Our Tips for Knowing When to Invest in Automation and Machinery
In this article, we take a look at the steps business owners need to consider when they’re thinking about investing in automation and machinery for the first time and analyse, actually, when it might not be the right time at all…
We sell a machine here at Advanced Dynamics. It’s called the ELF-50.
The ELF-50 is a desktop labeller. It’s what we call a ‘grassroots’ machine – the starting place for a business that is considering investing in machinery and automation for the first time.
That machine costs £7,500. The truth is – and this may surprise you reading this – that machine is harder for us to sell than a full £200,000 full-service filling line to an established firm.
Why? Well, it comes back to the type of business that would be looking to invest in that ELF-50. These are typically your startups, those that are contemplating machinery investment for the first time to take their operation to the next level.
Many new business owners may find themselves in this position right now. Recent statistics show that there was a record number of start-ups during 2020 – over 407,000 – despite the issues that were faced with the COVID-19 pandemic.
The likelihood is that the funding for such a step is coming from the business, perhaps just a short while after it has made money for the first time.
To use an analogy, it is like being sat around a roulette table. That business owner has had a few wins to get to the stage they’re at now. Black has come in a few times. It’s great. Now, they need to decide whether they’re going to put that money back on black again in order to grow what they’ve accumulated.
So, how does a new business owner know when it is the right time to grow? It’s a gamble. It always will be.
Below, we provide some handy tips to help break down everything you need to have in the back of your mind if you’re thinking about taking this next step and taking the plunge in your growth journey.
Business Owners Need to Strike the Balance of Entrepreneurial Flair
There’s a lot to be said for entrepreneurial flair, but for a decision like this, there’s always a balance to be had.
At one end, you have an accountant who will want every penny accounted for before they make a decision. Whereas, if you come from a salesman background, that person is more inclined to go a lot on gut-feeling and do what it takes to win a deal, without taking the time to weigh a decision up.
Making a growth decision fits right in the middle of those two opposites, like a cap screwed onto a bottle (yes, we like that simile, too). You’ve got to be able to understand commercial figures, but you’ve also got to be able to understand opportunities and take them when they arrive.
Having Your Finances in Check Is A MUST
The reality is that a bank or funder will, very rarely, loan money to a new SME for growth purposes that are deemed as high-risk businesses.
That places extra importance on having the funds yourself, and being in a position to take what will be a generous hit on the balance.
Realistically, many owners will be putting everything – the family home, life savings, a child’s future – on the line if they pursue a high-risk loan, in the hope they will see it return.
Take this as a rule of thumb: Within the packaging industry, if your investment in machinery is less than £15,000, it needs to be returned in six months’ time. Anything more than that figure needs to be looked at across a 12-month timeframe.
Don’t mistake that for not making any money during that time. I’m saying that your business can continue to trade in exactly the same way it was previous and is making the same profits while also paying back on the investment that has been made.
Is Your Business Being Hindered by the Dreaded ‘Bottleneck’
It’s just the worst when something is holding you back.
In short, when we talk about a bottleneck, we’re talking about something that is holding up a business operation.
As an example, this could be as simple, yet significant, as the capping process taking too long to complete manually. That’s a bottleneck (as well as a pain in the backside) – one that if resolved would make the world of difference operationally.
Addressing that starts a chain reaction. Address the bottleneck and the business can make more products. Once you start making more products, you can commit to making more and taking on larger contracts. This, in turn, leads to more money and company growth.
Know your bottleneck. Understand what you need to do to overcome it.
What Are the Benefits of Automation?
It was mentioned at the beginning that, in this position, it is easier for machinery businesses to sell a £200,000 full-service line than a £7,500 ELF-50 machine.
But even with the latter, the benefits of investing are obvious. Let’s run through them:
- The first thing you get is consistency and accuracy. Investing in a machine will get a job done more consistently and more accurately
- As a result of the above, machine automation can improve productivity by up to three-fold
- You’re freeing up colleagues who otherwise would be doing manual labour work to do more important tasks around the business
- Improved safety
- Reduced factory lead times
Your return on investment – the buzzword from a couple of years ago – on a grassroots machine, at £7,500, can be done very quickly.
That ELF-50 we keep referring to has been the making of many companies. It’s rare that we sell an ELF-50 to a start-up business and it does not grow within 12-18 months. That’s the first step – the end of line little labeller.
You’re the One That I Want
Have you stopped singing Grease yet? Great. Let’s press on.
It’s very rare that a client knows what they want. It’s only when you drill down into their business and find out what processes they’re using and what their production speed is, that you find out quickly what level of automation they require – or even whether they require it at all.
More often than not, a business owner will look at automation and immediately look for the biggest and best because they think that’s the answer they’re looking for. That’s not the case.
In fact, it’s that smaller, base-level, machine that can make an incredible difference.
Sometimes Automation Is Just Not the Answer
If you’re still reading this, great! You’re ace! But we wouldn’t be able to let you read this entire article without being honest.
Because in some cases, automation just isn’t the answer.
For example, you could be a business owner that makes 50 bottles of product a day. Yes, it can be slow and laborious, manually capping and labelling each one, and there’s no doubt that investing in automation would help that owner more than triple that output in next to no time.
But that investment is not worth it if that business has no intention of growing that 50 bottles a day and hasn’t got the customer base for it.
Automation, a lot of the time, is the right thing, but it comes down to cost and thinking.
If you’re only doing that 50 bottles a day, our advice would be to wait, grow the business further, sweat the assets – the hands, so to speak – until you’re at a point of making 700 bottles every day and need a machine to take you to the next level.
How Automation Helped Us During the Pandemic
We were one of those businesses that got stuck into producing much-needed product during the early stages of the COVID-19 pandemic.
As a company, we ploughed our resources into producing hand sanitiser.
In short, it would have been impossible to achieve without automation… unless we had the British Army at our fingertips. Even then, I believe we would have been struggling to make the millions that we were producing each month for the country.
If it wasn’t for the autonomous nature of the equipment we sell – that we used ourselves last year to help combat the COVID-19 pandemic – we wouldn’t have been able to fulfil the contracts we had taken on.
Some Final Food for Thought
Ultimately, everything that has been outlined comes back to one word. Justification.
As a business owner thinking about growth, ask yourself some important questions:
How much product are you making? How many changeovers are required? Have you got the customer base and demand for potential growth? Do you have a bottleneck holding you back? Do you have the finances to back up your decision?
Once you have answers to those questions, you’re left in a reasonable position to say whether a business is ready for automation.
All images provided in this article have been supplied from Shutterstock.