Economies of Scale

Knowledge Center



Summary, forum, best practices, expert tips and information sources.


Summary

What is Economies of Scale? Meaning.

Economies of Scale (EoS) refers to the reduction in per unit costs which arises from the ability to perform activities differently and/or more efficiently at larger production volume.

EoS is one of the Ten Cost Drivers of Porter that determine the cost position of a firm. Another one is Capacity Utilization.


Additional investments in capital can be diffused through an increase in production. After all, the marginal cost of producing a good or service decreases when additional units of production are added. Economies of scale may be achieved in a number of areas. A larger firm may be able to

  • Buy in bulk (Purchasing Economies of Scale)
  • Organize production more efficiently (Production Economies of Scale)
  • Raise capital cheaper and more efficiently (Financial Economies of Scale)
  • Spread the costs of uncertainty more efficiently (Risk-bearing Economies of Scale)
  • Spread the costs of advertising and promotion more efficiently (Marketing Economies of Scale)
  • Spread transportation costs more efficiently (Logistical Economies of Scale) (see also Factory Gate Pricing).

Economies of scale can also be achieved by Outsourcing secondary (supporting) processes, see Facility Management.


Note that bigger is not always better. Larger firms can be more difficult to manage, due to their complexity. This may cause diseconomies of scale, especially when the external environment of firms is complex or changes quickly. But compare: Organizational Absorption.


Do not confuse economies of scale with Capacity Utilization, which spreads the fixed costs of existing facilities and workforce over a larger volume.


Special Interest Group

Join

Economies of Scale Special Interest Group.



Special Interest Group (93 members)

Forum

New Topic

Forum about Economies of Scale.


Diseconomies of Scale
What is the difference between diseconomies of scale and economies of scale? (...)
4
 
3 comments
🔥 NEW The Role of AI in Economies of Scale
Do you think Artificial Intelligence (big data, self-learning software, digital networks, algorithms) represents an enti (...)
0
 

 

Best Practices

Sign up

The top-rated topics about Economies of Scale. Here you will find the most valuable ideas and practical suggestions.


Expert Tips

Sign up

Advanced insights about Economies of Scale. Here you will find professional advices by experts.


Information Sources

Sign up

Various sources of information regarding Economies of Scale. Here you will find powerpoints, videos, news, etc. to use in your own lectures and workshops.


Capacity Planning for Goods and Services

Capacity Planning, Services, Goods, Demand Management, Capacity Management
Extensive presentation about capacity planning for both goods and services. The presentation includes the following sect (...)

Research Links

Sign up

Automatically jump to further useful sources regarding Economies of Scale.


News Videos Presentations Books More

News

Videos

Presentations

Books

More


Compare also: Competitive Advantage  |  Sustainable Competitive Advantage  |  Value Chain  |  Synergy  |  Working Capital  |  Shared Value  |  Globalization  |  Price Setting  |  Glocalization

Special Interest Group

Are you interested in Economies of Scale? Sign up for free

Notify your students

Copy this into your study materials:

and add a hyperlink to:

Link to this knowledge center

Copy this HTML code to your web site:

 
 

Return to Management Hub: Finance & Investing  |  Knowledge & Intangibles  |  Strategy  |  Supply Chain & Quality


More on Management  |  Return to Management Dictionary

 

This ends our Economies of Scale summary and forum.



About 12manage | Advertising | Link to us / Cite us | Privacy | Suggestions | Terms of Service
2021 12manage - The Executive Fast Track. V15.8 - Last updated: 15-4-2021. All names of their owners.