For businesses looking to increase efficiency, reduce costs and improve safety, introducing automation makes a lot of sense. But, a key question for many surrounds the return on investment (ROI). In other words, how long will it take for the benefits to outweigh the initial costs?

In this blog, we’ll explore the concept of ROI in automation, look at how quickly businesses can expect to see a return and compare the cost of investing in machinery to the cost of traditional employment.

What is return on investment (ROI) in automation?

Return on investment measures the profitability of an investment and is calculated by dividing the net benefits of the investment by the total costs involved. In the case of automation, this means comparing the value that the machinery has generated in terms of increased productivity or financial savings with the purchase, installation and operating costs.

How quickly will you see a ROI?

The time it takes to see a ROI depends on a number of factors, not least the cost of the installation and how efficiently it is installed; complex systems will have a higher purchase and installation price. Also highly relevant is the system being replaced, is it older machinery or manual labour? Facilities that replace human operatives with automated systems often see a much faster ROI due to the substantial increases in production speed and cost savings. For other operations, companies can expect to see a ROI within 1-3 years.

At PALpack, our machines are priced to be very competitive and deliver a high level of return, not only in terms of production speed and repeatability but also the health and safety benefits that come from replacing manual lifting with machinery. Many of our customers are surprised at the returns they can get for a minimal level of investment – and how quickly that investment pays off.

Comparing machinery to employment

When evaluating the potential ROI of automation, one common comparison is between the cost of the machinery and the cost of employing human labour to do the same job, especially in facilities with limited automation in place already.

Factor	Machinery	Employment
Initial Investment	Cost dependent on complexity of machinery.	Low to moderate costs, mainly around recruitment and training
Ongoing Costs	Low, mainly maintenance and energy. Newer systems often use less energy.	Can be high; as well as salaries and benefits, there is the cost of replacing staff when they leave.
Productivity	Consistently high due to 24/7 operation and consistent speed.	Variable because humans take breaks, get ill and can make mistakes.
Health & Safety	Low risk of repetitive strain and musculoskeletal injuries.	Higher risk of injuries linked to manual handling and fatigue.   Chronic back injuries can mean insurance claims ranging up to £196,450 (Accident Claims Advice).
Repeatability	High consistency of quality and speed.	Subject to human error and variations.
Training & Skill Upgrades	Introductory training required.	Continuous training and skills development needed.

Although traditional employment may have a lower initial investment, the ongoing costs can mount up. Human operators also introduce greater uncertainty with the potential for mistakes, delays and other forms of downtime.

Robotic equipment brings consistency as well as the potential to scale operations quickly, without having to recruit or pay overtime.

Automation and ROI in other countries

According to the latest IFR report, investment in automation continues to rise, helping manufacturers enhance productivity and efficiency, and remain competitive on a global scale. Countries such as Germany, the USA and increasingly India have invested heavily in robotics, especially in the automotive industry, recognising the ROI and how it can enhance their operations.

In the UK, the uptake has traditionally been lower, but this is gradually changing. More businesses are starting to alter their thinking and question ‘when’ rather than ‘if’ they’ll invest in automation and realise the benefits it brings.

At PALpack, we understand the importance of ROI in the decision-making process and we’ll work with you to find machines that offer not just competitive pricing but also long-term value. Contact us to arrange a call.

There are under three months left to take advantage of the UK government’s super-deduction tax break on automation machinery.

Despite calls from industry leaders for the incentive to be extended, the Chancellor confirmed it will end as planned on March 31 2023, making this your last chance to qualify for the 130% capital allowance deduction.

What is the super-deduction incentive?

Under the scheme, which began in April 2021, any investments a business makes in main rate plant and machinery are eligible for a 130% capital allowance deduction, compared to the usual rate of just 18%. That means 25p off your company’s tax bill for every pound you spend on qualifying equipment, with no upper spend limit.

How does it work?

If your business spends £100,000 on qualifying automation machinery, when you come to calculate your taxable profits you can deduct £130,000 – 130% of your investment. Taking this off your taxable profits reduces your tax liability by up to 19% (£24,700), thus reducing your corporation tax by the same amount.

Equipment must be new and only companies are eligible, not partnerships, sole traders or individuals. However, the super-deduction can be claimed against machinery bought using hire purchase or similar financial agreements where ownership ultimately passes to the purchaser. 

For full details of the qualification requirements and exactly how you could benefit we recommend you speak to your company accountant, who will be able to give you specialist advice tailored to your circumstances. 

The wider benefits

The super-deduction incentive was introduced to encourage companies to invest in plant and machinery to boost productivity, aid the UK’s economic recovery in the wake of the Covid-19 pandemic and help UK businesses to compete on a global stage. 

And with the UK falling behind when it comes to the use of robots in manufacturing, this push towards automation is much-needed. According to the latest International Federation of Robots (IFR) World Robotics Report, just 0.4% of the 517,385 robots installed in factories worldwide were in the UK and while global installations increased by 31% year-on-year, on home turf they were down by 7%.

Nevertheless, interest and investment in robotics are still growing, driven by the increased flexibility, cost savings and greater efficiency that automation can deliver. More and more manufacturers are seeing how adding machines from palletisers to handling systems to their production lines has the potential to transform their operations for the better – and the super-deduction tax break has been a further incentive. 

It’s expected that the number of installations will continue to rise into the new year with those who invest before the deadline future-proofing their business and gaining a clear competitive advantage. 

If you want to reap the rewards of automation technology in the next financial year, then now is the time to put together a budget for it. Automation budgeting may not be as exciting as the technology itself, but it’s a necessary business task. It’s also an ideal opportunity to demonstrate how automation can reduce your operating costs and improve profitability – and with this in place, your budget is more likely to be approved.

How to budget for automation

If this is the first time you’ve invested in automation, then start by assigning a lead person. It will be their job to keep the project on track and act as a point of contact.

Their first task should be to identify the pinch points in your manufacturing processes that could benefit from automation. They should also look at the associated costs of each area because you’ll need to include a cost-benefit analysis in your budget. 

Once you have a list of priority areas, find a provider that can suggest suitable automation solutions to meet your requirements. At this point you can start to gather quotes for the machinery and installation to flesh out the estimates in your budget.  

Read our blog on choosing an automation supplier for help finding a provider.

Calculating your cost savings

To demonstrate the benefits of automation, consider where you could make savings: 

• labour costs 
• staff injuries (sick days and injury payouts) 
• line efficiency – time and output  
• correcting mistakes 

Keep in mind that some costs are non-financial, so it’s worthwhile taking a company-wide approach to your automation budgeting. Staff wellbeing, for example, can affect your reputation as a business, and it spills over into the work of human resources.

Drawing up a cost/benefit analysis will help you to work out the payback period for your new equipment – in other words, how long will it take for you to see a return on your investment? 

With reduced labour costs and increased productivity, the payback period on some automation equipment (automated guided vehicles, for example) is less than a year.

Help to make capital investments

The UK government has launched a new initiative to help businesses cover the cost of qualifying plant and machinery. As part of the ‘super-deduction incentive‘, you can offset 130% of your automation equipment against your tax bill until the end of March 2023. 

In practice this means for every £1 you invest, you can expect to save 25p in tax. 

As an example, if you spend £50,000 on machinery, you can deduct £65,000 when calculating your taxable profits – saving you up to £12,350 on your final tax bill.  

For more information on eligibility, speak to your business tax accountant, or visit gov.uk to check the qualification requirements online. 

Automation budgeting – the bottom line

When it comes to automation budgeting, we recommend you look at cost savings and profitability rather than making expenditure the main focus. Including these financial projections in your budget is a solid way of justifying the expense of new equipment.  

If you need help finding an automation solution that fits your business and your budget, we can help. PALpack is the UK’s leading expert in palletising systems, and an agent for some of Europe’s best manufacturers.

There’s never been a better time to invest in upgrading your machinery. From April 2021 until March 2023, the UK government is offering 130% capital tax allowance deduction on qualifying first-year plant and machinery purchases.

Usually qualifying for just 18% relief, in practical terms, the super-deduction of 130% means that the UK government is offering 25p off your company’s tax bill for every pound you spend on qualifying plant and machinery, with no upper spend limit. In addition to this, the government is offering the Annual Investment Allowance (AIA), which provides 100% relief for plant and machinery investments up to £1 million threshold (its highest ever), until 31 December 2021.

Why offer these incentives?

The driving factor is to make the UK more competitive internationally, with an aim of lifting the value of the country’s plant and machinery from 30th in the Organisation for Economic Co-operation and Development (OECD) to first place.

It will encourage companies who are considering investing in new plant or machinery to do so in the next two years. It’s expected that UK investment will be boosted by £20 billion a year.

Business investment has fallen since the start of the Covid-19 pandemic, but even without this, productivity growth has been slowing since 2008. The government is hoping that offering these generous incentives will stimulate business investment to promote economic growth.

Example calculation

As an example, if you spend £50,000 on qualifying automation machinery and decide to claim the super-deduction, it means you can deduct £65,000 when calculating your taxable profits. This will save you up to 19% of that (£12,350) on your corporation tax bill.

Super-deduction on automation equipment

Some PALpack customers are already taking advantage of the super-deduction incentive scheme. The circumstances of the purchaser and equipment would have a bearing on whether or not the expenditure will meet the qualification rules. We recommend speaking to your company accountant for specialist tax advice to see how these incentives can work in your circumstances and ensure that you meet the qualification requirements. For full information on the temporary tax relief incentives, please visit gov.uk.

We’ve written before about the UK falling behind in innovation in recent years when compared to the other G7 countries and being left behind. At PALpack, we’re excited that the government recognises the role that business investment will play in moving the country’s industry forward in the next few years, enough to offer generous incentives to drive it. Implementing automation technology such as Automated Guided Vehicles (AGVs) and palletisers will drive business growth, improve speed and efficiency of production processes and future-proof your operations. Please get in touch for advice on the equipment that will best suit your business needs.

Our partners at Global AGV recently announced that the payback period for some of its automated guided vehicles is less than one year. With such a quick return on investment, would it make more financial sense to replace manpower with an automation system? We think so, and here’s why.

Reduced labour costs

Labour is the biggest outlay for most businesses, and if you have a large workforce with more than one shift then you are probably paying out more than you would like. Automating some of the more manual jobs will reduce headcount and save money on your direct costs.

Saving on your wage bill will help you pay off the cost of your automation system quicker. We estimate that you will see a return on investment after just 12 months.

Increase in productivity

People tire, they have accidents, and even lose concentration near the end of a long shift. Machines don’t – they are able to work 24/7 without a reduction in productivity. Their results are consistent, and you can rely on their continued output over the course of a day, a week, or even a year.

What’s more by taking away the burden of heavy-duty manual processes you can cut down on common injuries to your workforce, from knee strain to pulled backs.

Automation systems

An automated guidance vehicle (AGV) is just one way of automating a repetitive manual process in a production or manufacturing facility. These robotic vehicles can be programmed to do whatever you need, for example, picking up empty pallets or returning loaded pallets to the warehouse.

These machines are energy efficient, low cost to run, and packed with other benefits, such as:

• • quick and easy installation
  • seamless integration into existing operations
  • flexible programming for workflow changes
  • 360° obstruction sensors for safety
  • No need for added infrastructure, which means our AGVs do not require magnetic guide strips embedded into your shop floor, as we use a GPS system
  • The programming of the Global system, is done by simply walking the AGV through the path you wish the AGV to travel in
  • Two weeks lead time for delivery and two to three days installation and training

The cost of buying machinery shouldn’t be a barrier to businesses looking to update their systems and processes. With payback in one year, you can invest in the future knowing that you’ll see a return on investment quicker than you think.

Contact PALpack

If you want to know how automation systems can save your business money, contact PALpack today for expert advice and guidance.