Calculating Cost Savings with Cobots

December 22, 2021 by

What is the main force driving the rapid adoption of collaborative robots?  This probably isn't a huge surprise, but the answer is cost savings. It's an easy decision to invest in something that either saves money or makes you money, but the main challenge is how to accurately quantify those amounts...  So, we'll walk you through a guide on way to determine your savings when it comes to investing in cobots. 

To give a few examples on how collaborative robots like Kassow Robots can improve your cash flow, they can reduce machine hour costs by 40% and enable you to win new orders, help businesses address labor shortages, and increase productivity and competitiveness.

Bottom line is if you put a cobot in your corner, you'll see a healthy ROI before you know it.

So, let's explore the potential cost savings you can expect when implementing a cobot.

Numbers to Gather Beforehand

To calculate your savings, you may start by gathering some of the following data:

  • Annual unit production volume
  • Standard unit cost
  • Average unit sell price
  • Standard unit labor hours
  • Standard labor hour cost and total labor costs, including training, benefits, sick leave, etc.
  • Average workers’ compensation claim cost
  • Floor operating cost per ft2
  • Warranty cost (percentage of annual sales, or cost per unit)
  • Annual inventory carrying cost (percentage of standard costs)

Easy Formulas to Calculate Savings Potential

Once you’ve gathered the data, here’s how you can use them to calculate the different potential savings:

1.    Direct labor savings

These savings result from reduced manufacturing labor.  Your cobot performs repetitive tasks and enables your workers to focus on value-added tasks.

There are two ways to calculate them:

  •      Total annual labor hours saved * Standard cost per labor hour
  •      Total labor savings per unit (hours) * Standard cost per labor hour * Annual volume

2.    Rework savings

Cobots can enhance quality and production outputs and reduce the demand for on-the-line repairs.

You can calculate those rework savings in two ways:

  •      Total annual rework hours saved * Standard cost per labor hour
  •      Current rework costs * Percentage of rework reduction

3.    Scrap savings

With cobots, you can scale your production and value for your finished goods while reducing inventory waste. 

Scrap savings reflect all those reductions in scrapped materials, and you can calculate them in two ways:

  •      Yield improvement percentage * Annual production volume * Standard unit cost
  •      Annual units scrap avoidance * Standard unit cost

4.   Warranty savings

By improving product quality, collaborative robots can help reduce warranty claims and repair costs.

There are two ways to calculate your warranty savings:

  •      Total warranty failure units * Warranty improvement percentage * Standard unit cost
  •      Current warranty costs * Warranty reduction percentage

5.   Inventory reduction

By reducing the standard cycle time with automation, you can reduce inventory levels.

Here’s a formula for calculating your inventory reduction:

  • Inventory reduction = (Work-in-process reduction (units) * Standard unit cost * Inventory carrying cost percentage) + (Finished-inventory reduction (units) * Standard unit cost * Inventory carrying cost percentage)

6.   Floor space reduction

A cobot produces more volume per square foot than your manual workers.

You can calculate your floor space reduction like this:

  • Floor space reduction = Floor space reduction ft2 * Annual floor space cost per ft2

7.   Capacity gains

Capacity gains represent a higher capacity that leads to top-line revenue boosts.

Here’s the formula you should use:

  • Capacity gains = Capacity gain units * Average selling price per unit * Standard margin percentage

8.   Insurance reduction

Thanks to better workplace safety, collaborative robots can reduce your insurance claims.

You can calculate insurance savings in two ways:

  • Total labor hours * Workers’ compensation cost per hour * Percentage of reduction in claims
  • Average cost per claim * Claims avoided

9.   Employee retention

Cobots have built-in safety mechanisms to reduce the risk of injury for complex tasks. By automating these tasks, you can keep more employees and cut your training costs. 

Your cobot employee retention savings are the sum of two products:

  • Employee retention = (Average hiring cost per hire * Positions saved) + (Average time to train (hours) * Standard labor cost per hour)

10.   Customer retention

Your customer retention savings involve the cost of finding and acquiring a replacement customer.

You can calculate them with this formula:

  • Customer retention = Customer acquisition cost * Customers retained

Calculating Your Total Collaborative Robot Savings

To calculate your total collaborative robot savings, add up all the savings above. Then, once you have a number, go ahead and calculate your cobot ROI to see if your project drives success.

If you’re still wondering if investing in a cobot is a good idea, explore the  tax break incentive.

As per Section 179 of the Internal Revenue Code, you can get a 100% federal tax deduction if you invest in a cobot by December 2021. That way, you can quantify your equipment budget and supercharge your productivity.

If you need help with automating your manufacturing process, BlueBay Automation is here. Contact us today to schedule a free consultation. We can help you select the most cost effective solution so you can get the most out of your project, whether it involves robotics, motion control, or IIoT. 

December 22, 2021
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