The Various Faces of Automation: An Uncommon Reason to Invest

At the center of your thinking about what’s next for your company is the topic of automation. Whether it’s your next CNC machine, new engineering software, an ERP system or an Industry 4.0 initiative, automation in one of its variant forms will be a key consideration in your planning and search.

Implied or implicit, automation is a technological path to improving the productivity of wood industry companies. I’m not just referring to operational productivity, but also to the revenue productivity of the business. Revenue productivity is a financial measurement that is increased by gains in operational productivity. I will expand on this idea and its importance below.

For purposes of creating a clear and common understanding of the word automation for this discussion, I will use the Merriam-Webster definition:

1. the technique of making an apparatus, a process, or a system operate automatically
2. the state of being operated automatically
3. automatically controlled operation of an apparatus, process, or a system by mechanical or electronic devices that take the place of human labor

Generally, the operating productivity gains achieved through the acquisition of automation are obvious, particularly during the discovery and specification phases of a machinery purchase for instance. In this context, the argument for automation is usually the third definition: the replacement of human labor by mechanical systems.

We replace workers with automation for reasons of safety, capacity, reliability, capability, consistency in results, as well as the cost and availability of new workers. In many cases, the advantage of automation is plainly undeniable.

The world is buzzing with speculation how automation will continue to destroy working-class jobs in the years ahead. By some estimates, of the 6 million job losses between 2000 and 2010, 85 percent of these job losses are actually attributable to technological changes – largely automation – rather than international trade.1

While this may be true, some work is ideally suited for automation and can result in both operational and productivity improvements if done well. In the wood industry, the jobs being replaced with automated systems are typically the low skill jobs like material handling and the kind that are ideally suited for automation.

When workers are replaced by automation productivity can increase while workers are freed up to do jobs requiring higher-level skills. Here, then the first definition seems to me the better fit for our needs and purposes: to automate an apparatus, the process, or the system.

Our thinking about automation must not be limited to the factory floor in the same way our measurement of productivity must not be limited to operations. If we automate the creation of information does it not only reduce front office labor content, but also provide that same worker capacity for additional throughput?

If we reduce the labor required to produce the information that drives the plant floor, would we not also increase the capacity as well as the output of our factory without necessarily and proportionately increasing the number of workers? And if we increase the capacity of each worker, would we not increase the productivity of each worker?

The answer is a simple yes. This would also explain, in part, the manufacturing job losses over the last decade. Indeed, in speaking to a number of industry business owners and leaders, they tell me that automation while replacing workers has not cost one of them his or her job. Those workers have simply moved elsewhere in the organization.

Two important facts support this insight:
1. First, the average wood industry company size has increased between 2012 and 2015; from 18.75 employees per company to 19.87 Companies have more employees on average, not fewer.
2. Second, and more importantly, the revenue per employee has increased from $195,174 per employee per year to $212,431between 2012 and 2014 respectively — an increase of 8.1% over the four-year period.

Wood industry companies are more productive today than they were in 20122. The data confirms that. But it is the revenue productivity that demonstrates the gain. Revenue is the financial measurement that is increased by gains in operational productivity.

Here’s my point: revenue productivity (revenue per employee or revenue per dollar of payroll expensed) is not a common productivity measurement — but it makes common sense as a way to gauge our return on investments we making in improving our operating performance.

Revenue productivity is a simple way to express in simple terms whether or not we are in fact, improving. It is an uncommon reason for investing in automation. For industry companies to earn enough margins to sustain and grow the business, they must generate enough revenue from which the bottom line results.

If you are planning an automation investment in technology (hardware, software, or systems), you should think carefully about your real goal and measure actual performance against the goal. The goal is not to automate the business; the goal is to create a sustainable, profitable company. Your challenge is to choose automation that will achieve that end. And, this is your uncommon reason to invest.

If you want to explore automation further or need help assessing your performance, you can reach me at dshultz@jemoran.com or 608.279.8089

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1. conexus.cberdata.org/files/MfgReality.pdf © June 2015 & April 2017 Ball State University
2. www.woodiq.com/2017/04/21/latest-industry-data-shows-improvement