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Economy of Scale: A Brief Explanation
Economy of scale refers to the cost advantage that arises when a company increases its production level. In simpler terms, the more a company produces, the lower the cost per unit becomes. This is because fixed costs (like rent, machinery, and salaries) are spread out over a larger number of units.
How Economy of Scale Can Lower Costs
- Increased Production Efficiency: Larger production runs often lead to more efficient processes, reducing waste and improving productivity (each time the cumulative production of a given product gets doubled, costs can be reduced in range of 15%).
- Bargaining Power with Suppliers: Larger companies can negotiate better deals with suppliers due to their increased purchasing volume.
- Specialized Equipment: Investing in specialized equipment can significantly reduce production costs for large-scale operations.
- Risk Diversification: Larger companies can better absorb market fluctuations and other risks.
In plastic injection molding, economy of scale is a significant factor in determining production costs. A company that produces a large number of plastic parts can benefit from:
- Specialized Moulding Machines: High-volume production justifies the investment in advanced, efficient moulding machines that can produce parts faster and with less waste.
- Optimized Production Processes: With experience and scale, companies can fine-tune their production processes to minimize setup time, reduce cycle times, and improve quality. Using a Lang-factor of 0.75 we can reach a cost reduction of 30% when doubling the production amount (Figure 1).
- Bulk Material Purchasing: Larger quantities of plastic resin can often be purchased at a discounted rate, reducing material costs.
- Efficient Manufacturing Layout: A well-designed manufacturing layout can streamline production flow, minimizing material handling and reducing overhead costs.
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| Figure 1: xample economy of scale in plastic injection moulding - doubling the production amount leads to a 30% cost reduction. |
By leveraging economy of scale, plastic injection moulding companies can significantly lower their production costs, making their products more competitive in the marketplace.
Thanks for reading and #findoutaboutplastics
Greetings
Herwig Juster
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Literature:
[1] https://www.stratxsimulations.com/latest_materials_circular_markstrat/NetHelp/enu/Handbook-SM-B2C-DG/DocToHelpOutput/NetHelp/index.html#!Documents/productivitygains.htm
[2] https://www.voestalpine.com/highperformancemetals/en/blogposts/how-to-increase-efficiency-and-productivity-in-plastic-injection-molding/#
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