Introduction
The economy of scale is a common phrase that applies to many organizations, especially those engaged in manufacturing. The term mentioned above refers to the economic benefits obtained from large scale manufacturing operations (Harrison, 2010). The operational cost will reduce with an increase in the level of production.
Advantages
In the transportation industry, the aspect of economies of scale comes in when bulk transportation is done. Transporting products in bulk will cost the company or organization less money than transporting the same products in small portions. Instead of using small transporters, an organization can reduce its expenditure by acquiring large transport facilities to ferry the goods. This aspect has become a new trend in the manufacturing industry, where the cost is minimized through the application of large scale processes.
In most cases, the cost of a single transportation exercise has a fixed cost. Thus, the organizations are taking advantage of this aspect to acquire large vehicles or containers that carry a huge number of products. This aspect reduces the number of trips being made to move goods and services from one location to the other. Thus, the economies of scale have played a significant role in reducing the variable cost associated with many trips where small numbers of products are transported.
In addition, transporting products in bulk has enhanced the safety and security of items by reducing the chances of losses. Transporting goods in large quantities requires special packaging such as containers. This strategy has played a significant role in preventing the loss of a small number of products while they are in transit.
In fact, it is difficult for one to steal a single unit from a fully-packed container. Nonetheless, it is very easy for people to take one or two units of a product from a small lorry ferrying products from one location to the other. This aspect is pegged on the likelihood of quick access to the products that are packed in small quantities.
Disadvantages
One of the demerits of the economies of scale is the likelihood of making a huge loss in the event of an adverse effect. For instance, the loss that an organization will incur in the event of an accident is massive because a huge number of products will be lost. This situation could mean that thousands of units are lost through burglary.
In the context mentioned above, the organization would make a minor loss if the aspects of the economies of scale were not embraced. Thus, the strategy of the economy of scale works well because it reduces the cost of operations. However, the organization should be ready to deal with the huge loss in the event of an adverse event such as an accident.
Besides, transporting small numbers of goods becomes very expensive (Harrison, 2010). In fact, negotiating on the cost of transporting a small number of products is not easy because the transport companies will charge a standard rate for their services. Besides, the transportation of a large number of goods and services may require specialized equipment such as cranes and lifts.
This exercise takes a long time before the goods are released from the point of origin. This strategy leads to the wastage of time as well as delayed deliveries. Thus, organizations should also be prepared to address the negative aspects associated with the economies of scale. In conclusion, all organizations should make informed decisions about whether to engage in activities and operations that will either encourage economies of scale or diseconomies of scale or not.
Reference
Harrison, J. S. (2010). Foundations in strategic management. Mason, Ohio: South-Western Cengage Learning.