Question

In: Economics

Walmart (WMT) is robotic janitors in some of its stores. Walmart has purchased several Autonomous Cleaner...

Walmart (WMT) is robotic janitors in some of its stores. Walmart has purchased several Autonomous Cleaner (Auto-C) robots from Brain Corporation. An Auto-C robot looks like a Zamboni, the machine used to clean ice rinks. The robots scrub floors and clean store aisles. Sensors in the robots allow them to navigate around customers and other objects, so the robots can be used during store operating hours.

Management at Walmart has stated that the robots are to be used to free up employee time. Management reasons that if the robots do the repetitive tasks, employees will be better able to help shoppers and do other tasks. Management estimates that an employee at each store with the Auto-C robot would have spent two hours per day doing the cleaning that the Auto-C will perform.

Walmart is also using Auto-S robots in its stores, which scan shelves in the stores to help keep track of inventory that is out of stock, mislabeled, or priced incorrectly. The Auto-S robots are three times as fast as humans and twice as accurate.

In addition, Walmart is using conveyor belt robots that sort products from trucks as they are unloaded. The conveyor belts cut the number of employees needed in the unloading process in half.

Approximately 50% of Walmart’s workforce is part time, up from 20% in 2017 (Reuters.) Walmart raised the minimum wage in its stores to $11 in 2018. Walmart employs more than 2 million people worldwide.

Questions

  • Do you think that the costs of robots are mostly variable or fixed? Explain.
  • Would the cost of full-time hourly employees behave mainly as a variable cost or a fixed cost? Does your answer change if you consider part-time hourly employees rather than full-time employees? Explain.
  • How would Walmart’s break even point change by using robots rather than hourly employees?
  • What are some of the advantages to Walmart of using employees rather than robots?
  • What are some of the advantages to Walmart of using robots rather than employees?

Solutions

Expert Solution

1. In the short run, the cost of robots for Wallmart is fixed. This is because these robots, unlike physical labour, do not have to be paid wages, and once bought, they can be used for a long time. In the long run, these robots will have maintenance costs and Wallmart might also need to purchase more such robots if their scale of operations increases.

2. Full time hourly employees as well as part time hourly employees are a variable cost. This is because these employees need to be paid wages every month which will continue as long as the firm porduces and continues operations. Hence, this is a variable cost.

3. The company's break even point is unlikely to change too much, but this explicitly depends on the cost of the robots. If the fixed cost of the robots purchased is almost equal to the variable cost of wages to labour, then the break even point will hardly change.

4. Advantages of using employees rather than robots is the fact that in case Wallmart wants to reduce costs, they can reduce their labour force, which cannot be considered an option when fixed investment has been made in robots. In addition, robots cannot be configured for highly personalised work which can be done by giving explicit clear instructions to employees. Third, trained and skilled people are required to operate sophisticated robots, which might increase costs and also use more labour than if normal employees were being used.

5. Advantages of using robots, over employees, as mentioned in the passage, is added productivity. Robots are many times as porductive as humans. Second, these robots are one time investments and once done, will provide service for a very long time. Third, employers do not need to provide other employee benefits like bonuses or health insurance to robots and that might prove very cost efficient for the employees. Lastly, the margin of error for a robot once programmed, is almos negligible, as opposed to human labour which is prone to error.


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