Question A.4: True Cost of Automation The data to analyze the “apparent” i...
True Cost of Automation
The data to analyze the “apparent” incremental cash flows of a flexible automated assembly cell are shown below. Develop a list of often-ignored indirect expenses that ABC could potentially assign to the flexible assembly cell.
| $250,000 | Investment cost |
| $100,000 | Annual savings from wages and benefits |
| $20,000 | Maintenance costs |
| 8 years | Useful life |
| $50,000 | Market value at disposal |
| 20% | Discounting rate (before-tax) |
| Measure of Merit | |
| 2.5 years | Payback period |
| $68,590 | Net present value |
| 28.1% | IRR |
There are many often-ignored costs in the comparison of advanced manufacturing technology alternatives that when quantified might change the recommended choice. ABC can quantify the indirect costs that are summarized in Exhibit A.7.
EXHIBIT A.7 Indirect costs of flexible automation that are often omitted
1. Process engineering and technician support costs to create and maintain manufacturing shop aids and program machine instructions.
2. Costs for new tools/fixtures required by automated machinery, storage of these items, and ongoing maintenance.
3. Training costs to prepare employees for safe operation of new machines.
4. Added utility costs for electric, hydraulic, and pneumatic power sources.
5. Added materials handling costs for specialized containerization.
6. Floor space opportunity costs for extra requirements of flexible automation equipment for operation and footprint clearances.
7. Indirect batch costs, because many flexible cells lead to smaller lot sizes with increased costs for purchase orders, material movements, setups, routing sheets, material pick orders, and work orders.