5.2.3 - Technology and robotics in production

Robotics and automation

Production technology changes how a business turns inputs into goods or services. A computer can schedule work, sensors can measure temperature, and machines can carry out activities previously performed by people.

A robot does not have to look like a person. An industrial arm can repeat a programmed movement: pick up a component, position it and weld it. Sensors can help it respond to conditions. However, people still design the process, program and maintain equipment, supply materials and deal with unusual problems. Automation does not mean that every employee disappears.

Consider an illustrative large appliance manufacturer in Mexico. Robots weld the same joint on thousands of washing-machine frames. Repetition makes this task suitable for robotics. Moving a worker away from hot welding equipment may also reduce exposure to hazards, although equipment needs suitable guarding and safe operating procedures. A small repair workshop handling a different damaged appliance each hour may still need human diagnosis and judgement. The suitability of the task matters as well as business size.

Cost and productivity

A robot can increase output per worker, but its purchase and running costs must be considered alongside the extra output. Productivity means output per unit of input, such as units produced per worker per hour. It differs from total output: employing more workers can raise total output without raising output per worker.

Robotics can work quickly on repetitive tasks, reducing labour time per unit and sometimes waste. Yet purchasing and installing equipment requires finance before the benefits arrive. Programming, training, energy, repairs and maintenance add costs. A breakdown can interrupt the entire production line. Lower wage costs alone do not prove that total production cost will fall.

To compare options, use the same period and include relevant costs. Average production cost spreads that period's total production cost across its usable output. Counting rejected items as useful output can disguise a quality problem.

In illustrative monthly data for a Turkish packaging factory, the existing process costs $24,000 and produces 8,000 saleable cartons. Its cost is $24,000 ÷ 8,000 = $3.00 per carton. A robotic option has an estimated monthly production cost of $30,000, including the monthly cost of using the equipment, and produces 12,000 saleable cartons. Its cost is $30,000 ÷ 12,000 = $2.50 per carton. The robotic option costs more in total but less per carton because cost is spread across more usable output.

This is a conditional comparison. Demand must be sufficient to sell the additional cartons, and the business must still fund the initial investment. At low output the equipment cost is spread over fewer units, so the expected saving may disappear. An average-cost calculation is not a full investment appraisal or a guarantee of profit.