Automating a Line With People on It
A manufacturer of garden furniture employs 60 production staff assembling chairs by hand. Each worker produces 12 chairs per day at a labour cost of $210 per day. A robotic welding and assembly cell costs $1.6m, would replace 35 of the 60 roles, and would raise output to 900 chairs per day across the remaining 25 staff, who would be redeployed to finishing and quality. The robot requires two specialised technicians at $95,000 each per year and $140,000 per year in maintenance. Current output is 720 chairs per day, and demand is 850 per day and growing. The company has strong ties to the local community and has publicly committed to local employment.
1. Calculate labour productivity before and after automation, and comment on what the change means.
Read the worked answer
Before. Output = 720 chairs/day from 60 staff = 12 chairs per worker per day.
After. Output = 900 chairs/day. Direct production staff fall to 25; adding two technicians gives 27 people. Productivity = 900 ÷ 27 ≈ 33.3 chairs per person per day - roughly a 2.8× improvement.
Comment. The productivity gain is large and it also closes the capacity gap: 720 units against 850 demand means the company currently cannot fill orders, while 900 units covers demand with headroom. But the productivity figure flatters the change in one respect - it counts the technicians but not the 35 displaced workers, whose output is simply removed from the denominator. Productivity measures output per remaining worker; it says nothing about the social cost of the 35 roles, which is the real decision here.
2. Evaluate the decision to automate, weighing financial and stakeholder considerations.
Read the worked answer
Financial case. Current daily labour cost = 60 × $210 = $12,600. After automation: 25 × $210 = $5,250, plus technicians (2 × $95,000 ÷ 250 working days ≈ $760/day) and maintenance ($140,000 ÷ 250 ≈ $560/day) = about $6,570/day. Daily saving ≈ $6,030, or roughly $1.5m per year - payback on $1.6m in a little over a year. The financial case is compelling, and it also resolves the inability to meet 850 units of demand.
Stakeholder case. The company has publicly committed to local employment and depends on community goodwill. Removing 35 of 60 roles in a small labour market is a reputational and industrial-relations risk that the payback calculation ignores. There is also an implementation risk: the remaining 25 staff must be retrained for finishing and quality, and two technicians must be recruited in a tight skills market.
Judgement. Automate, but not as a pure cost cut. A defensible recommendation phases the investment, retrains displaced staff where feasible, and negotiates the transition with the workforce - because the $1.5m annual saving is real, but so is the commitment the company made, and breaching it damages the employer brand that recruitment depends on.