How to Calculate Manufacturing Costs

Choosing to make the leap to robotics can involve a sizable investment. However, your return on investment—or ROI—may also be sizable. Learning how to calculate your manufacturing costs is the first step in making the investment into robotic automation.

And it may happen sooner than you think. The return on investment of a robotic system averages between 12 and 18 months. (We’ve seen customers enjoy an ROI in as little as one month!) You just have to know how to calculate production costs–accurately.

There’s also an industry-proven standard ROI of 24 months for robotic systems. Even in this case, that’s not a long time—and there will be benefits (such as increased safety and productivity) that kick in immediately.

Calculating your ROI is a little more complex than just thinking about the manpower that you may be able to offset. In fact, digging to find your true ROI is a two-step process: Zeroing in on your (actual) current operating costs, and figuring out what your (actual) higher profit potential with a robot may be.

Let’s start with a quick primer on what is included in operating costs.

Determining Your Robotics ROI: How to Calculate Production Costs

There are many hidden costs to having people process parts in a manufacturing environment. Truly knowing what is included in operating costs can make a big difference. Some of our customers have reported that the true cost of a manufacturing employee, after factoring in all expenses, can be double that of their hourly wage.

Want to know how to calculate manufacturing costs? Here’s what a few of those expenses may be:

1. Hiring-related costs

Hiring and retaining workers for manufacturing jobs can be consuming, costly, and challenging—even more so for jobs that involve repetitive tasks. The Society for Human Resource Management (SHRM) says that it can take an average of 42 days and more than $3,000 in recruiting costs to fill an empty position. In addition, it can be hard to retain workers in manufacturing environments, which means that this resource-heavy hiring process happens often.

2. On-boarding costs

How much time do you spend bringing a new employee on to your team? Initial weeks of training and time spent with HR to set up your new employee adds up! According to the SHRM, onboarding costs (after recruitment) average around $4,000. That doesn’t include the hit to your productivity that naturally occurs when a new employee is learning the ropes.

3. Worker benefits

Companies invest in their workers to stay competitive. Benefits such as medical insurance, retirement, paid time off, life insurance, and continuing education are increasingly essential to keep employees healthy, happy, and willing to work at your company! These costs add up, too—and the total can be quite a bit compared to the hourly wage of the employee.

(A robot, by comparison, requires none of these benefits.)

4. Safety-related expenses

Work accidents happen no matter how diligent your safety team is and how well trained your manufacturing team is. Since this is an accepted, if unfortunate, fact, companies need to invest heavily in risk insurance, workers’ compensation, and recurring orders of safety gear & PPE. If a serious accident or injury occurs, the company may need to fund unplanned settlements. This can create a huge dent in a company’s ability to grow.

Indiana Limestone Company realized this—and adopted robotic automation for the express purpose of reducing their workers compensation claims. By adopting a robotic material handling system to move and stack heavy parts coming out of a saw line, they were able to eliminate a workplace hazard. This eliminated not only associated personnel pain and suffering, but, likely, significant financial loss through future workers’ comp settlements.

You see, when you’re working to determine your robotics ROI, it’s necessary to paint a truly comprehensive picture of where your money is currently going. Based on this information, what do you think your current operating costs are? Do you need more data to figure out just how to calculate production costs, or specifically what is included in operating costs for you?

(Our efficient integrating team is happy to help you answer these types of questions. Just give us a call!)

In our next piece on ROI, we’ll discuss the truly exciting stuff: Your higher profit potential with a properly-programmed robot. Click here for part 2.