capital). We automate based on an economic analysis of alternative uses for our scarce capital, ranging from totally manual operations to increasing levels of automation as we substitute for human labor with machine function to lower total costs while maintaining flexibility to respond to changing market conditions. ?All this, before we leverage Industry 4.0 digital technologies.

WHAT TO AUTOMATE?

In manufacturing, anything and everything can be automated as indicated by the economics of the operation and our strategic objectives. We automate labor-intensive operations that offer immediate economic justification: the so-called “low hanging fruit”. Whereas labor costs are unpredictable and recurring; capital investments are more predictable in terms of the Return On Investment (ROI), and Internal Rate of Return (IRR), and offer opportunities to invest in an internal investment instrument that has a higher economic yield than alternatives. In effect, investing in our own core competency.

Automation’s key driver is the economic justification of the investment for that automation which has to compete with other potential investments within manufacturing, but also with other company investments internal/external for the same scarce company capital.

In the continuum from totally manual to fully automated operations there are many economic “break points” which meet the ROI/IRR criteria for automation and result in some optimum mix of the three factors of production. These range from simple assembly fixtures to major fundamental redesigns of a manufacturing operation so that multiple steps are buried into the same cycle time. Automation must be quality neutral or a quality improvement and the ROI/IRR must meet our minimum criteria while we also understand that automation will be disruptive and “imbalance” our process and will necessitate further improvements but overall yielding higher productivity.

The automation then becomes a new revenue stream since it leverages an existing operation and that new revenue is realized as productivity improvement. A well-executed automation project meets its immediate economic objectives, but also brings “unknown and unknowable” benefits, which become evident only after deployment as new opportunities are become “visible”.

WHEN TO AUTOMATE?

The untimely execution of an automation strategy fails to both deliver its promised economic benefits and can actually increase costs. It is essentially “turning the dial in the wrong direction.” In an ideal world, automation is timely when the inputs to the process are well understood and are to specification and the process has been value stream mapped and we perfectly understand the economic and technical value of each step. Alas, under this rubric, we will never be ready for automation!

Still, the two prerequisites to good if not perfect automation are the stability of our inputs and a good understanding of our process. Both of these requirements are achieved through the use of Lean manufacturing tools and Old fashioned Industrial Engineering but judging the two conditions as met is as much art as it is science, requiring leadership!

Since a process is fluid and dynamic; responding to market/strategy shifts; there are always operations, which are ripe for automation. Using the two signals of stable inputs and a well-understood process, we will always find automation opportunities. If we search our process, we will find several operations, which meet the above criteria. Then using the ROI/IRR calculations, we will proceed to automate that operation which yields the highest economic benefit.

Once we have completed our first iteration, we rerun our search through the process. This second search will reveal another set of opportunities including the previous results, but likely including new opportunities that were “created” by our first pass automation. So our search is repeated continuously and our investment in automation is in the higher ROI/IRR available at any point in time.

In summary, while understanding why we automate, we continuously run our automation search, using stable inputs and an understood process as our signals and maximizing the ROI/IRR to identify economic targets for automation.?Having deployed and captured the benefits of this automation we proceed to rebalance our process exploiting the opportunities created by this new automation….. and these opportunities will reflect our increased productivity.

The road to Industry 4.0 goes through Industry 3.0 …. There are No Short Cuts!

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