We are currently experiencing the fourth industrial revolution based on smart, learning and data-utilizing automation and robotics. In my view, outsourcing manufacturing to a distant country with low production costs no longer makes any sense. This is due to the fact that labor costs are rising in low-cost countries while automation is becoming ever cheaper.
Instead of just performing predetermined functions, robots learn, optimize their operation and predict the need for maintenance on the basis of technology and data. Machine vision, versatile user interfaces and sensor-equipped automation are intelligent – they can communicate, see, hear and react flexibly. At EID Robotics, our advanced manufacturing solutions have created excellent results with our clients in terms of increased production and improved quality.
Robots work quickly, uniformly and tirelessly. Employees can focus on more challenging tasks, as routine tasks are expertly performed by robots.
Great real-world production improvements
From the outset, we established EID Robotics on the idea that we want to help SMEs improve their competitiveness in the globalizing markets by means of automation. Below are two examples. The first example illustrates the direct cost benefits that can be achieved by improved end-product quality and fewer customer complaints. The second example shows how advanced automation solutions can impact the client’s product changeover times and, as a result, their productivity. It was previously thought that investing in automation requires significantly large production series, but times have changed. Current technology solutions enable faster and more flexible product changeovers than before.
“Betting on the wrong horse” produces massive costs
With advanced manufacturing, companies must think twice whether it makes any sense to outsource production to a low-cost country. Labor costs have risen and will continue to rise in China and other Asian countries. Long transports to Western markets also pose challenges to sales, as products may still be in a container on their way when the demand is highest. A lost sale equals lost money. Due to the long forecast window, a company may also order the wrong type of product that no one wants to buy. Betting on the wrong horse produces massive costs.
Depending on the individual case, the forecast window for local manufacturing is six to ten weeks shorter than for products manufactured in China.
Automatic manufacturing is faster, cheaper and of better quality. See for yourself!
According to some estimates, advanced manufacturing can improve production to be up to 30% faster and over 25% cheaper. These are rough estimates, however, as each case is unique and figures may vary greatly from the ones mentioned above. We each have our own case in our hands. Count! Don’t guess!
We strongly encourage your company to consider whether local manufacturing could be the solution to increase your business as well. Our guide will help you consider and compare the different variables that affect how local manufacturing with current technology can surpass outsourcing in terms of a variety of indicators. We can promise that an investment in local automatic manufacturing can pay for itself very quickly.
We strongly believe that future factories will be closer to the consumers, notably smaller than current ones and able to meet the different needs of clients flexibly.
Example 1: How profitability is affected by quality issues of products manufactured in China
Client X moves its product manufacturing from China to be close to its home market customers. The decision is made partly based on the quality issues of products made in China. Below, I discuss the cost savings achieved solely by the improvement in product quality through local automated production.
Moving to an automated assembly and testing process reduced customer complaints from 3% to 0.5%. What does this mean in practice?
Let’s work with the figures of 2 million annual products and a cost price of $5. The complaint processing time is 15 minutes per product including reception, processing and providing a replacement product. 3% x 2,000,000 = 60,000 products to be processed. If the average processing time of each product is 15 minutes, then the total annual time spent on complaints is 900,000 minutes, i.e., 15,000 hours. With an hourly cost of $15, just the processing of complaints takes up $225,000 each year. With a complaint level of 0.5 percent, the same figure is $37,500. Often it is also the case that the replacement product is not received from Asia. And when the manufacturer wants to receive the faulty product, the transport costs are several times higher than the product costs themselves. So, let’s calculate a complaint case using just the product cost price. The annual cost of replaced products is 60,000 pcs x $5 = $300,000. With a complaint level of 0.5 percent, the same figure is only $50,000.
This is the benefit solely from the direct costs of quality issues. However, we must not forget the indirect costs, such as transports, assemblies, loss of products on sale and the impact on the brand, etc.
The above example only accounts for the quality costs. You must also note the costs of capital employed, the impact of delivery times on sales, brand risks, IPR issues, etc. So there are a number of considerations that are often ignored when thinking about outsourcing production to a low-cost country. I would recommend comparing automated local production with cheap Asian production. Which would you like to invest in and which is easier to control?
Example 2: Product batch changeover in just eight minutes instead of two hours
Current intelligent automation and advanced manufacturing allow for quick changes in production. Machine vision assistance and modern auxiliaries enable flexible production of different products. Some years ago, we created a machine vision assisted automation system to our client’s automation line that enabled product changeovers in under eight minutes. Prior to this, product changeover could take over two hours. Changeovers were performed by two employees and took place on average once per shift.
In this case, the hourly price was $20, meaning that one product changeover cost 2 x 2 hours x $20 = $80. In addition, lost production in terms of sellable products was 36 pcs per hour, resulting in a cost of $540 when the mean product price was $15. This equals to a $540 + $80 = $620 additional cost per shift. With 705 annual shifts, the total cost of traditional product changeovers was 705 x $620 = $437,100. The new method incurred annual costs of just $29,140. In this case, the investment in modern, intelligent automation paid for itself in just a few months, as long production interruptions were eliminated.