Generally speaking, economies of scale is about the benefits gained
by the production of large volume of a product, while economies of
scope is linked to benefits gained by producing a wide variety of
products by efficiently utilising the same Operations. Each of
these business strategies, their strengths and weaknesses, will be
discussed in details in this paper.
Sending Email "Economies of scale" has been known for long time as a major
factor in increasing profitability and contributing to a firm's
other financial and operational ratios. Mass production of a
mature, standardised product can apply the most efficient line-flow
process and standard inputs for reducing the manufacturing cost
(per unit). Mass manufacturing is also associated with a
significant market-share, and a tight supply-chain management (up
to vertical integration with suppliers and retailers). To maintain
the market-share, the market leader should come with continuous
product improvements, so to sustain demand and avoid its dropping,
following the product's maturity in the Product Life-Cycle
(PLC).
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Reading Email "Economies of scope" is relatively a new approach to business
strategy, and is heavily based on the development of high
technology. Economies of scope, as defined by using same processes
for producing similar products, can fit the batch-flow or
group-technology processes; nevertheless, for best results the
flexible-manufacturing should be adopted. Computer Integrated
Manufacturing (CIM) allows lowering the setup-time and required
tuning between products, so to be economically efficient for small
batches of non-standardised products. In other words, companies can
compete on product customisation and short lead-time.
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Storing Email A case study at GM shows that new competition can reduce firm's
market share and its benefits from economies of scale (Howell,
2003). The author argues that the main problem was the neglect of
innovation, as a side-effect of GM's strategy (until the Japanese
cars entered the US market, in the late 1970s). Cachon and Harker
(2002) found that scale economies are so powerful that to provide a
strong motivation for outsourcing, too; even though the outsourcing
contractors are not allowed reaching the same scale as the
outsourcer. Dobson and Yano's (2002) article is an in-dept
scholarly analysis of the factors associated with economies (and
diseconomies) of scale and economies (and diseconomies) of scope.
The authors argue that mass-customisation, which means broader
product lines, "may help to increase market share and may allow
higher prices to be charged, but they also cause challenges
associated with diseconomies of scope" such as setup time.
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Email Software Ang and Lin (2001) bring a case study from the financial
industry, and the ways economies of scope and economies of scale
work for mutual fund offerings. At Fidelity, an example of
economies of scope at work, investors had the option for high
diversified portfolio at the same institution. But aiming at cost
reduction (which is of interest to clients and investors), the
economies of scope did not provide the desired objectives, while
economies of scale did, in the case of
mutual
funds. Trying to find the ideal conditions for
economies of scale and economies of scope, the authors say that a
single-product firm should pursue the economies of scale. However,
economies of scope for a two-product firm is said to exist "if the
cost of producing the two products jointly is less than producing
the same products separately". When it comes to three or more
products, the number of production combinations increases, so
evaluation of the economies of scope becomes more complicated and
requires more data to analyse.
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Antispam Software Advocating for a different
view of the economies of scope
and scale, Peppers and Rogers (1995) put the customers under the
spotlight. They argue that market share can be seen as share of
customer, pursuing customer differentiation rather than product
differentiation, managing customers and not only products and
more emphasis on economies of scope at the expense of scale.
of Cloudmark Server Edition spam filtering for Microsoft Exchange and you' spam, phishing protection for 15 days, free of charge.
Fight Spam As expected, between these two approaches there is a "grey
area", in which firms found a way to enjoy both worlds of economies
of scale and scope. Mass-customisation, I believe, provides few
similar customised products (the concept behind economies of scope)
along with operating mass-production and controlling large
market-share for each of these products.
Stoping Spam REFERENCES
Ang, J.S. & Lin, J.W. (2001, May). A fundamental approach to
estimating economies of scale and scope of financial products: The
case of mutual funds. Review of Quantitative Finance and
Accounting, 16(3), 205-221.
Cachon, G.P. & Harker, P.T. (2002, October). Competition and
outsourcing with scale economies. Management Science, 48(10),
1314-1333.
Dobson, G., & Yano, C. A. (2002, Fall). Product offering,
pricing, and make-to-stock/make-to-order decisions with shared
capacity. Production and Operations Management, 11(3),
293-312.
Howell, H.J. (2003, May/June). Adapting GM research to a new
corporate strategy. Research Technology Management, 46(3),
14-20.
Peppers, D., & Rogers, M. (1995). A new
marketing paradigm: Share of
customer, not market share. Managing Service Quality, 5(3),
48-51.
Block Spam FOOTNOTES
Ezra Bar, MBA, PhD Student, is a Business Consutant and Academic
Mentor for MBA and Engineering Students.
Find many other Academic and Business Articles and paper at
http://www.Ez-B-Process.Com/Resources.htm
Visit http://www.Ez-B-Process.Com/PhD.htm for Academic
Mentoring.
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Small Business Consulting.
Spam Emails Ezra Bar, MBA, PhD Student, is a Business Process Reengineering
Consutant and Academic Mentor for Management and Engineering
Students, operating globally from Toronto.
Email Account
Visit http://www.Ez-B-Process.Com/Resources.htm and find many
other Academic and Business Articles.
Sending Email
Visit http://www.Ez-B-Process.Com/PhD.htm for Academic
Mentoring.
Reading Email
Visit http://www.Ez-B-Process.Com/BPR.htm for Reengineering
consulting.
Storing Email
Visit http://Ez-B-Process.com/SME.htm for Small Business Services,
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