Question

A few years ago, the ACME Manufacturing Company installed automated robots worth millions of dollars in its furniture assembly lines, believing that the robots would improve profitability and increase the efficiency of the manufacturing process. However, ACME lost many millions of dollars more despite the fact that it was able to make furniture faster using the robots.

Why would this happen?

Answer 1

Employing more and more automated machinery with a sole belief that they shall contribute to profit margins is true, but not in entirety. The capital expenditure incurred on automated machinery comes with costs associated with it and also changes in the manufacturing processes, which may not turn around in the way it was expected to.

Changes in manufacturing process from human intensive to capital intensive has its own fair share of pros and cons associated with it. Though the manufacturing process will be more efficient and effective with machinery taking over the routine work, but alongside there will be additional costs involved in designing and execution part. The machinery needs to be set-up everytime there is a change in design of the product and such change, may require, changes in the coding or rather changes in the tools utilized to design the product. Broadly mentioning that the automation though may lead to efficient production processes but it has its own fair share of costs and differences associated with it.

Few factors discussed below will enumerate how the same is effected;

Design costs: Designing and programming costs are associated with the automated machinery as they perform their tasks basis pre-loaded software and programmes. In the event of any change in any of the task to be performed, the programming is required to be changed which require employment of a skilled professional at higher costs or visit of a technical person from the manufacturer of machinery which is being charged on per visit basis.

Electricity : Automated machinery has its own requirement of reliance to consistently depend on power supply which require its own set of installation of back-up infrastructure in case of power failure. This entails additional costs for the keeping the production process up and running.

Depreciation : Heavy capital expenditure impacts the profitability through the deprecition impact on annual basis, thus adversely impacts the bottom line of the entity

Maintenance : Automated machinery requires havy maintenance and with very precise and minute connections, they sometimes burn with surge in power, thus maintenance and repairs are required periodically. Also annual maintenance contracts are required for the machinery.

skilled labour: Skilled labour is required to run automated machinery and they have additional costs as compared to the unskilled and regular labour. Thus this is an additional burden on the profitability statement of the entity.

Hence concluding that though the manufacturing process is automated and becomes efficient, it has its own costs involved to keep the infrastructure up and running, thus adversely impacting in some circumstances the bottom line.