Manufacturing Methods Essay

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Operations Management

Outline how a strategy of globalization will impact on a policy of pursuing economies of scale advantages

Globalization is now becoming a critical aspect in regards to business operations. Due primarily to technological advances, and economic development, a more interconnected world is becoming standard. As such companies that rely primarily on fixed assets will depend more heavily on economies of scale to reduce the unit cost of each unit produced. Due to globalization, it is not uncommon for fixed assets to be structured geographically in a multitude of countries. By having operations domiciled in various countries, companies can further their cost advantages through economies of scale. Global auto manufactures use this technique extensively in the production of their vehicles. Auto manufacturers rely heavily on fixed assets to produce and assemble vehicles. These assets irrespective of production will cost the company. As such Toyota has incentive to spread the fixed costs associated with production and assembly across as many vehicles as possible (Silvestre, 1987). To accomplish economies of scale, the company has strategically placed production facilities around the world to further enhance its cost advantage. For example, Mexico may assemble engines, while an Asian territory may assemble the transmission. Through specialization of labor, and increasing production capacity around the world, Toyota is a better able to achieve economies of scale by reducing the per unit costs of it vehicle components. Many global firms around the world, which rely extensively on a high fixed cost structure, use this technique to achieve lower costs for consumers (Jones, 2010).

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2) Evaluate the strategies of lead capacity, match capacity and lag capacity for a retail outlet

Lead capacity- Lead capacity would allow retailers to hold extra inventory above their forecasted level of sales. Through the use of lead capacity retailers can insure that available quantities of merchandise are available when needed. This strategy is particularly useful during the holiday season, when sales are at their peak. To ensure, that popular assortments are readily available, a lead capacity strategy could be implemented to help facilitate sales. The downside of such a strategy however, is that it depends on forecasts which could be in error. In the event that products are not in demand or forecasts are too high, retailers will be saddled with inventory holding costs that could dampen profit for the company.

Match capacity- Match capacity, when used effectively, would match inventory with forecasted demand. When done properly, retailers can avoid the costs associated with holding large amounts of inventory. These costs could include theft, obsolescence, insurance costs, and more. When products are not selling properly, these costs have the potential to be substantially high. By effectiveily matching capacity with demand, retail companies can avoid these costs, while also generated excess sells. The downside of this method is that consumer demand is very unpredictable. Fashion trends change, product offering change, and economic circumstances change. As such, by not having an inventory "cushion" retailers risk lost sales by not having….....

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