Economies of Scale

Knowledge Center

• About
• Home
• Dictionary
• Encyclopedia
• Question?
• Views

• Register
• Log in
• Help

• Change & Organization
• Communication & Skills
• Decision-making & Valuation
• Ethics & Responsibility
• Finance & Investing
• HRM
• Knowledge & Intangibles
• Leadership
• Marketing
• Program & Project
• Strategy
• Supply Chain & Quality

Description of Economies of Scale. Explanation.

Definition Economies of Scale. Description.

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 alsoFactory 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.

Economies of Scale Special Interest Group Special Interest Group (97 members)

Economies of Scale Forum   Recent topics   Diseconomies of Scale What is the difference between diseconomies of scale and eco...           Merits of Economies of Scale One more merit of economies of scale is in reduction in fuel...

Best Practices - Economies of Scale

Expert Tips - Economies of Scale

Resources - Economies of Scale Capacity Planning for Goods and Services Capacity Planning, Services, Goods, Demand Management, Capacity Management...     News about Economies Of Scale         Videos about Economies Of Scale         Presentations about Economies Of Scale         Books about Economies Of Scale         More about Economies Of Scale

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

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.