lecture note 7

Bus 7817520 927206 1447625 154874 1681151 324979

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Unformatted text preview: 979 272,409 28,626 304,502 397,889 283,984 251,903 158,325 1,305,755 154,361 7,027 7,471 52,217 62,305 744,210 83,319 1,323 3,700 3,371 172,487 103,665 19,379 300,404 4,078 6,577 2,280 295,449 2,047 85,036 10,805 98,265 58,800 72,291 32,021 183,153 51,306 51,123 18,839 314,189 294,737 226,560 145,977 169,023 129,741 HCV 77,088 23,224 120,930 10,032 2,624 79,026 1,878 44,816 12,988 51,544 9,626 13,820 62,990 58,918 51,008 50,120 48,173 1,101 28,183 18,410 Importance of economies of scale in the automotive industry European Business Review Rumy Husan Volume 97 · Number 1 · 1997 · 38–42 Table I MES estimates (in thousand units p.a.) for major manufacturing operations Source Foundry/ forging Year Pressing Powertrain Final assembly Maxcy and Silberston 1958 – 1,000 500a 100 Toyota 1960 180-360b 480-600 120-240c 96-180 Pratten 1971 1,000 500 250 300 White 1971 “Variable” 400 260 200-250 Rhys 1972 200 2,000 1,000 200 McGee 1973 2,000 – – – Ford UK 1974/5 2,000 – – 300 CPRS 1975 100 – 500 250 Euroeconomics 1975 2,000 2,000 1,000 250 Notes: a This is for machining only; b Forging only; c Machine fabricating Sources: Adapted from Central Policy Review Staff (1975, p. 16); Euro-Economics (1975); Ford UK (1975); McGee (1973); Marsden et al. (1985, Table 4, p. 43); Maxcy and Silverston (1959, pp. 84-6); Odaka et al. (1988, p. 63 (cite Toyota figures)); Pratten (1971, p. 243); Rhys (1972); White (1971) second, MES levels decline, the further “downstream” a process is. The first trend can be attributed to the fact that the constant revolutionizing of technology and methods of work organization yield significant economies beyond the prevailing MES levels: so applying Pratten’s definition, total average unit costs would be reduced by more than 5 per cent if production were to be doubled: thus, there is a shift in the MES. Figure 1 demonstrates this. Long-run cost-curve A for a motor manufacturer gives MES1 – the point at which the scale curve A becomes horizontal (Silberston, 1972, p. 376). Improvements in technology and methods of work organization, ceteris paribus, yield cost-curve B, with a shift in MES from MES1 to MES2. DOS1 and DOS2 are respective diseconomies of scale, arising from managerial or bureaucratic “drag”. To this can be added two other Figure 1 Illustrative MES Cost Curves Unit costs A B Scale MES1 MES2 DOS1 DOS2 possible, related, factors giving rise to diseconomies: first, “imperfect expansibility of the management factor”, i.e. management is less efficient in larger firms, and second, diminishing returns of management (Bain, 1956, p. 61). The second trend arises from “upstream” processes being more capital and materialintensive[2]. Thus they require higher levels of output to ensure economic unit-contribution to plant costs – both fixed and variable. Herein lies a great advantage for the large manufacturers and a major barrier to entry to newcomers. Those manufacturers able to fulfil MES levels for upstream operations, i.e. 2 m...
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