Case study: TCO for automation labelling

A PLANT in China manufactures computer products, which includes the machine, accessories and packaging. All in, a total of 10 labels are involved for each unit of output.

Problem Product labelling is a two-step process: a preparatory step where the 10 tags are first pasted onto an A4-sized paper; and the application step where workers manually paste them onto corresponding locations of the product. This procedure required a total of 50 workers.

Proposed solution The proposed solution is a fully-automated labelling system consisting nine print engines, one label applicator, and an automated line. By implementing this system, the manufacturer enjoys labelling accuracy of ±1mm – an improvement from manual labour – and it replaces 40 workers at once.

Summary of labour costs The cost of hiring one worker a year can be estimated as follows: Assuming a monthly wage of RMB 3,000 ($490), a variety of insurance (additional 30% of salary), room and board expenses (another RMB 500 or $81.6), and other miscellaneous fees, it adds up to approximately RMB 53,000 ($8,654) per worker. For 40 workers, this works out to roughly RMB 2.12 million ($359,000) a year.

Summary of equipment costs In contrast, the cost of investing in a system as described above is approximately RMB 1.6 million ($261,000). Main components of the system come with one year warranty and lifetime maintenance. If properly maintained, the equipment can be used for 10 years or more. Some users have even managed 12-14 years.

Financial benefit analysis After deducting operation costs, the investment is easily recovered in the first year, along with labour cost savings of nearly RMB 500,000 ($81,666). Thereafter, assuming a maintenance cost of 8% (approximately RMB 120,000 or $19,500) and an incremental calculation of 1-2% year on year, minus an assumed growth in workers’ salaries, there should be a savings of almost RMB 2 million ($327,000) each year. With an equipment lifespan of 10 years or more, the returns on investment that extend far into the future are clearly evident.

Other hidden benefits If the company had not deployed the automated labelling system, recruitment of another 40 workers to do manual labelling, as well as another 2-3 maintenance staff would have been a challenge. On top of this, the company would also have to deal with a set of personnel issues: requests for wage increments, overtime pay, staff turnover, sick leave, welfare, etc. Training costs will also add up to a hefty sum.