Are Robots a Hedge against a Recession?

July 25, 2022 by
BlueBay Automation Content Team

With what seems like an inevitable & looming recession, what can US manufacturers do to stay afloat and still operate at a profit? We are in uncharted waters with what appears to be a perfect storm brewing that we have never experienced before.  With a constant barrage of doom and gloom coming from the media post-pandemic with rising interest rates, inflation, supply chain challenges along with labor force shortages,  we are likely talking ourselves into an economic downturn. 

But there is light at the end of the tunnel, and for most US manufacturers, the answer to these problems are robotics and automation.

When is the Right Time to Automate?

The short answer: Immediately. 

We will break this down further, but the key driving factors for employing robotics aren't going away any time soon, if ever. Waiting to take action has the potential to make a bad situation even worse in the coming months and years ahead.  A "wait and see" strategy is a risky one.  If you are a manufacturer who is taking the time to read this, then you are no doubt already concerned or struggling with getting products out the door.

Factors Driving a Boom in Robotics & Automation

Whether you are just now looking into automating your processes or have already started, there are several factors contributing to what is becoming a robotic revolution in US manufacturing which, quite frankly, is long overdue.

Labor Shortages

By far, this is the number one topic that comes up when we are talking to our customers. Before the pandemic, this was already something US manufacturers were struggling with.  However, post pandemic, this has become an outright crisis.

It appears that during the pandemic a couple of things changed directly impacting our workforce.  Many people realized that they like working remotely.  Perhaps saving money on gas, which is especially relevant today, or avoiding the commute to work and spending more time with their family simply became more appealing.  Many people found jobs in other areas that allowed them to work from home rather than working on a factory floor.  For those who were able to do this, it is not so surprising why they would make such a decision.  A recent study reported that 40% of workers will be looking for a new job in the next 6 months, with over 50% looking for fully remote or hybrid positions.  But who then is going to perform those tasks? The only viable option is robotics.

We recently interviewed a few of our customers with most repeating the same theme.  Many manufacturers rely on temp labor services to provide workers to build, test, and package their products.  A greater dependence on these service providers is being seen as the labor shortage worsens.  Unfortunately, these temporary laborers usually do not stay very long at one job so employers are faced with a constant cycle of training new people, which carries with it a direct cost association not to mention the quality control issues that go along with a revolving door of new laborers.

An often key component in calculating ROI (return on investment) is frequently left out; loss of production.  In talking with our customers, a common problem is that workers are not showing up consistently.  For some, a full work week is not necessary for them to get by so they call in sick, or just don't show up at all.  When a manufacturer can't depend on a full workforce to produce their products, a hidden cost is realized in that they cannot invoice if they cannot ship to their customers.  A couple of our customers reported that management and executives are often having to fill these rolls including after-hours and on weekends. 

Inflation

We have all experienced a rise in cost of goods.  The cost of fuel, raw materials, and labor have and continue to increase.  The automation industry, like virtually all industries, has experienced multiple price increases in within the last 12 months with more anticipated to happen in the future. 

The sooner manufacturers can purchase and deploy automated workstations, the sooner a return on investment can be realized.  Acting now will allow them to lock in equipment at today's prices.  Waiting will undoubtedly result in cost increases of components alone.

Increasing Interest Rates

As interest rates increase, so does the cost of borrowing capital.  Whether you plan on using your own funds or to finance your equipment, waiting a year or so will inevitably result in paying an overall higher price.  

Supply Chain Challenges

Practically everyone at this point is likely experiencing delays due to supply chain issues.  Robotics and automation suppliers are no different.  Lead times are certainly unpredictable at best, as we see deliveries getting pushed out further and further. 

Are things getting better?  It depends on who you talk to, but there is a general consensus that it won't be improving anytime soon.  Even as raw materials begin to improve on delivery, manufacturers must work through a rather large backlog which is ultimately going to extend our supply chain issues.

For those who have ultimately made the decision to move forward with robotics and automation in their processes, long lead times are pushing out their deployment dates and therefore further extending the time to relieve their production issues and ultimately realize a ROI. 

What Can You Do Next?

The short answer is to automate as quickly as you can. This doesn't mean rushing into purchasing robots.  But, the sooner you start, the sooner you can ensure your success to weather the impending storm. 

Identify  Processes that can be Automated

Review your manufacturing processes and identify what can be automated easily.  Often, the temptation for end users is to try to automate the most complex process...which in many cases is causing the most problems.  However, a better strategy is to find the most simple applications that can be automated quickly with little risk.  These applications will allow end users, especially those new to automation and robotics, to realize a faster ROI while gaining experience with employing these new technologies.  In general, starting at the end of the line and working your way backwards is good place to start.  Applications like palletizing, for example, are very low risk and fairly easy to implement.  You can read more about this topic here: Identifying Opportunities for Automation

Consult an Expert

Some of our customers are extremely self sufficient and capable of designing and deploying their own automated solutions.  However, we have been seeing an ever-increasing interest from SME manufacturers who are brand new to robotics and automation.  If you find yourself in this category, consult a reputable distributor or systems integrator to help.

Here at BlueBay Automation, we do this on a regular basis. The best industry experts will be more than happy to review your applications with you and make recommendations.   You can learn more about what factors to consider when selection an automation partner here: Factors for Selecting an Automation Partner

Ask for an Engineering Study

For some of the more difficult applications, consider asking your supplier for an engineering study.  This might come at a cost, but it is a great way for you to mitigate your risk for a small fee.  In many cases, part or all of this fee can be credited back to the project by your supplier should you choose to move forward.  If the engineering study is not a success, you will have learned more about your project, or through that effort found an alternate solution.  In most cases, when an engineering study is warranted, the benefit, whether successful or not, far outweighs the cost.  We commonly offer these services to our customers and have performed countless engineering studies and proof-of-concepts, which you can learn about here: BlueBay Engineering Studies

Empower Your Employees

We have found that companies who encourage their employees to embrace automation are the most successful.  The idea behind employing robotics is not to replace workers.  The intent is to be able to continue to manufacture products in the USA while remaining competitive and enriching the lives of your employees.  Taking away mundane tasks, as well as those that might cause repetitive injuries, gives value to employees and fosters a workplace of professional advancement and safety.  Find champions within your organization who want to learn more about running and maintaining the robotic equipment and compensate them accordingly.  Empower them with knowledge and training to ensure your success, as well as theirs.  Would your average employee rather spend the day lifting and placing boxes, or would they rather spend the day operating & overseeing a few robots? 

Consider all Factors in your ROI Calculation

Although calculating ROI for equipment is generally straight forward, ensure you factor in all costs and often you will find that justifying costly automated equipment might not be as difficult as you once thought.  Once you have a return on your direct costs, you begin enjoying the benefits our your investment by running your equipment essentially for free (other than your maintenance and operational costs, of course).  Below are a few factors to consider in your ROI calculation:

  • Labor rates including overtime rates and taxes

  • Health care and other employee benefits

  • Time-off costs

  • Loss-of-Production costs due to unscheduled time off, rework, or scrap due to quality issues

  • Are you taking advantage of tax programs like Section 179?  If not, you're missing out on saving upwards of 35% on your purchases.  Talk to your accounting team! 

  • Are you able to setup your equipment to run overtime and/or extra shifts to boost your production, without paying for overtime or extra shifts?

In Summary

Waiting to automate will only delay the inevitable.  Those who automate quickly and effectively will edge out their competition who might still be waiting to see where things go.  A recession is likely as interest rates continue to climb, and with inflation at a record high, and while labor shortages continue with labor rates increasing. 

If you've made it this far in the article then you are already one step closer to automation.  Modern robotics are not as complicated you might think, and getting started can be easy with the right partner.  So, get started sooner rather than later.  Employing robotics and automation is truly a hedge against a recession.  Contact us today and we'll be happy to have our team of automation experts review any application you may have.

BlueBay Automation Content Team July 25, 2022
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