EMS Rules of Automation & ROI

Estimated reading time: 2 minutes

Unlike OEM companies that can spread the cost, risk, and allocation of production jobs across multiple lines, EMS companies are often forced to focus customer’s products on individual dedicated lines and small groups of resources. As EMS companies typically have to deal with significant variation in demand from their customers, automation could be significantly under-utilized, which makes the justification of automation much more difficult. Are smaller EMS companies effectively dependent on manual labor and excluded from the innovation that automation and the computerization of the factory operation can bring? The answer is no because IoT is coming to the rescue.

Comparisons are often made between OEM and EMS models of production. The perception of the OEM model is that products can be allocated freely across the entire factory to best meet individual product delivery requirements. The advantage that the vertical organization brings is often not fully embraced because most OEM operations still lack the engineering tools that provide the product portability or finite planning solutions. Some, normally larger, EMS companies are in a similar position, where a bulk of products from a specific customer will be made together in the same factory. In these cases, the EMS factory is almost like a replacement or extension of the OEM factory, with the same opportunity for product allocation.

In the majority of cases, typically more in the smaller EMS companies, a wide range of products for different customers are made simultaneously, often across different sectors of the market. This is a smart approach that considers customer dependency and load balancing because different sectors have peaks and troughs in production as they are affected by seasonality, product cycles, marketing campaigns, and competition.

Understanding the Costs of Automation

All of these factory models suffer from the same issues of efficiency and productivity, but in cases where single lines are effectively dedicated to a customer’s production, certain issues are brought into clear focus. There is a lot of waste in these lines, especially for major assets such as SMT machines, in-circuit test, reflow ovens, because of variation in customer demand. The manual labor on such lines can be redeployed, but very rarely the machines. This situation gets worse as the level of automation increases, resulting in a law of diminishing returns for investment in automation; even though, in principle, the use of automation should provide lower fixed costs.

We need to understand the context of the costs on both sides of the equation to address this conundrum. The investment cost of automation and the fixed labor costs that it replaces is relatively easy to calculate in a well-defined way. The more difficult element to calculate is the effect of introducing automation where the equipment will not be fully used.

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Editor's Note: This article originally appeared in the May 2016 issue of SMT Magazine.