Automating the Packing Line
'Halcyon Foods' operates a packing line producing 4,000 units per shift with 12 workers. Management is considering a $900,000 automated packing system that would reduce the line to 4 workers (operating and maintaining the machines) and raise output to 6,200 units per shift. The machine requires a specialised technician whose annual cost is $95,000, and maintenance is estimated at $40,000 per year. Current labour cost is $620,000 per year. The system has an expected life of six years. The four remaining workers would need retraining costing $30,000 in total. The union has signalled opposition, and the company has had two quality recalls in the past year caused by manual handling errors.
1. Calculate the likely annual labour cost saving and the annual operating cost of the new system, then assess whether the automation is financially justified. Show your reasoning.
Read the worked answer
Current labour cost: $620,000 per year for 12 workers.
New labour cost: 4 workers. If we assume the same average cost per worker ($620,000 ÷ 12 ≈ $51,667), four workers cost roughly $206,667. Adding the specialised technician at $95,000 gives about $301,667, plus maintenance of $40,000, totalling roughly $341,667 per year in ongoing operating cost.
Annual saving: approximately $620,000 − $341,667 ≈ $278,333 per year.
Payback: the upfront cost is $900,000 + $30,000 retraining = $930,000. At $278,333 per year, payback is roughly 3.3 years, comfortably within the six-year life. Over six years the saving is roughly $1.67 million against $930,000 upfront - financially attractive.
Caveats a strong answer raises: the calculation assumes output can be sold. Raising output from 4,000 to 6,200 units per shift (a 55% increase) is only valuable if demand exists; otherwise the company has bought capacity it cannot use. The estimate also ignores redundancy costs for eight workers, which could be substantial and would extend payback. Finally, the $95,000 technician is a single point of failure - if that role is vacant, the line stops.
2. Evaluate how the automation would affect the operations system's inputs, processes and outputs, including quality.
Read the worked answer
Inputs: the mix shifts decisively from labour toward capital and technology. The business moves from 12 workers to 4 plus a specialised technician, and adds machinery, maintenance services and energy as inputs. The skill profile of inputs changes: fewer manual handlers, more technical operators. Retraining cost of $30,000 reflects this.
Processes: automation standardises the packing process. Machines perform repetitive motions consistently, which directly addresses the two recalls caused by manual handling errors - a likely quality improvement. Process control becomes more about monitoring and maintenance than supervising people. However, the process becomes more rigid: changing product formats may require machine reprogramming, reducing flexibility for short runs.
Outputs: volume rises from 4,000 to 6,200 units per shift, and consistency should improve, reducing defect rates. But output quality now depends on machine calibration and technician availability. If maintenance slips, defects could occur at scale rather than one at a time.
A strong answer notes the trade-off between efficiency and flexibility: the system is faster and more consistent but less adaptable, and it concentrates risk in a single technician role.
3. The union opposes the change. Recommend how Halcyon should manage the implementation, and justify your approach.
Read the worked answer
Halcyon should adopt a consultative, staged implementation rather than announcing the change and proceeding unilaterally.
Steps:
- Consult the union early, before a final decision, and share the financial case openly - the 3.3-year payback and the quality-recall problem are legitimate business reasons.
- Negotiate the redundancy package for the eight affected workers, including notice, severance and outplacement support.
- Offer retraining pathways: some of the eight could be trained for the technical operator or maintenance roles rather than all four roles being filled externally.
- Phase the rollout - automate one section first, measure quality and output, then extend.
Justification: unilateral implementation invites industrial action, which could halt production and cost far more than the consultation takes. Consultation also improves the plan: workers know where manual handling errors actually occur, so their input can target the automation. Phasing reduces the risk that a single technical failure stops the whole line.
A strong answer acknowledges the limits of consultation: the business still needs to make the change, and consultation is not the same as giving the union a veto. The judgement is to consult on how and when, while being clear that the whether is a management decision grounded in the financial and quality evidence.