Growing your Business: Creating Economies of Scale

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What are Economies of scale?

 

Economies of scale are cost advantages reaped by companies when production becomes efficient. Achieving economies of scale means increasing production and lowering costs. The costs are spread over a larger number of products or services, which lowers the price for consumers.

 

Economies of scale can be both internal and external. 

 

Internal economies of scale are based on management decisions, while external ones have to do with outside factors such as government regulations, taxes and competition.

 

Internal functions include accounting, information technology, and marketing. These areas have to coordinate with one another in order to operate smoothly. If they don't work together well enough, it could hurt the entire business' performance overall.

 

External functions include logistics and personnel management — these areas deal with products and employees outside the company's walls but still affect its profitability in some way. For example, if a company uses an outside supplier that provides materials at a low cost but doesn't deliver them on time or in good condition, then that will affect productivity within the company's walls as well as its reputation among customers who buy those products from other sources if they're not available from your business when needed

 

Why is it important?

 

Economies of scale are the cost advantages that businesses can enjoy when they grow larger and produce more units. These advantages come from the fact that larger companies can spread costs over a greater number of units.

 

When you make one product, you pay for everything: materials, labor, utilities, insurance, shipping and so on. When you make ten products, you pay for everything ten times as much. That's why one of the first things a company does when it grows is streamline its operations and try to lower costs by eliminating unnecessary expenses.

 

A business that makes ten products won't have to pay for excess storage space or rent because it doesn't have any extra inventory sitting around. The same goes for equipment like assembly lines; if one line can produce 1,000 units per day but two lines can each churn out 500 units per day, then having two lines is more efficient than having just one line that produces 1,000 units per day.

 

In addition to lowering costs through increased production volume, large companies also have access to economies of scale through specialization of labor and more integrated technology boost production volumes

 

YBI GROW: CREATING ECONOMIES OF SCALE

 

A 5-week program that offers workshops and educational sessions that focuses on developing strategies to expand services and/or production. Graduates will be connected with the procurement officers of local governments and agencies, lending agents, potential investors where appropriate, and established businesses for potential joint ventures.

 

The program is open to anyone within the Mahoning Valley who has been in entrepreneurship for a minimum of 3 years looking to expand their business. 

 

Applications for MBAC Grow can be found at ybi.org/mbac-grow/.