As businesses increasingly look for ways to optimize operations and reduce costs, the transition from manual vehicles to Automated Guided Vehicles (AGVs) has become a compelling option. While the initial investment in AGVs may seem high, the long-term financial benefits and efficiency gains often outweigh these upfront costs. 

In this blog, we’ll explore the key factors involved in calculating the ROI for AGVs, comparing them with manual vehicles to demonstrate how automation can drive substantial savings and enhance productivity.

Current Manual Vehicle Costs

Knowing your current vehicle costs helps establish the financial baseline for comparison. This includes both the initial purchase cost and ongoing maintenance, which are critical in determining the potential savings from switching to AGVs.

This includes:

• Number of Manual Vehicles
• Cost per Vehicle
• Annual Maintenance Cost
• Let's consider a factory has 10 manual forklifts, cost per vehicle is $20k and annual maintenance cost is 8% of vehicle’s cost, so we have
• Number of Manual Vehicles: 10 manual forklifts.
• Cost per Vehicle: $20k per forklift.

• Annual Maintenance Cost: 8% of the vehicle’s cost, so $1.6k per vehicle annually.

The factory has invested $200k in purchasing 10 manual forklifts. Additionally, it incurs $16k annually to maintain these vehicles. 

Vehicle-Related Labour Costs

Labour costs extend beyond just salaries. They include overheads, facility space, and other employee-associated costs. Knowing these expenses gives a complete picture of what you’re currently spending, which is critical for evaluating the savings AGVs can provide.

This includes:

• Number of Shifts per Day: 
• Number of working days per week
• Number of forklift operators 
• Annual Forklift Operator Salary
• Annual Forklift Operator Overheads

Let's understand with an example

• Number of Shifts per Day: 3 shifts.
• Number of Days per Week: 6 days.
• Number of forklift operators : 30 forklift operators (10 forklifts × 3 shifts).
• Annual forklift operators Salary: $50,000 per forklift operator.
• Annual forklift operators Overheads: 25% of salary ($12,500 per forklift operator).
• Annual Damage Costs: $2,000 per vehicle due to accidents or errors

So,

• Total salary cost: 30×$50,000=$1,500,000
• Total overhead cost: 30×$12,500=$375,000
• Total damage cost: 10×$2,000=$20,000

AGV/AMR Requirements

AGVs and manual vehicles operate differently; AGVs are slower and follow strict paths, while human operators can adjust on the fly. Despite these differences, when running multiple shifts, the impact of AGVs’ slower speed diminishes.

Efficiency Ratio: Typically, 1.3 to 1.5 AGVs replace 1 manual vehicle, with 1.3 being a common estimate.

Example

• For a factory with 10 manual vehicles:
• AGVs Required per Manual Vehicle: 1.3 AGVs.
• Total AGVs Required: 10×1.3=13 AGVs.

To replace 10 manual vehicles, the factory would require 13 AGVs. This calculation accounts for the efficiency and operational differences between AGVs and manual vehicles, ensuring that the transition to automation maintains or improves overall productivity.

AGV/AMR Costs

To estimate the total cost of the AGVs you’re considering, it’s important to factor in both the purchase price and the expected maintenance costs. If you’re looking at different types of AGVs, averaging their costs can provide a more accurate overall estimate.

Example:

Let’s say you’re considering installing 3 automated forklifts costing $80k each and one driverless tow tractor costing $40k. The average price for these vehicles would be $70k. So,

Cost per AGV: (3 forklifts at $80k + 1 tow tractor at $40k) / 4 = $70k on average.

Annual Maintenance Cost:

Industry Standard: 10% of the vehicle’s price due to the complexity of AGVs, leading to $7k per year in maintenance for each AGV.

The total cost of AGVs in this scenario would be an average of $70k per vehicle, with an annual maintenance cost of $7k. 

Installation Complexity

The complexity of your AGV installation significantly impacts both the cost and the time it will take to set up. This complexity is largely determined by the number of pick and drop locations and how intricate the vehicle routes will be.

Complexity Categories:

1. Basic: Up to 10 pick/drop positions. This setup is straightforward, with minimal programming required.
2. Moderate: 10-40 pick/drop positions. More programming and testing are needed, increasing both time and cost.
3. Advanced: 40+ pick/drop positions. This involves significant customization, making it the most time-consuming and expensive to install.

Example:

• Let’s estimate installation costs based on the complexity:
• Basic Setup (5-10 vehicles, up to 10 pick/drop positions): $15k to $20k.
• Moderate Setup (same number of vehicles, 10-40 pick/drop positions): $25k to $35k.
• Advanced Setup (same number of vehicles, 40+ pick/drop positions): $45k to $60k.

Other Factors to Consider:

1. If you’re deploying different types of AGVs, the complexity increases.
2. Staff training or bringing in outside experts can add to the cost.
3. Smaller, densely packed spaces or large installations can also complicate setup.
4. Integration with equipment like doors, elevators, or other machines might require additional configuration.

Estimating your installation complexity helps predict costs. For example, a basic setup might cost between $15k and $20k, while an advanced setup could range from $45k to $60k. Understanding this will give you a clearer picture of your overall investment.

How to Calculate ROI for AGVs

Calculate Manual Vehicle Costs

Step 1: Determine Total Vehicle Cost (Year 1)

Formula: Number of vehicles × Cost per vehicle = Total vehicle cost

• Number of Manual Vehicles: 10
• Cost per Vehicle: $20k

Total Vehicle Cost: 10×$20k=$200k

(This gives you the total cost of your vehicles in the first year.)

Step 2: Add Annual Maintenance Cost (Years 2-5)

Formula: Total vehicle cost × Annual maintenance cost (5%) = Total annual maintenance cost

• Annual Maintenance Cost: 8% of $20k = $1.6k per vehicle
• Total Annual Maintenance Cost: 10×$1.6k=$16k

After the first year, focus only on the maintenance cost for years two through five.

Calculate Staffing Costs for Manual Vehicles

Step 1: Calculate Total Forklift Operator Salaries

Formula: Number of forklift operators × Annual salary = Total annual salaries

• Number of Forklift Operators: 10
• Annual Salary per Operator: $30k

Total Annual Salaries: 10×$30k=$300k

Step 2: Calculate Annual Overheads

Formula: Total annual salaries × Overheads (% of salary) = Total annual overheads

Overheads: 20% of $300k = $60k

Step 3: Calculate Annual Goods Damage Costs

Formula: Number of vehicles × Estimated damage per vehicle = Annual goods damage cost

• Damage Cost per Vehicle: $1k
• Total Damage Costs: 10×$1k=$10k

This step gives a complete picture of the labour costs associated with running manual vehicles.

Calculate AGV Costs

Step 1: Determine Number of AGVs Needed

Formula: 1.4 AGVs × Number of manual vehicles = Number of AGVs required

• Manual Vehicles: 10
• AGVs per Manual Vehicle: 1.3

Total AGVs Required: 10×1.3=13

Step 2: Calculate Total AGV Cost (Year 1)

Formula: Number of AGVs × Cost per AGV = Total vehicle cost

• Cost per AGV: $70k

Total AGV Cost: 13×$70k=$910k

Step 3: Add Annual Maintenance Cost (Years 2-5)

Formula: Number of AGVs × Cost per AGV × Maintenance cost (10%) = Annual maintenance cost

• Maintenance Cost per AGV: 10% of $70k = $7k

Total Annual Maintenance Cost: 13×$7k=$91k

Step 4: Estimate Installation Cost

• Installation costs depend on the complexity of your operation.
• Installation Cost (Moderate Setup): $30k

To sum up:

Year 1 Cost: $940k ($910k AGV cost + $30k installation)

Years 2-5 Cost: $91k annually (Maintenance only)

Calculate ROI

To determine the breakeven point over five years, compare the cumulative costs of manual vehicles and AGVs:

Manual Vehicles:

• Year 1: Total vehicle cost + Annual salaries + Annual goods damage cost
• Years 2-5: Annual maintenance cost + Annual salaries + Annual goods damage cost

AGVs:

• Year 1: Total AGV cost + Installation cost
• Years 2-5: Annual maintenance cost

Key Insight:

AGVs have higher upfront costs but lower ongoing maintenance costs. They also eliminate labor and damage costs, while manual vehicles have lower initial costs but incur higher year-on-year expenses.

ROI Calculation - Manual Vehicles VS AGVs

Conclusion

The comparison between manual vehicles and AGVs over a five-year period clearly demonstrates the financial benefits of investing in automation. While AGVs have a higher initial cost, their lower ongoing expenses, including significantly reduced maintenance and the elimination of labor and damage costs, result in substantial savings. Over five years, the cost difference of $810k in favor of AGVs highlights their long-term economic advantage.

Investing in AGVs not only streamlines operations but also offers a quicker return on investment, ultimately leading to lower total costs and greater operational efficiency. For businesses looking to reduce long-term expenses and improve productivity, AGVs represent a smarter, more cost-effective choice.