How is Economies of Scale Implemented Successfully by Big Industries
Why is it that big companies are earning more profits than the smaller companies? It is because of the economies of scale which helps you to set actionable goals by crafting a successful roadmap for the coming years which will recalibrate your successful career path in future.
What is Economies of Scale?
Economies of scale of a company is when the production of the company grows, then less input costs are said to be achieved which is known as economies of scale. When the production unit increases, then the company has better chances to reduce their costs which incur handsome profits to the company.
There are two types of economies of scale. The first one is internal economies of scales. It is when the company enhances production; it reduces the cost of a company. Whereas, external economies occurs outside the firm but within the industry, for example, network of better transportation, will reduce the cost of the company, which is within the industry.
The economic growth of a firm can be gained when economies of scale are realized.
How can it be Implemented?
Specialization and division of labor are two main factors responsible for enhancing economies of scale. Specialized labor and machinery helps to enhance production resulting in more productivity with less cost. Apart from this, there are many other factors like buying in bulk lowers the input costs.
Sometimes costly inputs like expensive machinery, advertisement, managerial experts along with skilled labor, though expensive, can lead to decrease the average cost of the production and selling by raising the production units, hence realizing economies scale of the company.
Technique and Learning Inputs
When the production is large, then a company can manage to hire resources, and have a clear cut command by bringing improvements in the technique of production and distribution. Like in the case of fast food chain, they can be organized by home delivery or some can dedicate to drive through customers.
Similarly technique and organization can improve with the passage of time and experience, as one learns a lot when going through the process of selling, distribution and production, which can result in enhancing efficiency.
Advantages of Economies of Scale
In this era of competition, one has to win the market share from their rivals and sustain its position in future also, which can be done through the internal growth of the company. Once the company gets the advantage of lowest cost producer, it will definitely sustain for long and can grow on this advantage.
Marketing, advertising, distributing products at lower costs, purchasing components and ingredients in bulk are advantageous for the economies of scale.It can be concluded that the company should determine its decision on sources affecting its efficiency and not only on one source.
They should keep in mind while planning to increase the scale operations which can result in declining the average cost of inputs. It can also enhance the diseconomies of scale. Thus, when implementing strategies to expand companies, they need to balance the economies and its scale, so as average cost of all decisions is lower, resulting in good competency all around.