lecture note 7

It is therefore clear that there exist

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Unformatted text preview: nd on levels of demand from the OEMs. It is therefore clear that there exist national/regional economies which emanate from the existence of high demand, high output, and large firms which augment the purely product, plant or firm-specific economies. This reinforces the disadvantage experienced by relatively small manufacturers in “low-demand, low-output regions”. Alongside EOS arise various other related economies. These are: economies from Table II Total production cost penalties from sub-optimal scale (White’s estimates) Level of production 50,000 Total costpenalty (%) 20 Source: White (1971) 100,000 200,000 400,000 800,000 10-15 3-5 0 –1 Table III Total production cost penalties from sub-optimal scale (Waverman and Murphy’s estimates) Size of plant (% of MES) 100 80 60 Cost penalty 0 3 6.8 Source: Waverman and Murphy (1990) 30 19.5 vertical integration; capital-raising economies; economies of large-scale promotion; economies of research and development – which become more important as technology change increases – and so are particularly relevant for the motor industry; and “economies of scope” – where economies accrue from transfer of knowledge across different, but related, product lines. The principle remains the same for these as for EOS, i.e. the larger the manufacturer, the greater the ability and opportunities to achieve economies. Indeed, under the prevailing situation of rapid technological change, economies derived from R&D and from promotion have become increasingly important. One can conclude that reduction in MES levels for a single model through increased flexibility assumes the existence – indeed requires it – of other models for the attainment of overall line or plant MES. So, in spite of there existing greater flexibility of manufacturing, EOS and related economies remain crucial for competitive production. Hence, implementation of flexibility in the manufacturing system does not constitute a substitute for EOS, but rather is incremental to it. Notes 1 Indeed, one can conjecture that this is a consequence of the focus of attention so significantly shifting to “flexibility issues” over the past decade and a half. 2 Rhys’ much lower figure for the foundry operation stems from his assertion of this being highly labourintensive. However, he later qualified this by stating: “at present, the optimum size of the foundry is quite small, but the increased use of machinery plus the 41 10 34.5...
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