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Key Take Aways: Aways: While the cost of adding CNC machine tending robots can seem daunting, the cost of NOT adding them is now significantly more than the cost of adding them. We walk you through the concepts and the calculations.
PART 1:
Buy something. You get a receipt.
You know exactly what it cost.
There may be operational costs that come down the road.
Buy a CNC machine and once it is installed, you've got other costs like fluids, cutting tools, power, labor, insurance.
You can easily tell your total costs for any piece of equipment.
And, you can quickly tell when that equipment pays for itself.
Everything is in your financial statements.
You can see amortization, and all the associated operating costs because there are line items for all of it.
Everything in that P&L helps you make decisions on what is next for your operation.
All of those line items have an impact on your P&L.
Those line items are there whether you bought a CNC, an automated bar feeder, or a CNC machine tending robot.
But what about calculating the cost of NOT buying that piece of equipment?
There is a cost of that too. The danger is that the cost of NOT adding the equipment can be significantly more than the cost of adding it. But how can you tell?
Some of the cost of NOT buying that equipment can be found in your P&L.
But you can’t find all of the costs there.
So how do you get a solid grasp on the cost of NOT automating?
While all of these questions apply to any piece of capital equipment in your machine shop, for the purpose of this article, we are going to focus on the cost of NOT automating your CNC machine with a purpose-built, CNC machine tending-tending robot.
Let’s start at the top of your P&L and work our way down.
As we look at top line revenue, think about your customer growth along with the revenue trends over the last three years. Some of that will likely be off because of the pandemic. But we’ve been out of the pandemic long enough, so it the trends will have some validity.
Once you get a sense of the revenue trends, like about specific customers.
Any idea on how many existing customers are at risk at any given moment because of delivery or pricing issues?
If you are tracking quotes properly, you know how many quotes you didn’t get and why. You also know which quotes you DID get, and you should know why they chose you.
If you’ve qualified the customers before quoting, you have a good sense of how much each customer spends on parts on an annual basis and you probably know how much of that spend could have gone to you.
The difficult part of this is the ambiguity. With a receipt you know for certain what you paid.
Estimating unrealized revenue might not be very painful because you can look at it as a “hypothetical.” But just because it may not hurt as much, doesn’t mean that it isn’t real. And it doesn’t mean that it isn’t impacting your machine shop and your bottom line.
Once you’ve established a dollar value of unrealized revenue, it is time to look at the revenue from customers that you lost and the associated lost revenue. Looking at LOST revenue is not so hypothetical. And so that can be a bit more painful.
You have to ask yourself the same question for each lost customer. Could automating the CNC have saved that customer? For example, if delivery issues were at the heart of losing the customer, take a look at why you couldn’t deliver on time. If it was a supply chain issue and you couldn’t get the materials, that is one thing.
If the delivery issues were tied to the fact that you didn’t have enough staff to get the parts run on time, that is different. Remember, the labor shortage is not the problem. The impact the labor shortage has on your customers is the problem.
If that LOST top line revenue resulted from labor related parts delivery, you can attribute the loss to not having automated your CNC.
This can be a painful process, partly because you may have been able to put the issues in the background and now you are facing reality. But isn’t it better to confront the issues head on and resolve them? Even so, taking a deep look at revenue trends can hurt.
One last thing applies to all the revenue categories:
- New revenue
- Lost quotes that you could have had by having a robot in place
- Lost existing revenue that could be prevented by having a robot
- Lost existing revenue that could NOT be prevented by the robot
As you think about those categories, you also have to think about the lifetime value of a customer. You spend money to gain customers. If their first order is worth $11,000 the total value of that customer is not $11,000. Think about subsequent orders over the course of the year and the total value of those orders over the total number of years you have that customer.
When you consider the lifetime value of a customer, the equations start to look very different, don’t they?
From here we are moving on from revenue and looking at two things:
- Cost reductions and savings
- The value of productivity increases
Having a robot in place will cut costs, improve savings, and increase productivity.
In part 2 of this blog post, we continue to analyze the places on your P&L that, when totaled, reveal that NOT adding CNC automation is more expensive than adding it.
Ready to start your automation journey? Call us at 866-962-9020 and then press 1 to start the conversation.