Evaluate the financial case for a pick and place line upgrade. Compare your current configuration against a planned investment, see annual savings, simple payback, NPV, IRR, and a year-by-year cumulative cash flow over your analysis horizon. Built to be defensible to a finance department, not just a headline payback figure.
Simple payback divides the net investment by the year-one annual saving. It tells you in plain terms how many years of operation you need before the savings have repaid the cheque you wrote. Easy to communicate to anyone, including the operator on the floor or a non-financial manager.
The catch is that simple payback ignores the time value of money. A euro saved in year ten is not worth the same as a euro saved next year. Inflation, opportunity cost, and the cost of capital all erode the value of distant savings. NPV (net present value) corrects for this by discounting each future saving back to today using your WACC or hurdle rate.
Use simple payback as a sanity check and a communication tool. Use NPV as the actual investment criterion. If NPV is positive at your real cost of capital, the project creates value. If it is negative, even a fast simple payback can be misleading because the savings stream is not worth what it looks like on paper.
Nameplate CPH (components per hour) is the number a vendor prints on the data sheet. It is measured under IPC-9850 conditions, which means optimal feeder layout, large simple components, no vision recognition, no fine-pitch placements, no nozzle changes, and no panelisation gaps. None of those conditions match real production.
The derate factor converts nameplate to realistic effective CPH. In typical mixed-technology production, derate is 60% to 80%. High-mix, fine-pitch, or odd-form work can push it down to 50% or below. Pure 0402/0603 chip placement on a high-end placer can stay above 80%.
Be honest with the derate when comparing machines. Salespeople will compare nameplate to nameplate. The only fair comparison is effective CPH under your actual product mix. If you do not know your current derate, measure it. Take a representative shift, count placements actually made, and divide by run hours minus changeover.
The analysis horizon should match the expected useful life of the new equipment. For pick and place machines that is typically 8 to 12 years before a major capability gap forces replacement. Mechanical wear is rarely the limit. Software support, feeder compatibility, vision system obsolescence, and connectivity to MES systems usually drive replacement before the iron itself fails.
Be cautious about horizons longer than 12 years. SMT placement technology evolves. Component packages get smaller, speeds get higher, and the connectivity expectations from your customers change. A 15 year NPV calculation projects savings into a future where the machine may already be a bottleneck against newer competitors. Discount that risk explicitly or shorten the horizon.
Matching horizon to useful life also avoids an artefact of the math: a longer horizon almost always improves NPV because you accumulate more discounted savings. That can make a marginal investment look stronger than it really is. Keep the horizon honest.
Labor cost does not stand still. Even a modest 3% annual increase compounds significantly over a 10 year analysis horizon. A 1.0 FTE that costs 90,000 today costs roughly 121,000 in year ten at 3% escalation. If your investment removes that FTE, the saving in year ten is 35% larger than the saving in year one.
Ignoring labor escalation systematically understates the value of any automation investment. It is one of the most common ways a flat-rate ROI calculation undersells a capital project to the finance team. The escalation rate should reflect your local labor market, not just headline inflation. In some regions skilled SMT operator wages are rising faster than CPI.
The maintenance delta also escalates in this model, because parts, service contracts, and consumables track inflation in practice. If your service contract is fixed for the first few years, the model is conservative against you, which is generally the right way to err.
Be very careful here. Revenue uplift is the most common way that capital justification documents become fiction. The temptation is to say, "the new machine doubles our capacity, therefore we will sell twice as many boards." That logic is only valid if two conditions both hold: your factory is currently capacity-constrained and turning away orders, and you have confirmed customer demand waiting for the additional capacity.
If you are not capacity-constrained, additional capacity sits idle. It does not generate revenue. It generates higher fixed cost per board, because depreciation gets spread over the same volume. Leave the toggle off in that case. Justify the investment on labor and maintenance savings alone.
If you are capacity-constrained, get specific. How many additional boards per year do you have firm or strongly probable demand for? At what selling price? Do not take the theoretical capacity increase and multiply it by your average selling price. That number is almost always wrong. Use only the demand you can credibly point to. Document it. Your finance department will ask.