Understanding Production Types & Scale Economies for Business Growth

Job Production

This type of production makes a single, unique product from start to finish.

Advantages

• Unique, high-quality products are made.
• Workers are often more motivated and take pride in their work.

Disadvantages

• Very labor-intensive, so selling prices are usually higher.
• Production can take a long time and be expensive, for instance, if special materials or tools are required.
• Economies of scale are not possible, often resulting in a more expensive product.

Batch Production

In this type of production, products are made in batches. For example, a shoe factory could make different batches of shoes based on their size and color.

Advantages

• Since larger numbers are made, unit costs are lower.
• Offers customers variety and choice.
• Materials can be bought in bulk, leading to cost savings.

Disadvantages

• Workers are often less motivated because the work becomes repetitive.
• Goods have to be stored until they are sold, which incurs storage costs.

Mass (Flow) Production

In mass production, large numbers of identical products are made.

Advantages

• Labor costs are usually lower.
• Materials can be purchased in large quantities, often at lower prices.
• Large numbers of goods are produced.

Disadvantages

• Machinery is very expensive to buy, making production lines costly to set up.
• Workers are not very motivated, as their work is very repetitive.
• Not very flexible, as a production line is difficult to adapt.
• If one part of the line breaks, the entire production process must stop until it is repaired.

Diseconomies of Scale

A business can become so large that its unit costs begin to rise. Expanding firms can experience diseconomies of scale. Causes include:

Ineffective Communication

Coordinating large numbers of staff becomes a challenge. Large businesses can develop many levels of hierarchy which slow down communication or even lead to miscommunication.

Reduced Motivation

Staff can feel remote and unappreciated in a large organization. When staff productivity begins to fall, unit costs begin to rise.

Economies of Scale

Economies of scale refer to the reduction in cost per unit resulting from increased production, realized through operational efficiencies. This phenomenon occurs because as production increases, the cost of producing each additional unit falls.