Explanation of Key Concepts
The topic to be discussed and analyzed in this paper is economies of scale, and scope with special reference to supply chain management. The writer is interested in this topic because it is appropriate to his academic curiosity and aptitude. It enables him to update his knowledge based on theoretical and empirical evidence gathered from the existing literature relating to that area of knowledge. Furthermore, today's business is characterized by much sophistication under the strong influence of globalization. The majority of multinational corporations tend to diversify and expand. Mergers, consolidations, global expansion, etc. have become a routine matter. Therefore, professional understanding of the economies of scale and scope is also appropriate to the developing business scenario.
Before, proceeding to the detailed discussion, it is wise to develop the brief understanding of the key concepts relevant to the chosen topic. Definition of these concepts is provided as follows:
Logistics: Logistics and supply chain are used as synonymous to each other and refer to all the operations carried out to supply the products and services from the point of production to end-users.
Economies of Scale: Economies of scale is the cost-efficiency that is brought through increasing the volume of production (Hubbard et al., 2014).
Economies of Scope: It is the cost reduction that is brought through increasing the variety of production (Hubbard et al., 2014).
Diversification: Diversification is the name of introducing new products in new markets.
Consolidation: It is the merger between two or more firms or companies to form one big company.
During his research, the writer has gone through several articles relating to the case of the study. He has selected the article titled as Economies of scale and scope in the Danish hospital sector prior to radical restructuring plans researched by Kristensen et al. (2012). The researchers (referring to the selected article) find that the hospitals are going to capitalize on the unexploited opportunities of cost reduction by merging into each other. It will reduce the cost of operations and will, thus, also have a positive impact on the gross margins (Kristensen, et al., 2012).
These findings are appropriate to the module of the writers study. He has learned from his course of study that as the firms or companies increase their volume or variety of production, it enables them to bring efficiency to their business models. The cost efficiency mainly comes from the more efficient use of available resources and unifying the redundant activities (especially in the case of a merger of consolidation). Hence, the writers academic learning is supported by his research. Similarly, he has studied the cases of Samsung and Apple that have built their business model on economies of scale by producing large varieties of products in huge quantities. Hence, they are capitalizing on the opportunities of economies of scale and scope by saving a lot on production and shipment (Handy, 2014).
As also mentioned earlier, the writer has chosen the case of Danish Hospitals that are aiming to bring cost-efficiency to their operations through a big consolidation. As a matter of fact, a merger at huge scale is going to take place in the chosen sector as a result of which 35 large hospitals in Denmark will reduce to 20. They will be merged into each other considering the adage, too big to fail.
Irrespective of the main purpose of this huge consolidation, the researchers investigated as to whether or not the hospitals would be able to bring cost-reduction into their operations through economies of scale and scope. The research was carried out using a comprehensive set of methods, tools, techniques, and strategies. The researchers have used both primary and secondary sources of data collection to gather the relevant information. Furthermore, the study is based on the quantitative method of data collection. For this purpose, the panel data is used for investigation into the cost of treatment and other relevant expenses.
After having gone through the evaluation of the information, it is found that there are several opportunities relating to cost-efficiency associated with the mergers. Consolidation will enable the underlying healthcare organizations to achieve optimal resource planning and allocation. Then, the data was synthesized with the conceptual background of the economies of scale and scope, and the findings were also found to be valid and transferable while seen in the light of theoretical and empirical evidence (Kristensen et al., 2012). Therefore, it is established that consolidation of the hospitals will significantly reduce the cost of operations the positive effects of which can be realized in the financial performance of these organizations.
In Bible, while speaking in the context of investing, Jesus has emphasized the importance of saving. Saving, in general, is not only an ethical consideration but is also regarded as the choice of a wise man. As Bible points out, On the first day of every week, each one of you should set aside a sum of money in keeping with your income, saving it up, so that when I come, no collections will have to be made (Corinthians 16:2). By the same token, the Bible is also in favor of diversification, as it is clearly stated, Invest in seven ventures, yes, in eight; you do not know what disaster may come upon the land. From this, it is evident that Bible preaches saving and diversification which are the conditions leading to economies of scale and scope.
Real World Application
Theoretical and conceptual insight developed through the study of the module, and investigation into the secondary research is also supported by the empirical evidence. For this purpose, the writer has studied two cases. In the case of Samsung, the company is getting benefitted from the economies of scale by consistently growing the volume of its production and shipment (Handy, 2014). In the second case, the researchers show as to how Wal-Mart has achieved the optimized level of synergy among its suppliers. It enables the company to enjoy the benefits cost reduction based on the economies of density (Holmes, 2012).
Dijkstra, M. A. (2012). Economies of Scale and Scope in the European Banking Sector 2002-2011. SSRN Electronic Journal. doi:10.2139/ssrn.2311267
The article is based on the comprehensive research on the European banking sector with particular focus being on the mergers taking place in the banking industry. The study is significant because it sheds light on the economies of scales in the consolidated banks both during the crisis and outside the crisis for comprehensive coverage of the key points. Considering the moderating role of the external and macroeconomic environment is a good addition to the existing knowledge in this area. It enables the managers to shape their policies and strategic moves regarding diversification and consolidations keeping the outlook of the external environment in view.
Browning, M., Chiappori, P., & Lewbel, A. (2013). Estimating Consumption Economies of Scale, Adult Equivalence Scales, and Household Bargaining Power. The Review of Economic Studies, 80(4), 1267-1303. doi:10.1093/restud/rdt019
The journal is an important contribution to the scholarly knowledge surrounding the economies of scale. It is a critical study conducted from a unique angle that the researchers have carried out considering the cases of married life of women in comparison to unmarried life. The comparison is conducted to check whether or not there is any evidence of cost-efficiency or economies of scale in the post-marriage life of husband and wife. In other words, the researchers are focused on as to how the merger between two individuals through a social contract can bring any significant change in this connection. The study is conducted for the purpose of illustration and can be linked to the implications of consolidation (at the level of business) in terms of economies of scale.
Saal, D. S., Arocena, P., Maziotis, A., & Triebs, T. (2013). Scale and Scope Economies and the Efficient Vertical and Horizontal Configuration of the Water Industry: A Survey of the Literature. Review of Network Economics, 12(1). doi:10.1515/rne-2012-0004
The journal article is centered on the economies and diseconomies of scale and scope with special reference to the mergers and acquisition in the sector of water and sewerage. It is a comprehensive study because it compares the horizontal integration with vertical to check the difference between their impact on the economies/diseconomies of scale and scope. The researchers have also pointed out to the circumstances, and conditions wherein economies can turn into diseconomies which serve as important lessons to be learned for operation managers.
Hubbard et al. (2014). Microeconomics. Pearson. The book provides detailed and easy-to-understand discussion on key points relating to microeconomics. Part three of the book holds importance specific to the case of the study because it is based on insightful discussion and elaboration of the ideas and issues relating to economies of scale and scope with reference to business operations and supply chain management. In this part, the authors have also provided a graphic illustration of key relevant ideas and concepts.
The Holly Bible (Bibliography not required in APA Manual)
The Bible is a comprehensive collection of scriptures dealing with a variety of topics relating to almost all walks of life. There are also thought-provoking biblical ideas relating to certain aspects of business such as investment, saving, supply chain management, diversification, etc. The researcher has quoted the verses wherein Jesus encourages diversifying and saving to serve as an indication of His positive attitude towards the economies of scale and scope. It is significant to find out as to how the generalized theoretical stances in business are also reinforced by religious revelations.
Kristensen, T., Olsen, K. R., Kilsmark, J., Lauridsen, J. T., & Pedersen, K. M. (2012). Economies of scale and scope in the Danish hospital sector prior to radical restructuring plans. Health Policy, 106(2), 120-126. doi:10.1016/j.healthpol.2012.04.001
The journal sheds light on the patterns of relationships between business mergers and economies of scale and scope. The study is focused on the case of Danish hospitals. The study is important because it illustrates the application of the economies of scale in the service sector. Furthermore, the tools and methods used for data collection are reliable and updated allowing easily transferring and generalizing the knowledge.
Handy, J. (2014). Is Samsung Losing at Economies of Scale? Forbes. Retrieved March 25, 2017, from https://www.forbes.com/sites/jimhandy/2014/02/22/is-samsung-losing-at-economies-of-scale/#1c3d27452421Cited above is an important study because it relates to the empirical evidence of economies of sales and scope. The author of this article shows as to how the logistics and operations of Samsung allow it to optimize its resource allocation. The case of Samsung is analyzed in comparison to that of Apple for further illustration. Then, the study is retrieved from Forbes which is an authentic and reliable source to serve as evidence for the reliability of the information.
Holmes, T. (2012). The Diffusion of Wal-Mart and Economies of Density. doi:10.3386/w13783
In this journal, the researchers have made a deep investigation into the business model of Wal-Mart. The researchers have conducted a comprehensive study using the methods and tools that are appropriate...
If you are the original author of this essay and no longer wish to have it published on the ProEssays website, please click below to request its removal:
- The Decrease in Fertility Among Professional Women
- Always Like a Girl Campaign
- Accounting Information for Financial Management - Essay Example
- Course Work on Risk Management and Organizational Change
- Domestic Violence in the American Society
- Rejecting and Failing to Reject the Null Hypothesis - Statistics Paper Sample
- DuBois and Washington Essay Sample
- Operations and Information Management - Essay Example
- Analysis of Freedom Writers Movie
- Potential Risk Areas for Terrorism Emergency Planning - Research Paper Example
- Marketing Essay Example: Factors that Affect Online Shopping Behavior
- Why Is Blinds To Go Having Difficulty Attracting and Retaining Retail Staff? HRM Case Study Example