Are you still applying labels by hand? Is your labeler the bottleneck in your production? These are just two of several reasons to buy a labeler. So how do you determine if you would be better off buying a new labeler or keeping your current process? There are several ways to answer this question, but for now I am just going to deal with the financial aspect.
The most obvious cost benefit to using an automatic labeler is labor savings, so that’s where we look for our justification. What is the value of the labor you are replacing? If it’s more than what you have to pay for a labeler, then you save money by investing in the labeler. I’ll demonstrate this with an example.
Let’s say you have four people who hand label round quart bottles every morning for an hour. If your fully burdened* labor rate is $20/hour, then you are spending $80 every day labeling bottles. At 5 days a week, 50 weeks a year, this is costing you $20,000 a year to label these bottles.
You can instead buy a semi-automatic labeler that will allow one person to label as many bottles in an hour as all four people labeled by hand, then you can have the other three come in an hour later and save those wages. You are now paying $20 every day to label your bottles instead of $80. This works out to $5000 a year. You just saved $15,000 a year. If the labeler costs $5000, that puts off one-third of your first year savings, but the machine just paid for itself in four months. From here on out, you save $15,000 every year.
If you are filling these bottles with an automatic filler, then you can add an automatic labeler in line and not require any additional labor at all. An automatic labeler for round quarts costs about $20,000—the same amount you were paying for labor every year to hand label—but with the machine, you only pay that one time. Starting next year, you save $20,000 every year.
A labeling machine also gives you other advantages like straighter, more consistent labels, and greater throughput.
If you have an old labeler that is worn out, this is costing you money in three ways:
1. Downtime
2. Parts and service expense
3. Lost capacity and opportunity from the rest of your equipment that is running slower because of the labeler.
How much are these three items costing you? Odds are, #3 is your highest expense, although this will never show up in cost accounting records. To prove this cost to management, you may have to look at bottling contracts that you didn’t win, overtime you are paying, even straight time when you could get your current 8-hour’s production done in 6 hours. Compare this total—which repeats every year—to the cost of a new labeler, and you will probably find a quick payback.
* Just a note on using a fully burdened labor rate in financial justifications. You have to consider your actual cash savings in these calculations. If you use temporary labor, this is easy. Whatever amount you no longer have to pay the temp agency is your savings. With your own labor, though, it’s not quite this straightforward.
If your machine investment allows you to operate with fewer employees than you would need if you didn’t have the machine, then you are saving direct wages, taxes, insurance and other payroll-related costs, and you are also saving some supervisory, HR, accounting and other indirect costs. Maybe you can turn on the heat an hour later each day—that alone would pay for a small machine in some plants. The direct costs are very easy to quantify, and hopefully, they alone are enough to justify your purchase, but the indirect savings are real and should be recognized as well.
If your machine investment does not eliminate any employees or prevent you from hiring more, then you still have direct wage and tax savings, but you probably do not have any insurance savings. You also still have indirect supervisory savings, but no HR or accounting savings. You need to look at all employee-related costs and evaluate whether each one is reduced when you reduce your labor for a specific project.
As always, I am willing to help analyze individual situations. I am not an accountant, but that may be an advantage! Email me at jdawson@su-solutions.com or call me at 800-331-7140.
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