The automation equipment acquisition process experienced users perspective

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1 22 nd International Conference on Production Research The automation equipment acquisition process experienced users perspective Niklas Friedler, Antti Salonen, Christer Johansson School of Innovation, Design and Engineering, Mälardalen University, Eskilstuna, Sweden Abstract Automation technology can increase company s competiveness if it is used correctly. One step on the way to achieve this is to acquire proper automation technology. This paper describes how nine manufacturing companies in Sweden work when they acquire advanced manufacturing technologies (AMT) with automation investments in focus. These nine companies are located all over Sweden and they are considered to be amongst the most experienced in Sweden, running automation investments. The respectively companies way of working is described and analyzed. Most of the companies had a quite extensive model for their acquisition process. Main reason for investing in automation, key factors for successful implementation of automation equipment and suggested improvements to the described acquisition models, are discussed in the paper. Keywords: Acquisition process, Automation, Advanced Manufacturing Technologies, AMT, Manufacturing industries. 1 INTRODUCTION Companies are constantly striving for productivity improvements to increase their competitiveness. The use of automation technology is a proven tool to achieve this [1],[2]. But it does not per se guarantee advantageous results. One of the keys to a successful investment and implementation of automated equipment is choosing proper technology and the type and level of automation [3] that best suits the company s needs, goals and prerequisites. On the other hand, this puts great demand on the companies way of working since it requires both good understanding of the current situation as well as structured routines how to invest in automated equipment [4]. Many companies are poorly acquainted with automation technology and specifically the process of acquiring it. Due to this some companies refrain from automation investments and thereby miss the opportunity to take advantage of existing technology. In spite of the fact that many companies are inexperienced in the automation field they invest in qualified automation equipment of various kinds that in many cases leads to poorly suited solutions. The overall aim of the presented, ongoing research is to find a way to support inexperienced automation users in the acquisition process and reduce the perceived level of complexity in an automation context. The research presented in this paper focus on how experienced users work when acquiring advanced robot automation. These users are to be considered to be best in practice. By mapping the process from experienced users perspective, inexperienced users may learn from the described process and copy selected parts of the process. To aid SMEs in general and inexperienced automation users in particular there is a need to increase the knowledge on the automation equipment acquisition process. Previous research related to this area is conducted by for example Baines [5],Friedler [4] and Jackson et al. [6]. Baines map out a general process of acquiring advanced manufacturing technology (AMT) system with the objective to look into the various decisions that have to be made during the process. Friedler concluded that the process described is very much influenced on how experienced users work with automation. Jackson et al. states that many experience difficulties in managing automation projects. The objective of this paper is however to describe the process of acquiring advanced automation systems such as industrial robot automation by mapping out the process and describing all included steps from the experienced users perspective. 2 RESEARCH METHOD In order to fulfill the aim of this study, semi-structured interviews with nine different companies have been conducted [7] in total sixteen interviews. The sampling frame was limited to manufacturing companies in Sweden with extensive experience in automation and how to acquire automation equipment. These nine companies are located all over Sweden and they are considered to be amongst the most experienced in Sweden in running automation investments. An interview guide was used to ensure the same topics and questions throughout the interviews. The different interviews covered topics such as how they work when it comes to acquisition of automation equipment. The interviews ranged between minutes. The respondents were asked to describe what initiate automation investments and what the process look like. How do the companies get the knowledge of the area? What kind of decisions is made during the project? From the collected data, a description of each company s way of working with acquisition of automation equipment was developed. 3 EMPIRICAL FINDINGS In this section the empirical findings in the form of how each interviewed company works with acquisition of automation is presented and described. Furthermore how the investments are initiated is described under each company. Additional questions and answers please se section Company A One senior project manager was interviewed. All investments are based on a Long Range Forecast (LRF), which includes 3 parts; investments due to volume increases, investments for new products, and replacement investments, usually after years for manufacturing machines. The LRF is adjusted 2-3 times per year. All investments are calculated based on 3 shifts.

2 Automation investments are initiated when new machine investments are to be made. The procurement is partly due to:! The existing equipment is old.! The Overall Equipment Effectiveness (OEE) is low.! Capacity increase is needed! Methodological Changes requiring new equipment! New products require new equipment. A pre study starts after the initiation step. It is important that the pre study is objective. The pre study focus on:! Capacity of the new equipment.! Method analysis.! Quality.! OEE. The project team is responsible for putting together a specification of requirement. The project team consists of a production technician, method experts and a production manager. Other competencies such as quality and logistics department are included in the team when they are needed. Suppliers are identified in this step. The goal for the project team is to generate a complete concept including machine and material handling such as automation. The generated concept describes profitability calculation, assessment of the needed capacity, method to use and potential risks with the project. The concept is presented to the board. It will become a project if the board decides that this is the right for the company. A project team is then put together. The project team is usually a little bit bigger compared to the pre study group. A stage gate model is followed in the project. First they write a more detailed request for quotation (RFQ). It is separate RFQ:s for each manufacturing equipment. The RFQ always includes what kind of products to run in the equipment, capability demands, Factory Acceptance Test (FAT) is strictly described. The RFQ is sent to a minimum of 3 suppliers. The suppliers answer whether or not they want to bid on the project. The suppliers visit the company and review the RFQ to minimize potential misunderstandings. Suppliers answer within a couple of weeks or months with a technical solution. The solution is presented at a face-to-face meeting at the company. It is quite common that the suppliers need to adjust the scope of supply and come back with updated offers. The company chooses 2-3 suppliers for final negotiations. The bids are analyzed based on:! Price! Technology! Time schedule! Service! Cash flow! Responsiveness These are prioritized differently depending on what is important for this particular project. Parts of the project group are focused on the respective parts of the delivery. Design reviews are held before manufacturing of the parts. Risk reviews are held continuously during the project. Gate D (Delivery) includes a FAT, held at the supplier s premises according to the RFQ. The equipment is delivered after approved FAT. Gate T (Taking over) includes a Site Acceptance Test SAT where the equipment is tested for at least a day or two depending on the scale of the project. Usually the equipment s warranty period starts here. Gate C (Completion) means that the remaining issues in the scope of supply are corrected. 3.2 Company B One manager and one senior engineer were interviewed. This case company has a standardized way of working when they want to invest in machines or automated equipment. There is no difference in the way the company works when they want to invest in automation or when it comes to machine investments. It is a 10-step process consisting of: 1.Inventory 2.Pre study 3.Specification of requirements 4. Quotation work 5.Purchasing 6.Final project 7.Factory acceptance test 8.Installation 9.End of Project 10.Warranty follow up Inventory There are a number of factors that lead to company B starting an investment project. This step involves compiling facts and identifying needs that may lead to an investment project. When Company B plans an investment, they must take into account what will happen in the future in terms of capacity, product changes, worn out machines etc. Based on this, they then do a classification of the investment to see how critical it is. Pre study The pre study should include: suggestions on methodology, risk analysis, technology solutions, specification of requirements, budgetary quotations, layout suggestions and profitability calculations. These then form the basis for the proposed investment plan with profitability assessment. The investment plan should also state why the investment is required and specify the age of the current equipment. Specification of requirements In this step the requirements of the equipment are specified. Also desired requirements are included in the specification. Suitable suppliers are identified. Technical solutions are not in the specification of requirements in order not to influent the suppliers solutions. Quotation work This step is about getting the quotations from the different suppliers. The specification of requirements is reviewed with all the suppliers who received the request for quotation. This is done so the suppliers will understand the customer s demands and needs. This step is important if there is something missing in the specifications. The company reviews all the quotations. If there is something missing in the scope of supply the supplier will be contacted for technical discussions. Finally all the quotations are put together and will be compared to each other. It is important that the quotations are comparable. Procurement The final negotiation is divided into a technical and a commercial part. In the technical part, the final technical design is clarified. Purchasing department is responsible for the commercial part. The buyer compiles final bids from suppliers. The production manger chooses the supplier based on technical and commercial compilation. Final project The project organization is decided when the supplier is chosen. It is also required that the supplier will provide a time schedule for the project. Project meetings will be held to ensure that the project run as is supposed to do. The supplier should provide the company with a progress report before every project meeting. All drawings and new constructions have to be accepted by the company before any manufacturing can take place.

3 22 nd International Conference on Production Research Delivery tests Before delivery, a couple of tests will be made. These tests are usually called Factory Acceptance Tests (FAT). One test is capability test. The purpose of the delivery test is to ensure that the equipment is mature enough to be installed at the company. The equipment is delivered to the company if the acceptance test is ok. Installation This step is required to ensure that the installation is performed in an efficient way. There are usually a lot of activities during this phase and the time frame is often short. Coordination meetings are held every morning to follow up the time plan. Site acceptance test (SAT) is performed when the equipment is installed. The equipment is taken over by the company after approved SAT. End of project At this stage the equipment s function and usability is ensured and compared to the requirement of specification. An action plan is set up if the supplier has any remaining points in the project. The equipment is taken over and handed over to the manufacturing department when all remaining points are closed. Warranty follow up The supplier corrects any faults that occur within the warranty period. The supplier has to correct faults related to the capability tests. The equipment s availability is followed up according to the requirement of specification. Before the warranty period ends, the company will follow up if there are any rest points from the acceptance test. A new capability test will also be conducted before the warranty period ends. 3.3 Company C One production engineer and one process development engineer was interviewed. Company C has a project model for machine investments. Most common reasons for investing in new equipment are:! Worn out machines! New product which require new equipment! Capacity investments The model includes four phases. Initiation, Planning phase, Implementation phase and Finishing phase. Initiation This phase includes establishment of the project charter, project classification, and that a project manager is appointed. First decision point, DP1 is approval of project charter. Planning phase This phase includes the following steps: The definition of the scope and goals for the project. Setting the time frame and available resources for the project. Cost estimation and risk analysis. Establish project organization. Outcome of this phase is:! Specification of requirements (milestone 1, MS1).! Progress reports! Risk management plan! Concept generation The planning phase ends after DP2: Decision to start the project according to approved project plan. Implementation phase Includes establishing Investment Appropriation Request (IAR). Approved IAR is MS2. After approved IAR the purchasing step can begin. The following activities are included in the purchasing step:! Continuous work with the concept.! Choice of appropriate suppliers.! Supplier evaluation.! Finalizing the RFQ.! Check if the quote and system description is correct.! Test procedure for FAT and SAT! Create purchase orders / agreements DP3 is for approval of the equipment and MS3: a signed agreement with the chosen supplier. Delivery and installation includes following steps:! Kickoff meeting with supplier! Analyzing descriptions of functions! Prepare FAT! Prepare for installation! Perform FAT (MS4: Approved FAT)! Installation! Perform SAT (MS5 Approved SAT). The SAT is followed by DP4: Approval of SAT and final payments to the supplier.! Commissioning! Log of performance! CE marking of the system! Education MS6: Equipment is handed over to the manufacturing department. Finishing phase This phase includes: Closing of the investments account. Follow up of the project. Lessons learned from the project. Writing of the final report. DP5: Approval of the final report and decision to close the project. 3.4 Company D Two process and product engineers were interviewed. This company has a project handbook for machine investments. The handbook acts as a support for the project manager and contains 4 main stages: Pre project, Initiation stage, Delivery stage, and Post project. Each step has to be cleared before moving on to the next step. Pre-Project Includes six subtopics:! Start up of the pre project! Start up pre project team! Generate concepts! Calculation of profitability! Project planning! Pre project reports Business gate BG: Go / No Go? The start up of the pre project starts with a kickoff meeting with all the team members. Lessons learned from previous projects are reviewed. Stakeholder analysis, and a time plan for the pre-project. Concept generation step generates different concepts proposals. Cost calculation is a part of the generate concept step. It ends with evaluation of the concepts. The profitability calculation ends with a solution for recommendation. Project planning means planning for the initiation stage and it also includes a

4 project risk analysis. A pre project report is presented and acts as a base for the BG decision. Initiation stage Includes 6 subtopics and a BG:! Start up initiation gate! Start up project team! Purchasing documents! Quotation! Delivery stage planning! Create investments request (IRE) Business gate BG: Go / No Go? The project team is trained in New acquisition process training. The project team also reviews lessons learned from earlier projects. Further, they update the stakeholder analysis time plan and risk analysis. Purchasing documents are basically all documents related to the new equipment that the company wants to purchase. Quotation step is initiated by contacting the purchasing department, which then asks the suppliers for quotations. This is followed by evaluation of the suppliers and their quotes. The delivery stage planning means that the cost calculation, time plan, resource plan, risk analysis and the business case are going to be updated. The IRE is reviewed by the controlling. The initiation step ends with a BG: Go / No Go. Delivery stage This stage includes 5 subtopics:! Start up delivery stage! Start up project team! Product delivery WP! Transmission of project! Close out project BG: close out approval The first two subtopics are the same as initiation stage. Product delivery includes: starting up the work package WP, updating the purchasing documents, followed by updating the quotation, negotiation and order the equipment, design review, FAT, Installation, machine safety takeover, SAT, Transmission of machine to production and closeout of the WP. Before closing of project a lesson learned report is written. BG: Close-out Approval. Post project This stage includes following subtopics:! Warranty! Business benefits! BG Business benefit! Warranty inspection The company has monthly follow up on the warranty: Eventual extension of the warranty. Rest points list. Evaluation of business benefits approximately one year after the investment. Warranty inspections and meetings with the suppliers end the whole handbook. 3.5 Company E Two production engineers and one production technician was interviewed. Company E has a template for the RFQ. There is guidance text within the document so each topic is taken into consideration. The content of the main topics is listed below with each headline and subtopics underneath. General Manufacturing concept, Equipment and Product description Core requirements Delivery scope, including equipment, Automation, Measuring equipment and programs. Capacity requirements. Productivity requirements, Cycle time. General undertaking Turnkey solution. Peripheral equipment - purchasers responsibility. Safety and the Environment. Requirements for supplier personnel. Spare parts. Preventive maintenance. Factory acceptance test (FAT). Installation at the purchaser. Site acceptance test (SAT). Procurement terms. Technical provisions Electrical equipment and electrical components in the equipment. Mechanical, pneumatic and hydraulic equipment and its components. Component Standard Document with component standard. Automation investments are initiated by machine investments due to increased capacity demand or worn out machines. They always purchase on the equipment s function and specifies the output needed and what capacity / cycle time needed. Company E has no clear way of working with machine investments. Budgetary quotations are used to apply for the money needed for the project. Company E strives for turnkey solutions which means that everything is bought thru the supplier of the machine i.e. machine + automation. The automation comes from sub suppliers in Sweden. 3.6 Company F One production manager was interviewed. Automation investments are triggered by production cost reductions, i.e. automation replaces the staff. Company G has a general process for investing equipment. It starts with investigating the need for the investment. Pre study Conceptual design and budgetary quotations are handled in this step. Specification of requirements They use a template for the RFQ, following topics are handled in the RFQ: Background, object, functional description, capacity, technical specification, safety regulations, choice of components, surface treatment of the equipment, documentation, education and final takeover. Evaluation Evaluation of the budgetary quotations and decision on which supplier that will have the opportunity to give firm quotations. Evaluation of the firm quotes are based on these criterias:! Earlier experience from this supplier! Competence of the supplier! Capacity How large job the supplier can perform! Machinery What type of machines do this supplier have! Assembly what kind of assembly can the supplier perform! Testing Can appropriate testing be conducted at the supplier

5 22 nd International Conference on Production Research Calculation Calculation of the investment demand. Followed by a decision Negotiation Price negotiation with the most interesting suppliers. Followed by placing an order. Following activities after price negotiation are handle by 20-point document related to handover activities to the manufacturing department. End of project Handover to the manufacturing department. 3.7 Company G One senior purchaser was interviewed. Investments are initiated by new customer demands. They use a template for the RFQ. Main topics in the RFQ are:! Time table of the project! Delivery terms! Payment terms! Technical description! Processing specifications! Capability demands! Capacity demands! Technical specifications! Environmental conditions! Layout! Documentation The quotations are evaluated with respect to the technology and expected return on investment. Timetable and economy are important factors when choosing the supplier. It is important to get the feeling that the supplier understands the RFQ. Meetings with the supplier are held regularly to confirm the timetable. 3.8 Company H Two production engineers were interviewed. Company H has a project model for machine investments. Main topics in the process model are:! Plan industrial change! Concept study! Detail specification! Produce equipment! Installation of equipment! Trial production! Initial flow Plan industrial change This stage describes what to do in the project and what initiate this investment? Most common reasons for investing in new equipment are:! Replacement investments due to worn out machines! New product which require new equipment! Capacity investments A report is written, stating why this investment has to be made. Concept study The concept study acts as a pre study. Suppliers are invited for open discussions on how to solve the particular problem. The outcome is a specification of requirement. Different solutions to the problem are presented for the steering committee. Volume forecasts are studied so the new equipment will meet up with future demands. One or two concepts act as a base for the detailed specification step. Detail specification In this stage the different concepts are studied in much more detail to see what solution fits the company best in respect of product and other requirements that the company has. Final negotiation and contract is written in this step. Produce equipment Meetings are held regularly with the supplier. Monthly progress reports from the supplier. FAT at the supplier before Installation of equipment. Installation of equipment The area is ready for installation. All media supplies are in place, markings on the floor where the equipment is supposed to be located. The SAT is performed after installation. The equipment is taken over by the company after approved SAT. Trial production Also called pre production or ramping up phase. All products are eventually tested. Final payment to the supplier is executed when everything is tested and no issues remain in the project. Initial flow Manufacturing department takes over the equipment if there are no unresolved issues from the project. 3.9 Company J Project manager and one production technician was interviewed. Company J uses a project model inspired by Company H. This model is only used for large scale projects i.e. investments over 2 MSEK. Investments at Company J are triggered by customer demands since they are sub suppliers. Automation investments can also be triggered due to rationalization. They use a couple of known suppliers of automation. Company J builds smaller automation equipment themselves. They only use one brand of industrial robots Additional questions and empirical findings How do the company get the knowledge about the available technologies? All the respondents mentioned that they visit fairs and exhibitions to gain knowledge. In terms of automation they all have good contact with their suppliers and are invited to look at new technology when it is available. All automation suppliers are located in Sweden. Another source of information is Technical publications and Benchmarking. What is most important in the acquisition process? Summary of the most frequent answers:! Choosing the right supplier.! Front-end activities such as pre study and concept study are all important steps.! That the equipment works properly when it arrives to the factory, i.e. no remaining issues from the FAT.! That correct drawings are sent to the suppliers.! Ensuring that the supplier understands the RFQ.! Description of the desired function of the equipment.

6 ! That the supplier and the company understand each other, what is included in the scope of supply.! That all aspects are handled in the requirements of specification, the operators needs, production technicians and the maintenance departments needs. Are there any difficulties in the processes? Company A, D, E and H points out that they use budgetary quotations for the total cost of the scope before they move on to a decision to raise the money for the project. This often leads to lack of funds and the last part of investment is usually the automation. This means that the automation have to be adjusted in terms of price level. This implies that the automation supplier have to reduce their cost and therefore change the scope of supply. Automation suppliers can only lower their costs by changing the technology used in the scope to a cheaper solution and in the most cases more poorly suited solutions, compared to the intended solution. This happens if the project manager does not manage to raise more funds for the remaining project. Other difficulties in the process are SAT and FAT due to lack of available prototype products to use for these tests. Machine safety is also often an issue. 4 DISCUSSION The empirical data shows that companies A,B,C,D and H have a quite extensive model for the acquisition process. Company B has formed their process for machine investments since All companies except company G use some kind of a stage gate model [8], [9]. Company D said in the interview that their process model is inspired by the PRINCE2 model [10], [11] company H process model is also very similar to the PRINCE2 model. The process models acts as a useful tool / support for the project mangers in these companies, when running investments of AMT. The model ensures that they do not miss important steps in the process. Each gate has to be cleared before they are allowed to move on to the next step. Off course there can be some exceptions but the Table 1: Compilation of the company s acquisition process general idea is to clear every gate without any remaining issues. By looking at the process of the acquisition it is easy to see that there is quite a lot of steps to go through and the process models are best suited for large-scale investments. When it comes to small investments these processes tend to be time consuming with a lot of unnecessary administration and not optimized for smaller projects. SMEs that would like to copy selected parts of these steps may find it difficult due to the complex structure of the processes. SMEs do not acquire machines as often as these companies do. Hence the process models have to be self explained due to this. Managing these processes require skilled project managers both in terms of technical expertise and in terms of running the software linked to each company s process model. This might be another reason for the SMEs not to copy the entire process. A generic process model more suited for the SMEs have to be formulated for future research. Table 1 is a compilation of companies acquisition processes. The respective headline can differ company from company. It shows the similarities very clear and also highlights that many companies lack after project activities. An effect of this can be that they do not transfer knowledge from these projects to new investment projects. Company F mentioned during the interview that they have made the same mistake several times because they do not use experiences from previous installations. Previous research by Friedler [4] showed how system suppliers work with inexperienced users of automation and a generic model of the acquisition process was presented. There are a lot of similarities in that model compared with how experienced suppliers work with acquisition of new technology. Company A B C D E F G H J Initiation X X X X X X X X Concept development X X X X X X X X Specification of requirements X X X X X X X X X Quotation work X X X X X X X X X Negotiation / Order X X X X X X X X X Project / Design stage X X X X X X X Installation X X X X X X X FAT X X X X X X X SAT X X X X X X X End of Project X X X X X X X After project activities X X X X Template of RFQ X AMT projects The empirical findings also show how the companies work when they want to invest in Automation. The processes described are not any different compared to when they run other AMT projects. The companies desired way of working with the acquisition is to some extent supported by the literature [12], however Durrani do not cover the whole process. Kwak [13] is describing the whole process but do not go into any details of the respective process. The interviewee at company A pointed out that automation itself is not the value adding part in the production system and therefore do not require as much attention as the other equipment in the process. At the same company they have come to the understanding lately that the material handling

7 22 nd International Conference on Production Research equipment is a vital part in understanding what happens in the whole production line. Main reasons for investing in automation:! New products require new equipment (all companies except F)! Increased capacity (all companies except F and J)! Worn out machines (Companies A, B, C, D and H)! Poor OEE (Company A)! Methodological Changes requiring new equipment (Companies A, H)! Reducing cost of production (Company F)! Customer demands (Companies G and J) The main drivers for the investment are hence new products. This implies that the production department has to be aware of upcoming products. Despite that this is the most common reason for investments, one of the respondents at company H mentioned that the production department is involved to late in the process. The consequences of the late involvement is that the planning and overall layout of the factory can lead to poorly suited layouts and operation flow in the factory. It is interesting to se that only company F mentions that they automate due to production cost reductions, i.e. decrease the number of personnel. One of the reasons to this can be that this particular company has mature products with high volumes and assembly with automation is one way of reducing the production cost. Key factors for successful implementation of automation equipment. Companies A, B, F and J, mention that the Byer Supplier Relationship (BSR) plays an important role in choosing between the suppliers. This is supported in the literature, Rahman et al [14] say that closer relationships with technology suppliers are more likely to achieve higher levels of performance than others. Gules, Burgess [15] who claims that supplier relationships is an important contributor to the success of AMT implementation. Several companies state that it is important to understand each other, which means that the BSR is a very important success factor. Another key factor is the front-end activities [16] i.e. Inventory, pre study, concept study phase. If the company puts a lot of time and effort in these stages it is more likely that the outcome will be better. Suggested improvements The problem stated in chapter 3.10 related to the Project budget can be addressed through several updates of the cost level of the total project. The processes are far to complex when purchasing small automation cells and has to be more flexible. Only companies A, B, D and J have their own automation experts. All companies, on the other hand, have a lot of method experts related to the final products that they deliver. This sometimes leads to poorly suited automation solutions because the companies tend to forget about the importance of the material handling equipment and only focus on the methods related to their products. More focus should be put on front-end activities such as inventory, pre study phase and concept phase. 5 SUMMARY AND CONCLUSIONS This paper has presented how the experienced companies work when they acquire automation. Companies A, B, C, D and H all have processes that are detailed and suited for AMT investments. Main reasons for investments are:! New products require new equipment! Increased capacity! Worn out machines Success factor for the investments projects: The choice of supplier is the most important step to achieve good result in investment of new equipment. Front-end activities are also highlighted as one of the most important things to consider when acquiring new technology. Future research have to focus on how the process can be more suited for smaller projects and thereby also more easy to handle for the SMEs that today struggle with the acquisition of AMT and automation in particular. 6 ACKNOWLEDGEMENT The research presented in this paper is carried out as part of an on going Swedish research project, Lean Automation Development funded by the FFI (strategic Vehicle Research and Innovation). This project is a part of the XPRES environment at the department of Product Realization at Mälardalen University. The authors would like to direct special thanks to all the companies participating in the study for their time and effort in making this study possible. 7 REFERENCES [1] Chen, I.J. and M.H. Small, 1996, Planning for advanced manufacturing technology: a research framework. 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