Automation Imperative – Core Business Function
The success factors in manufacturing are changing – making it imperative that all size companies use automation as a strategic tool to compete. Automation is a key success factor, for companies large and small, in achieving lower costs, increased productivity and quality. A company can successfully compete only if it outperforms rivals by delivering greater value to customers or creating comparable value at a lower cost, or both. Automation is the best way to achieve this goal over the long term by improving sustainable operational effectiveness. MORE
Can Manufacturers Compete When Tethered to Old Automation Architectures?
Manufacturing companies are becoming more aware of the need to modernize production methods and automation to compete globally, but many still find themselves stuck in a sunk investment trap. This focus on past investment could ruin their production competitiveness and jeopardize their future.
Modernizing automation system investments may be prevented by the sunk cost trap . that occurs when contemporary accounting methods, and a lack of forward-thinking business strategy, lock manufacturers into existing technology when there are major technology advancements and investments required to be competitive.
For example, the depreciation schedules on automation systems in many cases are the same as production equipment, think motors, pumps, punch presses etc. Where this may have been appropriate in the past, we see the schedule increasingly warped with the rapid changes in technology, to the point that manufacturing success factors have significantly changed.
Investment in industrial automation technology should be a strategic business decision, within the framework of world manufacturing competition, not based on existing sunk costs.
Existing industrial and process automation suppliers have not embraced new technologies at the same rate as other business systems. This is creating an opportunity to improve manufacturing with innovative technologies from new suppliers.
Organizational competitiveness and flexibility can only be accomplished by leveraging advanced technologies, centering on automation, in order to enable a successful transition. Germany’s Industry 4.0 initiative was the first effort to help manufacturers enable this transition, and the effort has since ignited worldwide initiatives in China, Japan and India.
Developing economies logically have a key advantage in this area, since they are typically not burdened with legacy automation system and machine investments. Taking advantage of the new technologies and initiatives have allowed them to leapfrog organizations, who are attached to older expensive legacy equipment. This makes an analysis of sunk cost versus new investment a more compelling task.