Business case analysis of AGV implementation for Legrand
After we understood what is AGV and why do we need them, it is time to address the financial feasibility of the project. In the end, no matter how promising a technology can be, the management will always ask you for numbers, so this is exactly what we are going to discuss right now. I promise that it won't be too hard, so stay tuned :)
For those who are in a rush - here is the final financial overview of the proposed solution. Assuming that Legrand currently operates 10 man-powered pallet forklifts, we would need to purchase around 15 new AGVs. More AGVs are needed to account for the operating speed difference because so far, the humans are still working faster than the robots. The total investment price amounts to just above 1.1 million euros while the annual savings from eliminated labour costs amount to around 471,000. Assuming an NPV rate of 5%, over 3 years period, we can expect to obtain a positive NPV of around 143,000 euros with an ROI of 20% and a payback period of 2.4 years.
Speaking about more detailed overview, it can be found in the table below:
Currently, for 10 forklift operators, we expect a labor cost of around 561,000 per year. Considering the future state, Legrand would need to invest 1,1 million euros initially for things like purchasing AGVs alongside necessary software, required infrastructure, as well as taking care of installing and configuring everything. Once it has been cleared, the total yearly costs will primarily consist of maintenance and electricity, amounting to a total of around 90,000 euros per year.
For the most critical and nit-picking readers, there is a breakdown of the energy calculations as well:
Overall, as you can see, even though the initial investment can be quite daunting, the benefits still outweigh the costs, even on the medium-term horizon of 3 years. Of course, aside from purely financial calculations, there are yet many factors to consider, such as laying off employees, investing in AGV infrastructure, extra training, and so on. Some of those aspects can be quite challenging and time-consuming, and therefore worth taking into account before committing to the project.
Sources:
AGV Benefits, Productivity Outweigh
Costs | Logisnext. (n.d.). Www.logisnextamericas.com. https://www.logisnextamericas.com/en/logisnext/resources/automation-and-versatility
Forklift Operator Salary in
Netherlands. (n.d.). Www.erieri.com. Retrieved March 15, 2024, from https://www.erieri.com/salary/job/forklift-operator/netherlands
ROI for AGVs: How to Calculate the
Return on Automated Guided Vehicles. (n.d.). Insights.antdriven.com. https://insights.antdriven.com/calculate-roi-for-agvs
Tebaldi, L., Maria, G. D., Volpi, A.,
Montanari, R., & Bottani, E. (2021). Economic evaluation of automated
guided vehicles usage in a food company. Procedia Computer Science, 180,
1034–1041. https://doi.org/10.1016/j.procs.2021.01.352
User, S. (n.d.). AGV cost estimation.
How much does an automated guided vehicle cost? Www.agvnetwork.com. https://www.agvnetwork.com/agv-cost-estimation-how-much-does-an-automated-guided-vehicle-cost
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