Robots Will Save Manufacturing Billions

In the near future, factories will replace more human workers with robots. The switch makes economic sense and from a cost perspective will be a boon to manufacturing. Replacing factory workers with industrial robots will save manufacturers money over the long-term in the United States, Germany, South Korea, Mexico, and even China.

The initial cost of an industrial robot (including systems engineering costs) is approximately $250,000. [1] Robots also have operations and maintenance costs which we calculate at approximately $10,000 annually. Comparatively, average factory employee hourly wages range from $2 to $47 per hour, depending on the country. [2] In addition, humans incur additional training, recruitment, hiring costs healthcare benefits and vacation days are other overhead costs.

Break-even times for industrial robots highlight their beneficial impact in the manufacturing industry. The average service life of an industrial robot is approximately 12 years. [3] The present value of the cash flows for each alternative over the 12 years (including employee wages) are discounted to the present value using a 15% discount rate except for Chinese wages, which are adjusted to account for projected increases in wages of 10-15% each year. [4]

Although a robot initially costs more than an employee, the breakeven occurs relatively quickly. A company replacing factory employees with industrial robots in Germany or the United States will break even in under one year. In South Korea, Mexico, and China, where average factory wages are approximately $19, $6, and $2 per hour respectively, robots cover their initial investment over a longer time horizon, but still relatively quickly. A Korean manufacturer will break even in fewer than two years and in Mexico fewer than six years. In China the break even is approximately nine years.

Another benefit of robotic systems is their ability to prevent employee injury and the resulting liability. Robots can complete tasks in extreme manufacturing environments without risking human health. For example, KUKA Robotics [KUKA] produce heat-resistant welding robots that can work in environments with extreme heat. Accuracy and precision also increase due to advanced sensing technologies.

While many manufacturers have not yet adopted robots because of large upfront costs, rising workers’ wages and declining automation costs now make purchasing a robot logical and economical. The long-term savings and short break even period combined with the added efficiencies and benefits of robots (i.e. no healthcare or vacation benefits) dictate that most manufacturers will benefit from the investment in robotic systems.

Robotic labor may be the catalyst for bringing manufacturing back again to the US. For those looking for unskilled jobs, however, the competition will no longer be against those working for lower rates, but with robots that are less expensive and more efficient. One thing is sure: it seems like a good time for companies to buy robots.