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Key Take Away: What Your Machine Shop Can Do About Inflation
Inflation has been a very real and persistent problem driven by the confluence of factors. This post is not focused on the cause of inflation. The focus here is what to do about it because the question is, how can you protect your customers and your machine shop against inflation?
Price increases are always a part of doing business. Supply chain issues and demand estimate errors and more have led to dramatic price hikes.
Supply and demand drive some price fluctuations. Pre-pandemic steel traded in the $500 to $800 range. In July 2021, steel climbed to an all-time high of $1825. In early 2022, a ton of cold rolled steel had dropped to $1,100. That is still a significant increase from pre-pandemic levels.
How do you protect your customers and your machine shop's bottom line from inflation?
Adding purpose-built, CNC machine-tending robot from RoboJob-USA.
Will our robot protect you from steel price fluctuations? Absolutely not.
But it will protect you from other inflationary pressures. Please keep an open mind when the number surprises you.
Machine-Operator Economics
If you pay your machine operator $14.00/hour, your P&L reflects that wage, plus appropriate taxes and benefits that, depending on the state where your machine shop is located, could range from an additional 25% to as much as 40%.
If that machine operator stays with you the entire year and works when they are scheduled to work (miracles do happen), the total wage for the year would be $29,120.
Add the burden rate of 25% to 40% and your total cost for the year for that one machine operator is $36,400 to $40,768. Those are the numbers your P&L will reflect.
Wages are increasing at a rate of 5.2%. You may be able to get by with a smaller increase for that operator. That smaller increase may or may not put that operator in play for finding another job. We’ll come back to wages in a second.
The real inflation pressure your machine shop will feel is health insurance cost. Aon says health insurance costs could increase by 6.5% in 2023. What does that do to your costs of benefits?
Could you pass the entire cost on to your employees?
If you could, would you want to do that? What would be the impact?
The issue that is hiding in plain sight is that health insurance is very likely to experience substantial increases over the next three or four years. If your health insurance premiums increase at 6.5% for the next four years, that $1000 premium will cost you $1,286.47 in 2026.
Even if you don’t raise wages, the cost of your benefits is slated to increase substantially over the next four years. That is inflationary pressure hard at work.
Changing plans and/or providers aren’t likely to dull the impact of those increases.
If you are giving wage increases to retain good staff, your inflationary pressures are significantly higher.
Between wage and benefit increases of only 5%, your $36,400 to $40,768 cost of a machine operator will look like this:
25% burden. 40% burden
2023: $38,220. $42,806
2024: $40,131. $44,947
2025: $42,138. $47,194
2026: $44,244. $49,554
2025: $46,457. $52,031
Total: $211,190 $236,532
Your total cost over the next five years is played out in the chart above. Those numbers are based on $14.00/hour in 2022 and a combined increase of wages and benefits of 5% each year.
These numbers could be conservative.
But It Doesn’t Have To Be That Way
When you look at the totals, you start to see the impact of inflationary pressures on your customers and machine shop. You’ll need to pass these additional costs along in the price of parts you make for customers.
Some, but not all, of the other machine shops will be doing the same thing.
Who are the others that WON’T be passing those costs along?
Those who won’t be passing those costs along are the machine shops with a RoboJob-USA robot tending their CNC machines.
They won’t have the same impact on inflationary wages and benefits because they won’t be paying those wages. The robot does ask for a raise. It doesn’t get paid overtime when you work it over lunch or overnight.
More importantly, it doesn’t get health insurance. So as your premiums increase, your robot is protecting you because it doesn’t want or need health insurance.
What About The Cost Of Robot Maintenance?
This is another place where people are surprised. Fortunately, the surprise is more than pleasant.
Our robots are designed to work between 75,000 to 100,000 hours before maintenance is required. No, that is not a typo. That is 75,000 to 100,000 hours before maintenance.
However, here is the dirty secret that can get overlooked.
Once a year, you have to replace four C-Size batteries in the robot. Just like you have to change the battery in your smoke alarms, the clock on the wall.
If you were wondering exactly what those four C-size batteries do, the answer is simple. Those batteries keep the date and time in the robot in case the electricity goes out.
Remember This – It’s Your Money
Having a robot in place is a good hedge against inflation. That starts the day you install the robot.
If you finance the robot, even at today’s interest rates, the cost of the robot is less than you are currently paying your machine operator.
From day one, you are ahead in finances. But, once the robot is paid off, you get all the benefits but you don’t have to pay for the robot again.
That is no different from your CNC machine. That machine tool started making money for you the first day. Once that CNC was paid for, the numbers just got better.
That also holds true for your robot. Once it is paid for, other than the four C-size batteries, you don’t have fixed costs.
Over five years with your current machine operator, you will spend between $211,190 to $236,532. If the robot costs $150,000, you pocket the difference. In year six and beyond, you are still pocketing the difference.