Daily Management Review

Silicon Valley Pitches Renting A Robot To Entice Smaller US Factories


Silicon Valley Pitches Renting A Robot To Entice Smaller US Factories
A new pitch to small companies by Silicon Valley to use robots more is to rent out one.
There has been a surge in sales of robots to big companies all across the United States driven by better technology and increased wages of human workers. However, there are concerns of high up-front costs and a lack of talent in robot engineering in smaller factories which meant that these automatons are not making it to such smaller companies.
Therefore a new financial model is being touted by venture capitalists to the smaller firms and factories - leasing robots, install and maintain them, and making hourly or monthly charges for factories for use of robots, which can eliminate the risk and initial costs.
These challenges of getting robots into smaller factories were visualized by Saman Farid, a former venture capitalist who had invested in robots for over a decade. That led to the formation of rent-a-robot firm called Formic Technologies, which was supported by Lux Capital and Initialized Capital which was also an early investor in self-driving tech startup Cruise.
The prospect of greater interest in robot subscriptions has been driven by a combination of cheaper and better robot computer vision and artificial intelligence technology, low interest rates and the threat of upending of supply chains because of the US-China tensions, according to Initialized Capital partner Garry Tan.
“It's at the center of three of the largest mega trends that are driving all of society now,” said Tan.
The lack of understanding between techies and small business owners is a dilemma that prompted the setting up of an office in San Francisco by an industry group, the Association for Manufacturing Technology, a couple of years ago to bring the two stakeholders together.
Robot startups have to bear the bulk of the financial burden of the lease model as they bear the risks that are faced by a manufacturer of losing a contract or changing a product. It is common for smaller factories to have small runs of more tailored products wherein the use of a robot does not provide value for money.
And funding has been a challenge in the past, says Silicon Valley Robotics, an industry group supporting robot startups.
However, some high-profile investors have opted to support the industry.
Three robot firms offering subscriptions in seven months were supported by Tiger Global, the biggest funder of tech startups this year.
One example of a small firm’s dilemma of using robots is Polar Hardware Manufacturing, a 105-year-old metal stamping factory in Chicago, as reported by Reuters. The family owned business agreed to pay less than $10 an hour for a robot to Formic instead of paying more than $20 an hour for an average human worker.
“If the robot works really well, we’ll use it a lot,” said Bob Albert, owner of Polar Hardware Manufacturing and seemed quite pleased with the initial results. “And if it doesn't work out, neither one of us comes out very well. We have less skin in the game and they have some skin in the game.”
Similar satisfaction was reportedly expressed by Tammy Barras, President of Westec Plastics Corp, a family-owned plastic molding factory in Livermore, California. The firm is paying $3,750 a month per robot in the first year and $2,100 from the second year as the firm rented its first robot in January 2020 and subsequently rented two more.
“Melvin runs 24 hours a day, all three shifts, and that replaced three full operators,” said Barra and added that the company has been saving about $60,000 in labor costs a year for just one robot. “We've had to increase our wages quite significantly this year because of what is going on in the world. And luckily, Melvin has not increased his pay rate. He doesn't ask for a raise.”