Chapter 12 Operational Strategies:scale and resource mix

Economies of Scale: The fact the the firm is big in size should mean that they should be producing goods or services at a lower cost per unit.

Types of Economies of Scale: Technical Economies: Larger firms have enough capital to purchase machinery, this will allow them to reduce waste. This is because the use of labour reduced and machines tend to be able to work longer than a human. 

 Specialised Economies:Larger firms have workers with a range of skills and the fact that they develop their skills constantly allows them to work more efficiently.The more efficient they work the lower the unit cost and this is because they are producing more for the same pay/wages.

Purchasing Economies:They can also buy in bulk so the costs are reduced because suppliers can produce in large quantities and thus lower their own costs.

Types of Diseconomies of Scale

Diseconomies of scale:The fact that the firm are big in size could mean that they are producing goods or services at a higher cost per unit and lowering efficiency. 

Coordination Diseconomies:The activities of the business are uncoordinated.Managers have a larger span of control therefore workers will not follow policies. Hard to control business when it is geographically spread.

Communication Diseconomies:To many levels of heirachy therefore message not passed on or distorted. Harder for managers to meet with subordinates. Employees who are not involved in communications may feel demotivated.

Capital Intensive:methods of production that has high levels of equipment and machinery  in comparison to labour.Such as a Fiat car plant.

Labour Intensive:methods of production that has high levels of labour in comparison to capital equipment.Such as retailers and call centres. 

Advantages of Capital Intensive:

• helps to produce consistent products especially in mass production.
• reduces labour costs especially in Western Europe where labour is expensive in comparison to other parts of the world.
• machines produce extremely large quantities at lower unit costs.

Disadvantages of Capital Intensive:

• does not require personal contact something customers may desire.
• very expensive due to capital equipment.
• machines can be very unreliable especially when they have faults which could delay production.
• machines and equipment depreciate and become obsolete. 

Advantages of Labour Intensive:

• helps to fulfil customers desire to have personal contact with workers.
• helps to produce specifically designed products.

Disadvantages of Labour Intensive:

• Labour is expensive in West Europe.