Striking the Balance: Upgrade Machinery or Increase Employee Headcount?
When managing a business, one of the crucial decisions involves allocating resources between capital investment and the level of employee wages.
This is particularly relevant as organisations look to increase their production capacity and/or production efficiencies as well as maintaining acceptable margins on the finished goods.
Upgraded machinery may achieve both increased capacity and production efficiencies leading to great margins, however they come at a cost and how does such a cost compare to utilising existing machinery in combination with increased staffing levels?
To put it in simple dollar terms, the finance cost on a $200,000 machine fully paid off over 5 years is less than paying for an additional employee at $1000 per week.
Depending on the machinery capability, gains can be significant compared to a simple increase in employee headcount. These gains may also include the ability to reduce human error in the process, leading to an overall increase in quality as well as increased margin, where a well-designed production facility has the capacity to reduce the overall cost per component.
The potential downside of opting for equipment upgrades is the long-term commitment to debt as opposed to the flexibility to expand and contract the labour force.
By carefully balancing these strategies businesses can create a sustainable and thriving operation to maximise the benefits across both variables.
