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Cost and Production Analysis: The General Concepts
Published in Bijan Vasigh, Ken Fleming, Thomas Tacker, Introduction to Air Transport Economics, 2018
Bijan Vasigh, Ken Fleming, Thomas Tacker
Economies of scope refer to the situation in which the company can reduce its unit costs by leveraging efficiencies through sharing resources for multiple projects or production lines. Put more simply, multiple projects/processes can be more cost-efficient when they are done together rather than individually. The presence of economies of scope provides benefit by allowing a company to house activities together and concurrently. Possible synergies achieved through economies of scope could include shared labor, shared knowledge, and shared capital equipment. For example, Boeing houses three production lines (747, 767, and 777) at its large Everett production facility (Boeing, 2006). By operating three production lines in the same building, Boeing is able to share resources such as labor and equipment between all three lines to maximize resource efficiency. If all three production lines were individually located throughout the country, Boeing would not be as cost-effective in manufacturing aircraft since resources could not be shared among all three production lines. Also, Boeing is able to leverage capital knowledge by reducing r&D expenses through utilizing technology developed in other projects. These savings can be considerable when developing new aircraft such as the Boeing 787. Another example of economies of scope would be aer lingus, which in 1970 began to seek new sources of revenue by offering engineer training, maintenance services, computer consulting, and data processing services to other airlines (Harvard Business school, 2000).
Consolidating the Network Carrier Business Model in the European Airline Industry
Published in Werner Delfmann, Herbert Baum, Stefan Auerbach, Sascha Albers, Strategie Management in the Aviation Industry, 2017
Stefan Auerbach, Werner Delfmann
Basically economies of scope exist when it is less costly to combine two or more product lines in one firm than to produce them separately.26 In hub-and-spoke networks these cost benefits occur when the unit cost of service decreases as the number of markets served by an airline increases.27 In the context of a hub-and-spoke network the airline can reduce unit cost over the existing network by serving an additional city-pair market by adjusting the flight schedule to allow for additional connection opportunities while keeping the total number of flights constant; this option is often cheaper than adding new flights. Since the airline transports passengers with a variety of different itineraries on the same flight, economies of scope increase with the number of flights, which can be concentrated within a so-called arrival or departure bank. The realization of such economies requires a critical number of aircraft and arrival and departure slots.
Supply Chain Design: Location Planning and Sustainability
Published in Paul Schönsleben, Integral Logistics Management, 2018
Taking a product with four operations (or four production levels) and subsequent distribution, Figure 3.1.1.1 shows centralized production (obviously for the global market) and decentralized production (more for the local or regional market). For the decision as to centralized / decentralized, there are features (or decision variables) for designing production networks, including: Demand volatility: Items have continuous demand if demand is approximately the same in every observation period. Items have discontinuous, or highly volatile demand if many periods with no or very little demand are interrupted by few periods with large demand; for example, ten times higher, without recognizable regularity.Supply chain vulnerability: Unplanned events can disrupt a supply chain. These disruptions can arise from either the supply chain community or the macroeconomic environment.Economies of scale, that is, an effect whereby larger production volumes reduce unit cost by distributing fixed costs over a larger quantity; and economies of scope, that is, when different products can be produced in a changeable factory at lower costs than when each product is produced in its own factory.Demand for consistent process quality: Can customer needs be satisfied despite differing process quality?
A Meta-frontier method of decomposing long-term construction productivity components and technological gaps at the firm level: evidence from Malaysia
Published in Construction Management and Economics, 2019
Mohd Azrai Azman, Carol K. H. Hon, Martin Skitmore, Boon Liat Lee, Bo Xia
Results indicate that firms achieved more for scope economies than scale economies except during 2007–2009 and 2015–2016, which experienced the GFC and sluggish economic conditions, respectively. The economies of scale are associated with a reduction in average cost per unit through specific product output, while the economies of scope are associated with an average reduction in cost per unit through multi-segment business, which can be achieved through an increase in multiple business segments (products and services) (Arai and Morimoto 2016).