Economies of scale Operations Management Assignment Help

Economies of scale

Advances in communication technology have allowed service companies
to reduce the number of locations for many types of activities. As an illustration, reservation operations for hotels, airlines, and car rental agencies have been consolidated to a few central locations. Economies of scale with these larger operations occur, in part, as a result of the ability to schedule a larger number of operators. For example, if the demand in a given hour (that is. the number of calls received) doubles, the number of operators necessary to provide the same level of service is less than double. Economies of scale also are reflected in the reduced overhead costs (as measured on a per-unit basis) that are typically associated with larger facilities. As stated earlier, an additional savings that frequently occurs
as a result of the firm's ability to locate its operation anywhere is the reduced cost associated with locating in a low-cost-of-living area. Citibank, as an example, has located its credit card operations in South Dakota for this very reason. Similarly, many hotel central reservation call centers are located in Nebraska. rather than on either the West Coast or the East Coast of the United States, where the cost of living is more expensive.

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