S output expansion of a facility s capacity occurs

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s output Expansion of a facility s capacity occurs only when bottleneck capacity s increased Flexible flow processes may have floating bottleneck due to widely varying workload on different operations at different times Job shops have low equipment utilization rates
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What is What is Economies of Economies of Scale Scale Best operating level least average unit cost Economies of scale average cost per unit decrease as the volume increases toward the best operating level. Diseconomies of scale average cost per unit increase as the volume increase beyond the best operating level
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Economics of Scale Economics of Scale Increasing a facility s capacity- to decrease the average unit cost 1. Spreading fixed costs 2. Reducing construction costs 3. Cutting costs of purchased materials 4. Finding process advantages As volume increases, processes shift toward a line flows High volume may justify investment in more efficient technology Benefits of dedicated resources include reduced inventory, reduced setups, enhanced learning effects, and process improvements
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Diseconomies of Scale Diseconomies of Scale Excessive capacity can bring complexity, loss of focus, and inefficiencies, which raise the average unit cost Characterized by loss of agility, less innovation, risk avoidance, and excessive analysis and planning Increasing costs result from increased congestion of workers and materials, which contribute to: --increasing inefficiency/difficulty in scheduling --damaged goods/reduced morale --increased use of overtime
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Capacity Economy Capacity Economy Economy of scale: Refer to the cost reduction resulting from the increase in production quantity. Economies of scale is so vague that it can be used to justify any number of decisions, which all too often turn out to be wrong.
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Capacity Economy (II) Capacity Economy (II) Example: Plant Des.cap. Act.Prod Proc. Tech AUC A 100 100 X 10 B 100 60 X 12 C 200 200 X 5 D 200 200 Y 2
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Capacity Economy (III) Capacity Economy (III) AUC(A)< AUC(B) Volume Economy. AUC(C)< AUC(A) Capacity Economy AUC(D)< AUC(C) Technology Economy.
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B A C D AUC Q 12 10 5 2 60 100 200
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Increases in Incremental Increases in Incremental Facility Capacity Facility Capacity Average per Unit Cost per Output ($) Annual Volume (Units) A B C Small Plant Mid-Sized Plant Large Plant
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Economies and Economies and Diseconomies of Scale Diseconomies of Scale 250- 250- unit unit shop shop 500- 500- unit unit shop shop 750- 750- unit shop shop Economies Economies of scale of scale Diseconomies Diseconomies of scale of scale Output rate (units per week) Output rate (units per week) Average unit cost Average unit cost (dollars per unit) (dollars per unit)
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Economies of Scope Economies of Scope The ability to produce many product models in one flexible facility more cheaply than in separate facilities Highly flexible and programmable automation allows quick, inexpensive products-to-product changes Economies are created by spreading the automation cost over many products
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