As automation levels increase, the number of labor hours required to produce each unit falls. The lowest automation rating is 1.0; the highest rating is 10.0.
At an automation rating of 1.0, labor costs are highest. Each additional point of automation decreases labor costs approximately 10%. At a rating of 10.0, labor costs fall about 90%.
Labor costs increase each year because of an Annual Raise in the worker’s contract.
Despite its attractiveness, two factors should be considered before raising automation:
- Automation is expensive: At $4.00 per point of automation, raising automation from 1.0 to 10.0 costs $36.00 per unit of capacity;
- As you raise automation, it becomes increasingly difficult for R&D to reposition products short distances on the Perceptual Map. For example, a project that moves a product 1.0 on the map takes significantly longer at an automation level of 8.0 than at 5.0 (Figure 4.4). Long moves are less affected. You can move a product a long distance at any automation level, but the project will take between 2.5 and 3.0 years to complete.