• Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

Economies of Scale: Wal-Mart. Economies of scale means declining average cost when volume increases.

Extracts from this document...

Introduction

Economies of Scale: Wal-Mart Economies of scale means declining average cost when volume increases. When the marginal cost is less than average cost, there are economies of scale. For example, an IT company spends a huge fixed cost to develop software and marginal cost of producing a CD compare with the fixed cost can be considered as small and unimportant, so before capacity constraints kick in, the average cost will decline as fixed cost are spread over lager volumes. Economies of scope refers to cost savings when different goods or services are produced "under one roof". For example, there are two products: A and B. If the cost of producing A and B together is smaller than producing them separately we can say there are economies of scope. Here, we use Wal-Mart as an example to explain the sources of economies of scale and diseconomies of scale. The most common source of economies of scale is the spreading of fixed costs over an ever-greater volume of output. Fixed costs arise when there are indivisibilities in the production process. ...read more.

Middle

Efficient distribution channels will help to lower price. Economies of scale may also arise when firms carry inventories. Firms carry inventory to minimize the chances of running out of stock. Of course, there are costs to carrying inventory and the inventory costs will drive up the average costs of good sold. Wal-Mart's inventory control system is legendary. It does not want to hold inventory, it does not want backorders. It always orders fewer cases but more frequently. Like many huge companies, Wal-Mart will not wait. It requires shorter lead times and implements "zero tolerance" policies. And this measure can help Wal-Mart save a lot of money on inventory. The fourth resource of economies of scale and scope is purchasing. Most people have purchased items in bulk. They may find sometime price falls as the amount they purchase increases. Big companies that make large purchases from their suppliers may also obtain discounts, enabling them to enjoy a cost advantage over smaller rivals. Likewise, companies with low costs can price their products at the same level as competitors, but make a higher profit while doing so. ...read more.

Conclusion

When Wal-Mart starts its business in a new area, they need to do some research to find out the culture of the society and habits of local people. For example, the hypermarket in China is better to offer the infrastructure carrying traffic to their locations. And in Japan the placement of hypermarkets in malls which include entertainment venues will be more attractive to customers. What's more, they also need to find out the surrounding of its placement. For example, if access by pubic transportation is limited, then the availability of parking is necessary. This kind research will help Wal-Mart take advantage of economies of scale. Firms understand that there are limitations to economies of scale, so that beyond a certain size, bigger is no longer better and may even be worse. Diseconomies of scale may arise for number of reasons. Sometimes it's because the labor costs is too high, the spreading of specialized resources is too thin and bureaucracy. The diseconomies of scale for Wal-Mart maybe is that its pressure on competitors, its impact on communities, its treatment of employees and its dealing with suppliers, to varying degrees, generated badwill for the company. There are even books, films, and occasional conferences devoted to degrading Wal-Mart. ...read more.

The above preview is unformatted text

This student written piece of work is one of many that can be found in our AS and A Level Case Studies and Analysis section.

Found what you're looking for?

  • Start learning 29% faster today
  • 150,000+ documents available
  • Just £6.99 a month

Not the one? Search for your essay title...
  • Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

See related essaysSee related essays

Related AS and A Level Case Studies and Analysis essays

  1. Proctor & Gamble, Inc. (Scope Case)

    Plax growth rate in total unit sales was from 981% from '88-89, and 4.9% from '89-90. The initial big jump Listerine's market share went from 15.2% to 16.1% to 16.6% from '88-90. In total unit sales, this increase was 12.7% to 8.2% from '89 - '90.

  2. The Diversity of Distribution Channels in the Retailing Industry

    Then it is Distributed to Amazon and other retail shops * Then it is delivered to the customer The use of logistics in Amazon Without Logistic organisations Amazon will not be able to operate, Amazon relies on logistics because without logistics organisations Amazon is not able to send the goods to their customers.

  1. PEST is a planning tool which is used by a business to evaluate and ...

    Ginsters will also need to think about whom they are targeting their advertising at, and where they will put their advertising and the amount of advertising they will need for their business. Ginsters will need to ensure that they primarily target their advertising at their target market and that they

  2. NETFLIX CUSTOMERS SATISFACTION

    Therefore, there is ? positive link between customer loy?lty ?nd profit?bility. ?ccording to Reynolds ?nd ?rnold (2000) satisfaction with s?lesperson le?ds to intention to de?l with th?t s?lesperson ?g?in, ?nd th?t satisfaction with specific service ?ttributes drives customer retention (Reist & Z?horik 1993).

  1. Business plan. The business that I am going to produce is a personalised logo ...

    This can motivate the employees. It also enables the business to measure the progress towards to its stated aims. The most effective business objectives meet the following criteria, S - Specific - objectives are aimed at what the business does, e.g. a hotel might have an objective of filling 60% of its beds a night during October, an objective specific to that business.

  2. Disneyland and M&S. I am going to investigate customer service in two separate ...

    If there is insufficient communication between businesses's departments it is more likely to run less efficiently as each department will be competing for resources. A good example of how the different department could work together would be if the marketing department planned to run a promotional campaign then the finance

  1. Unit 32 P3 explain how the developments in the consumer market have impacted on ...

    business sell a lot of fresh product that will go bad after a couple of days so the importance of a business to regulate its stores is so that they do not end up wasting any product such as stacking up their stock and it gets left in the warehouse

  2. Competitive advantage - Definition and Examples of Wal-Mart and Apple

    you can always reach their customer center with a friendly well-trained representative. The order process is very easy, taking only a few minutes. For example, when you go to apple store to buy its products, the system will email your receipt automatically after your purchase.

  • Over 160,000 pieces
    of student written work
  • Annotated by
    experienced teachers
  • Ideas and feedback to
    improve your own work