This study deals with the absorption of an automated system in a smart production system, and how the industry tackles several problems. The incorporation of smart machines within smart manufacturing is not only a matter of investments and smart labor but also a matter of tackling them together with the proper trade-off between them. The automated system basically depends on the product’s development or product design. In this direction, this research finds that the development of products itself depends on the automated system. A mathematical representation of the automated smart production is provided with a basic aim to reduce the total cost without any specific goal of the industry. A smart supply chain is found here to tackle this automated smart production with a single retailer, even though the players are competitive within them. A Stackelberg game strategy is utilized to solve the model to obtain the optimum total cost and the optimum values of the smart production quantities, and the smart production rate. Due to automated costs, the reduction of setup costs plays an important role. The numerical studies have been conducted to validate this study and obtain that the automated system works properly even though the players compete with each other.