2-24 and 2-26 Operations Management

Economies of scale can be accomplished because as

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Unformatted text preview: conomies of scale can be accomplished because as production increases, the cost of producing each additional unit falls. unit Short term economies of scale are the result of spreading Short fixed costs across all throughput; fixed Intermediate term economies of scale are the result of Intermediate having longer production runs; having Long term economies or scale are the result of physics, Long which dictate that unit cost as a function of capacity is equal to a function aC^(b-1), where b lies between 0.6 and 1. to Three Types of Operations Regimes Three Womack et al, “The Machine that Changed the World”, 1991, p. 11 The craft producer uses highly skilled workers and simple but flexible tools The craft to make exactly what the consumer asks for - one item at a time. Custom furniture, works of decorative art, and a few exotic sports cars provide current day examples. We all love the idea of craft production, but the problem with it is obvious: Goods produced by the craft method – as automobiles once were exclusively – cost too much for most of us to afford. So mass production was developed at the beginning of the twentieth mass century as an alternative. century Mass production uses narrowly skilled professionals to design products made by unskilled or semiskilled workers tending expensive, single purpose machines. These churn out standardized products in very high volume. Because the machinery costs so much and is so intolerant of disruption, the mass producer adds many buffers – extra supplies, extra workers, and extra space – to assure smooth production. Because changing over to a new product costs even more, the mass producer keeps standard designs in production for as long as possible. The result: The consumer gets lower costs but at the expense of variety and by means of work methods that most employees find boring and dispiriting. most Lean production, by contrast, combines the advantages of craft and mass Lean production, while avoiding the high cost of the former and the rigidity of the latter. Towards this end, lean production employs teams of multiskilled workers at all levels of the organization and use highly flexible, increasingly automated machines to produce volumes of products in enormous variety. automated Cost Structures of Craft Production and Mass Production (from “The Second Industrial Mass Divide”, Piore & Sabel, 1986) Piore Differences between Goods and Services Differences Goods Services Are tangible, they have a physical form and can be seen, h...
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