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It’s Time for Automation

By Dana C. Riess, CMA, CFM, CSCP, CPIM, and Kevin H. Glynn, CPIM
February 1, 2021
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Technology automation has advanced, and small businesses have considerable incentive to implement it.

 

While automation may still seem too expensive and complicated for small and medium-sized businesses, technology automation is continually progressing. The idea that only big companies can afford or implement it is incorrect. Many different types of automation are available. The first is traditional robots that weld and handle material during assembly; conveyors with some simple intelligence; and computer-aiding tooling, such as lathes, forming and cutting machines, and computer numerical control (CNC) machines.

 

These machines are complex and are useful on the manufacturing floor, but some of them can be expensive. That said, the financial return on these machines is well understood: They have a long history of lowering operating costs.

 

Now consider 3D printing, autonomous mobile robots (AMRs), and sensing and reporting devices (Internet of Things devices). More advanced technology includes smart materials/nanotechnology, quantum computers for simulation, or AI for demand and supply forecasting. Any of these technologies is actually well suited for small manufacturers because the investment can be manageable and incremental. A small robot to carry goods or a 3D printer to make critical spare parts on demand is much cheaper, and the initial investment in a pilot (test environment) is very low. Some AMRs are priced as low as $20,000, which is a step function lower than older robots (i.e., automated guided vehicles), yet they offer much more flexibility for the manufacturer.

 

RaaS AND OTHER OPTIONS

 

Additionally, small movable robots and 3D printers have interesting purchase or financing options. The newest is robots-as-a-service (RaaS). A business can use robots as needed for the time desired, and when demand falls or the season slows, the machines can be returned to the vendor. These providers understand that a business might only want one or two robots and can help in the automation journey at its own pace. For AMRs specifically, vendors prefer a lease/rent type option over outright acquisition of the equipment. This financing structure limits the up-front cash drain that might otherwise prevent a small company from investing in new technologies that could drive product cost and quality improvements. Lowering the entry price point makes this service more accessible to a wider range of customers for the vendor.

 

DETERMINING THE NUMBERS

 

For finance professionals, one of the key challenges might be in determining the start-up cost of the IT integration, such as getting the robot to “talk” to the enterprise resource planning or manufacturing execution systems. To achieve a decent payback on robots and 3D printers, some interface with the core systems is required. Often the same integration necessary for AMRs and 3D printing can be used for other system interconnections. In other words, the robot start-up cost can yield savings to other processes in the factory, which may further complicate return-on-investment (ROI) calculations.

 

These integrations can initially be very simple. Electronically assigning an activity to a robot can be the same type of interface as sending a task to a bar-code reader or a tablet on a CNC machine. That’s where one has to decide whether the integration is only for robots or if it’s simply an extension of a technology interface the company already has.

 

The new generation of movable robots is much more flexible than previous designs. The robot doesn’t travel on a fixed path but can take different routes to its destination if it perceives obstacles and congestion. For a finance professional, this flexibility means the machine may have many uses, thus affecting ROI calculations. Finance professionals should collaborate with engineers to see where else the robots can be utilized and to consider growth possibilities of the robots. Without a wide range of possible applications, it may not make sense to invest in that technology.

 

A LOOK AT 3D

 

3D printing offers a different kind of flexibility. Like AMRs, the technology continues to advance rapidly. The most significant advances are in the variety of materials that can be 3D printed. 3D printing can handle advanced metal alloys or mixed plastics and can even grow tissue.

 

3D printing has four applications for manufacturing. First, it’s a research and development tool, allowing rapid prototyping and testing of new shapes and materials. Second, 3D printers are popular for making aftermarket parts for service, allowing manufacturers to avoid setup costs for small-part runs and lowering inventory levels and costs for spare parts, since 3D printing is essentially a make-to-demand tactic. Third, some factories are using 3D printing to replace wear parts in tooling and reduce maintenance costs. Lastly, 3D printing machines are being incorporated directly into production. The savings potential on implementing 3D printing into a company’s process depends on how many of each of the four tasks one printer takes on.

 

The inherent flexibility of all of these automated technologies influences project savings calculations and ultimately ROI. Even if the access to capital or achieving a positive cash flow isn’t a barrier to using advanced technology for small and medium-sized businesses, the limitation is usually people with enough technical skills and time to implement new technology. This is where a management accounting professional can help. Ask yourself and your colleagues about the opportunity cost of this technology. Can your company afford not to do this implementation? Often production staff are so focused on meeting immediate deadlines that they don’t analyze the business risk of “not improving.”

 

TECH FOOTPRINT

 

These emerging technologies offer flexibility through diverse applications and benefits. Customers may inquire about your company’s technology footprint, as they want to purchase from progressive organizations in the interest of quality of customer service and their own business’s agility and long-term resilience. These options can also boost sales because 3D printing adaptability can increase manufacturing volume and lower costs, thus opening the door to reassess and decrease product pricing to drive incremental sales volume.

 

The reverse is also true. Having cutting-edge technology may allow your company to increase prices by offering more production and delivery options to the customers.

 

Technology also helps employee recruitment; highly qualified individuals seek opportunities with companies that are forward-thinking, where they can contribute to the advancement of the business and build their own skills.

 

The assumption that advanced technology is only viable for large companies simply isn’t true. Emerging technologies are perfect for pilots, proof of concept, and deployment in small and medium-sized enterprises. The task for finance professionals is to be forward-thinking in financial modeling and assessment of these potential investment opportunities. These technologies could represent significant progress and advantages for small businesses.

 

Dana C. Riess, CMA, CFM, CSCP, CPIM, is a fractional CFO for several craft beer and hard seltzer manufacturers in Boulder, Colo., chair of the ICMA Board of Regents, and a member of IMA’s Small Business Committee. Dana can be contacted at riessdc@gmail.com.
Kevin H. Glynn, CPIM, is managing partner at The Laminar Group and an adjunct lecturer for the MSIT program at Northwestern University. Kevin can be reached at kglynn@laminargroup.com.
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