If one is able to upgrade a process to double throughput, you’re effectively saving your hourly charge - adding this to your bottom line, right?
But by doing so, you’re also effectively increasing your profit / hour by both the savings gained and the efficiency increase of twice the units. Therefore, upgrading double dips and not only saves you money, but gives you much higher earning potential, at least with that job?
Efficiency Gain (EG) = (New Earnings per Hour) - (Original Earnings per Hour) + (Savings in Labor Costs per Hour)
But essentially, for surface level simplistic perfect world scenario, if x operator produces 10 units an @ $50/h, and we now produce 20 units, we’re effectively saving $50 sn hour by this upgrade or change.
But not only am I saving $50, my actual profit per hour greatly increases as originally, let’s say I was making $5 a unit, now @ the double rate I’m making $7.5 a unit, and I can actually produce double units so my profit per hour has more than doubled, even tho my real profit is essentially $50 an hour?
“….if x operator produces 10 units an @ $50/h, and we now produce 20 units…”
How did you increase productivity by 10 more units?
For example, assume one person is capable of producing 60 widgets an hour following a ten step process each step takes six seconds.
Based on this assumption, you would need to figure out a way to make a widget in only five steps.
Alternative would be to increase capacity by adding another person (increases operating expense and possibly inventory).
Or you could spend couple hundred thousand on automated machine that can produce 240 widgets an hour or more (decreases operating expense).
Auto service bays are fixed-position layout where the vehicle stays in one place while workers and tools move to it as needed.
Working alone, an auto detailer can recondition one car in about 4.0 hours.
However, working in a team of two, it only takes two hours. So, the shop can double up on the amount of vehicles it can do in one service bay.
Well, I was more calculating payback of optimizing a process. IE we now produce 20 units instead; this would be due to automation. Of course, the automation has a capex cost but what I was trying to imply is that if we speed up process by 2x, it now costs us 1/2 the labour charge per unit. Therefore, assuming you can now fulfil the freed up hours with work that at minimum, that covers the overhead costs, you have now saved 1/2 the cost in labour, or added that to your bottom line. (Work to cover the overhead as otherwise, your savings is non existent if your actual costs never changed. But assuming your shop rate is based on your allotted hours, if you fulfil those freed hours to continue your allotted hours cost for covered overhead, then you have effectively reduced your unit cost in half, on that particular job)
And that savings would thus be your calculation of paying back the intial capex investment…
Moreover, it’s only that direct savings if you were to only fulfil that work via covered the overhead costs still; if you fulfil that time with more work that’s profitable, then you’ve not only added the savings but you’ve utilized your time more effectively for even more profit ? Am I crazy?
You’re not crazy, but you’re discounting the cost of automation. How long until the cash for the capex is returned? Is there maintenance and repair cost built in? What happens if the equipment goes down for ___ amount of time?