Programmable Automation Technologies. Daniel Kandray
+ QCV = $8000/yr + (100,000)($1.86/part) = $194,000/yr.
Performing a quantity breakeven analysis of two alternatives involves determining the number of parts that have to be produced that would realize the benefits of the alternative. This is significant because manual methods typically have a lower fixed cost and higher variable costs. Thus, when product volumes are low, manual methods are more cost effective. As production volumes increase the advantage goes to automated methods, which typically have a lower variable cost and higher fixed cost. This is illustrated in Figure 2-9.
Figure 2-9 Quantity breakeven point
Figure 2-9 is a plot showing the total annual cost of an automated method versus a manual method for the same theoretical task. The manual method has a lower fixed cost but higher variable costs. The lower fixed cost is evident in the graph by the lower starting point (zero parts produced). The steeper incline indicates higher variable costs. At around 15,000 parts the two lines cross, indicating the two methods have the same total annual cost. This is termed the quantity breakeven point. As the quantity produced is increased from this point, the automated method has a lower total annual cost. If the annual production is 25,000 parts, the cost savings that the automated method provides is the y-axis value difference between the two lines.
Thus, to determine the quantity breakeven point of two methods, the total annual cost equations are set equal to one another (i.e., equate the costs) and solved for the quantity (Q). This is the quantity at which the proposed and the current methods have the same production cost. Anything above this quantity favors the automated method over the manual method for cost efficiency. This is demonstrated in the following example.
Example 2.16
A new automated method is being developed to replace the manual method described in Example 2.15. The new method has a production rate of 165 parts/hr, requires only one operator, and has a capital cost of $45.50/hr. Additionally, the new method decreases material waste, thus reducing raw material costs to $1.00/part. Because of machine sophistication, yearly maintenance costs will increase to $16,000 per year. Perform a productivity analysis to compare the two alternatives for annual production of 100,000 parts/yr. Is the proposed method more productive? Calculate the quantity breakeven point. What is the total annual cost savings if the proposed method were to be used?
Solution
First, perform the productivity analysis (i.e., compare the current method’s hours and maintenance costs with the proposed). Most of the information can be substituted directly into a productivity calculation spreadsheet, with the exception of the capital input. The capital or machine rates for both alternatives are given. However, neither includes maintenance cost. Thus, the maintenance cost, spread over the 100,000 parts, will be added to the hourly machine rate. To proceed, calculate the number of hours it would take to produce 100,000 parts for each method, then divide the maintenance cost by this number.
For the current method,
hrscurr = (100,000 parts/yr)/(100 parts/hr) = 1000 hr
(PI maint)curr = $8000/1000 hr = $8/hr.
For the proposed method,
hrsprop = (100,000 parts/yr)/(165 parts/hr) = 606.1 hr
(PI maint)prop = $16,000/606.1 hr = $26.40/hr.
Add these values to the capital hourly rates for both current and proposed methods:
(PI capital)curr = $25/hr + $8/hr = $33.00/hr
(PI capital)prop = $45.50/hr + $26.40/hr = $71.90/hr.
Substituting these values into a productivity analysis spreadsheet yields the following:
Thus, the proposed method is 126% as productive as the current method. The quantity breakeven point indicates the production quantity after which the proposed method becomes more productive. These calculations are shown in the following spreadsheet:
The quantity breakeven point occurs at 16,837 parts. The annual cost savings of the new method will be $39,515 (from $194,000 − $154,485).
2.7 Productivity and the USA Principle
The benefits of productivity analysis in justifying automation of manufacturing processes have been extensively highlighted throughout this chapter. Additionally, we hint at how productivity analysis can be used to identify other enhancements or improvements to the proposed automation. In this section, we discuss using the USA automation strategy in conjunction with a productivity analysis as the starting point for productivity improvements through automation. Thus, instead of performing the productivity analysis after an automated method has been proposed, the analysis will be used during the development of the automated method.
Groover outlined the basic tenets of the USA principle in Automation, Production Systems and Computer-Integrated Manufacturing. It is a simple, common sense approach to developing an automation strategy. “USA” is an acronym for the method’s steps:
Understand the process. This is the crucial first step. There is no better way to understand an existing process than to calculate its productivity. It compels the determination of cycle times, production rates, material costs, and so on. These data can be assembled through time studies, video analysis, and through other data collection techniques. Once all the data are assembled, a preliminary productivity analysis is performed, one that uses the spreadsheet presented in Section 2.6. Data collection and productivity analysis give one a thorough grasp and deep understanding of the existing process.
Simplify the process. It is likely that a process under consideration has never been as extensively evaluated as it will be with these methods. Thus, simple improvements or modifications identified in step 1 may greatly enhance the performance of the existing process. Wasted movements, actions, or procedures can be eliminated and the process reevaluated, the idea being that the new process should be as streamlined as possible and have every opportunity to succeed. Once the new process has stabilized, another productivity analysis using the new data is performed.
Automate the process. Armed with extensive, in-depth knowledge of the simplified existing process, one begins identifying ways to improve productivity through automation, using the automation strategies identified in Section 1.6 as a starting point. Once a general strategy has been selected, a productivity analysis is done, one that compares the existing process and the proposed automated one. The productivity analysis spreadsheet is used and the automated method’s performance adjusted until the desired productivity improvement is achieved.
After the USA principle is applied, data from the productivity analysis in step 3 are the specifications for the new, automated process; these data are used for cost quoting purposes. Once quotations are received, the productivity analysis can be reevaluated. Thus, when it comes time to submit a proposal to upper management for the automation project, justification will have already been completed. Using the USA principle in conjunction with productivity analysis greatly enhances the probability of a successful automation project.