Agriculture Reference
In-Depth Information
3.
Seasonality and other patterns of production
4.
Fluctuating demand
5.
Multiple versus single shifts
Economies of scale
According to the economies of scale principle, larger plants usually result in lower per unit
costs because fi xed costs may be spread out over a larger quantity of output. Volume-cost
analysis can be used to determine how much volume is needed to cover fi xed costs ( Chapter
12). Economies of scale are often associated with fi rms utilizing large quantities of expen-
sive processing equipment (such as large breweries) where large, bulk quantities are pro-
duced. Construction costs are also reduced when a facility producing 10,000 units is built
versus two separate facilities producing 5,000 units each. In addition, larger plants enjoy
specialization of labor, management, and byproduct utilization.
Flexibility
An alternative view to economies-of-scale is fl exibility. One concept of bringing fl exibility
to production processes is the focused factory, fi rst proposed by Skinner in the early 1970s.
Several factors brought about this alternative view to plant size and capacity; including
shorter product life cycles, the importance of quality, and needed fl exibility. The focused
factory concept holds that several smaller factories will improve individual plant perform-
ance because the operations manager can concentrate on fewer tasks and can more easily
motivate a smaller workforce toward one goal. There are also fewer layers of management,
the plants are more fl exible in introducing new products, and a team approach can be taken
to problem solving. Furthermore, smaller fi rms may offer fl exibility in terms of proximity to
sources of raw materials and proximity to market destinations, which in turn could result in
lower transportation costs.
Seasonality
Highly seasonal agricultural products can produce special headaches for an operations man-
ager. Manufacturers of farm inputs such as seed, fertilizers, and chemicals see heavy demand
for their products in the spring. Grain elevators experience peak demand in the fall. On the
food side, holiday items such as whole turkeys and cranberries see their demand peak in the
weeks preceding Thanksgiving.
In some cases, peripheral operations can be done or other products can be produced in the
off-season to balance the resource needs of the food or agribusiness. Where this is not pos-
sible, a plant large enough to handle peak productivity levels becomes a costly operation
when output is signifi cantly reduced in the off-season. In such cases, it may actually be more
economical to run several smaller plants and to close down plants that are not needed during
the off-season. This does not reduce the overhead costs associated with an unused facility,
but it does limit the day-to-day expenditures of running an unnecessary part of a larger
operation.
Fluctuating demand
Fluctuating demand in manufacturing can be solved by building up inventory during
slow demand periods. However, the perishability and bulkiness associated with agricultural
 
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