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Automation as a service and it's potential in metal manufacturing
How this approach could change technology adoption in the small shop
- By Tim Heston
- Updated May 5, 2023
- October 12, 2021
- Article
- Automation and Robotics
Misa Ilkhechi has seen his share of idle welding robots. With stints in sales and engineering at companies like Bosch and, most recently, Universal Robots, Ilkhechi would visit various metal fabrication facilities, see a busy welding department, and yet also see a robot welding cell gathering dust.
Sometimes the company couldn’t find time to train someone to run it. Other times, a large project ended and the shop just couldn’t find another use for the automation. And by the time the fab shop did find another use, the robot was just too old to be competitive.
Ilkhechi saw this problem and, together with Saman Farid, decided to tackle it by launching a Chicago-based company called Formic Technologies in September 2020.
“We are very much a pandemic-born company,” said Malcolm Kerr, business operations and strategy lead. “Saman is a two-time company founder and came from the world of venture capital. And Misa was working at Universal Robots, selling and deploying collaborative systems around the greater Midwest. Both of them had seen the transformative capabilities of automation, but they also saw it was hard to get those systems deployed in small to midsized manufacturers that don’t have a ton of capital and expertise. So they created Formic to provide a new way to finance and deploy systems.”
How Formic Uses Automation as a Service
Formic isn’t in the business of selling cobots or any other automation directly. It instead aims to lower automation’s requirement for capital, introducing automation to the industry’s long tail of small and medium-sized job shops and manufacturers.
llkhechi explained how the process works. “We go on-site to the manufacturer’s facility and uncover what application challenge the operation is trying to solve. We then go to system integrators to look for a solution.
“The integrators come back to us, describe the solution, and tell us the cost. Based on that, we go back and crunch the numbers to determine not the resale value, but the value of the assets after a certain amount of time, if we were to remove the system and deploy it at a different place.
“For instance, let’s say the system costs $300,000, and the fabricator plans to use it between 1,500 and 2,000 hours a year. Based on that, we come up with an hourly rate.” llkhechi added that the model isn’t limited to a specific automation technology. “It could be for an entire assembly line, or it could be for a small cobot welding system.”
The hourly rate depends on various factors. A small, flexible robotic welding cell might entail a short-term contract and a low hourly rate—not only because the upfront system cost is low, but also because the system itself can be easily retooled and redeployed. Higher-cost, less flexible systems might come with a higher hourly rate and longer contract. To track utilization, Formic installs an edge-computing device called an “ant” that collects a standard set of data regardless of machine or robot brand.
“We agree with the customer on certain performance metrics,” Ilkhechi said. “The customer pays us by the hour for the utilization of the asset. If the system needs retooling, repurposing, servicing, or new components, and if we’re not hitting the agreed-upon metrics, that’s completely on us.”
He added that contracts do have minimum usage requirements for the installed automation, which depend on the type of application, length of the contract, and how easily the equipment can be repurposed after the contract ends. The contracts also incorporate OEM maintenance agreements to ensure machines stay in good working order.
The Costs of Automation as a Service
To pay for the equipment, Formic accesses the capital markets—specifically, a kind of structured debt financing that acts as a credit line to deploy assets. “Our head of finance used to be the head of structured financing at Ernst & Young, and he dealt with a lot of these arrangements,” Ilkhechi said, such as renting shipping containers or large construction equipment by the hour.
“We are basically trying to do what a small or medium-sized company can’t do at scale, because they don’t have access to capital,” Ilkhechi continued. “At the same time, a lot of integrators can’t access this capital, because their business can be extremely cyclical.”
Kerr added that the automation-as-a-service model effectively “aligns incentives” in the automation supply chain. The more the automation runs and produces sellable products, the more money both the fabricator and Formic make. The less the automation runs and the more unexpected breakdowns occur, the less both parties make.
The automation-as-a-service model could free money for other areas of business, such as sales and marketing (to feed more work into the automation) and, especially, recruitment and training. Eventually, if Formic’s business model proves successful, it could introduce a new kind of company in the industrial supply chain, one that opens automation’s door to what remains the dominant entity in metal manufacturing: the small to medium-size enterprise.
About the Author
Tim Heston
2135 Point Blvd
Elgin, IL 60123
815-381-1314
Tim Heston, The Fabricator's senior editor, has covered the metal fabrication industry since 1998, starting his career at the American Welding Society's Welding Journal. Since then he has covered the full range of metal fabrication processes, from stamping, bending, and cutting to grinding and polishing. He joined The Fabricator's staff in October 2007.
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The Fabricator is North America's leading magazine for the metal forming and fabricating industry. The magazine delivers the news, technical articles, and case histories that enable fabricators to do their jobs more efficiently. The Fabricator has served the industry since 1970.
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