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People working in the area of production and inventory control or materials management have not historically viewed machinery selection and justification as part of their jobs. Production control people have always had information available to them that could guide them in terms of machine evaluation, but we have never taken advantage of that. It is now everybody's responsibility to explore the concept of increased automation. Automation has historically been viewed as a product necessity, not a labor necessity. We have used machines to provide a more uniform and higher output than was possible with human labor. As we became more concerned about the quality of the work place, we begin looking at automation as a way to replace boring and repetitious jobs to increase safety in a manufacturing environment. The future of manufacturing will require us to re-explore automation as a method to offset the dwindling labor force. With a declining workforce in manufacturing we must not allow ourselves to become overly labor dependant in an environment where there is not enough labor.

As you become involved in automation, there are two issues you must contend. The first issue concerns the economic life of a piece of equipment versus its productive life. Economic life defines a period of time in which a piece of equipment can operate productively and therefore efficiently. Productive life deals with the period of time that a machine can be expected to work. All too often, we find plants loaded with equipment that are still in their productivity life, but are no longer in their economic life. Here we find management unwilling to remove or sideline this equipment. If we are to remain productive in the manufacturing economy, we must make sure that our machinery is still econom­ically productive.

The second issue is the fundamental knowledge of how to justify equipment through either the payback method or the net present value method. The payback method is an evaluation technique that is understood by most people in management and manufac­turing. It focuses on how quickly the savings from a new piece of equipment will payback the original investment. The drawback to this analysis is that we stop analyzing the saving as soon as the payback is made and we tend to focus on economic decisions where the payback is quickest. This mentality focuses on short term paybacks instead of long term investments. The second methodology that can be employed to justify machinery acquisi­tion is the net present value. This technique utilizes some of the information from payback, but discounts future savings to present day dollars. This allows us to evaluate all savings in same dollars and compare it against the dollar acquisition price. By utilizing this method, we are able to analyze the total savings flow, and make a decision based on the best investment strategy, as opposed to making a decision based on the quickest recovery of our investment.

Continued

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