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)
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?