Economies of Scale

The basic theory behind economies of scale is that as the size of an operation increases, per unit cost of production decreases. The reasons include decrease in the fixed costs of production per unit of output, and adoption of efficient process and technologies like automation, which are not economically feasible for small-scale operations. But when the firm expands beyond a point, diseconomies of scale become apparent, because the expenditure incurred for maintaining large operations becomes uneconomical. The reasons for diseconomies include increased distribution and storage costs, complexities in operations, and high costs of modification and replacement of existing facilities. So, an organization has to determine capacity required to achieve economies of scale. In Figure 9.6, the relationship between the production level and the average unit cost is shown. The resulting economies/diseconomies of scale are apparent. Point O shows the optimum level of output where an organization can take full advantage of economies of scales without facing diseconomies of scale.        

Figure : Economies and Diseconomies of Scale              

Planning Service Capacity

In a service organization, planning for capacity should take into consideration when and where the capacity is needed. Services can neither be produced in anticipation of demand nor stored as inventories. The service capacity should be located near the customers because most service delivery process involves customers. Unlike manufacturing organizations, a service organization based in one geographical location usually cannot efficiently serve customers in other geographical area. As a result, service organizations generally operate through branches or franchises because of the nature of the services, which involves customer participation in the service delivery process. As customers cannot come to a single location to avail services, services organizations tend to increase capacity by establishing new branches and facilities. There are a few exceptions to these rules; many educational institutions, hospitals, holiday resorts, etc. tend to concentrate on increasing capacities in one location itself. Further with the expansion of the Internet, many retailers are taking up the option of providing services online from a single location rather than establishing brick and mortar outlets.   

Email based Operations Management assignment help - homework help at Expertsmind

Are you searching Operations Management expert for help with Economies of Scale questions?  Economies of Scale topic is not easier to learn without external help?  We at www.expertsmind.com offer finest service of Operations Management assignment help and Operations Management homework help. Live tutors are available for 24x7 hours helping students in their Economies of Scale related problems. We provide step by step Economies of Scale question's answers with 100% plagiarism free content. We prepare quality content and notes for Economies of Scale topic under Operations Management theory and study material. These are avail for subscribed users and they can get advantages anytime.

Why Expertsmind for assignment help

1. Higher degree holder and experienced experts network
2. Punctuality and responsibility of work
3. Quality solution with 100% plagiarism free answers
4. Time on Delivery
5. Privacy of information and details
6. Excellence in solving Operations Management questions in excels and word format.
7. Best tutoring assistance 24x7 hours