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Production in relation to economies and diseconomies of scale

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Information about Production in relation to economies and diseconomies of scale
Business & Mgmt

Published on March 3, 2014

Author: ASPA15

Source: slideshare.net

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Production in relation to economies and diseconomies of scale
Presentation By: Aditi Pathak
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INTRODUCTION • Parle Products has been India's largest manufacturer of biscuits and confectionery for almost 80 years. Makers of the world's largest selling biscuit, Parle-G

INTRODUCTION • With a 38% share of the total biscuit market and a 15% share of the total confectionary market in India, Parle has grown to become a multi-million dollar company. While to the consumers it's a beacon of faith and trust, competitors look upon Parle as an example of marketing brilliance.

INTRODUCTION • Today, the great strength of Parle Products is the extremely widespread distribution network. Even at the remotest places, you can buy Parle biscuits and sweets from the local grocer. Currently, Parle Products has over 33, 00,000 distribution outlets.

HISTORY: Parle Products company was founded in 1929 in British India. It was owned by the Chauhan family of Vile Parle. Parle began manufacturing biscuits in 1939. In 1947, when India became independent, the company launched an ad campaign, showcasing its Gluco biscuits as an Indian alternative to the British biscuits.

HISTORY: The original Parle company was split into three separate companies, owned by the different factions of the original Chauhan family: • Parle Products, led by Vijay, Sharad and Raj Chauhan (owner of the brands Parle-G, Melody, Mango Bite, Poppins, Kismi toffee bar, Monaco and KrackJack) • Parle Agro, led by Prakash Chauhan and his daughters Schauna, Alisha and Nadia (owner of the brands such as Frooti and Appy) • Parle Bisleri, led by Ramesh Chauhan

PRODUCTS • Biscuits: ParleG, Monaco, Hide n Seek, Hide n Seek Bourbon, Parle Marie, Nimkin, Golden Arcs, Top, Hide n Seek Fab, KrackJack, Kreams, Mil ano, Milk Shakti, 2020, Happy Happy, Coconut, Jimin, Gold Star, Acti-Fit crackers.

PRODUCTS • Sweets: Orange Bite, Kismi, Melody, Mango Bite, Kaccha Mango Bite, Mazelo, Poppins, Lond onderry, Chox, 2 in 1 eclairs, Fruit Drops. • Snacks: Parle’s Wafer, Fulltoss, Namkeen, C heeslings, Munchies. • They also have a gifting range called “Occasions.

QUALITY FIRST APPROACH Hygiene is the precursor to every process at Parle. From husking the wheat and melting the sugar to delivering the final products to supermarkets and store shelves nationwide, care is taken at every step to ensure the best product of long-lasting freshness. Every batch of biscuits, confectioneries & snacks are thoroughly checked by expert staff, using the most modern equipment. This ensures consistent and perfect quality across the nation and abroad.

AWARDS Right since the company's inception, Parle has always strived to give their consumers the best value and keep them satisfied through the quality of their products. They have always worked hard to deliver best results and produce the best quality of products. Parle Products have been ranked 7th amongst the top ten most trusted brands by Economic Times.

THE AWARD WON BY PARLE PRODUCTS

WHAT IS PRODUCTION? Production is a process of combining various material inputs and immaterial inputs (plans, know-how) in order to make something for consumption (the output). It is the act of creating output, a good or service which has value and contributes to the utility of individuals.

PRODUCTION IN PARLE FACTORY

WHAT ARE ECONOMIES OF SCALE? • Economies of scale are the cost advantages that a business can exploit by expanding their scale of production in the long run. • The effect is to reduce the long run average (unit) costs of production over a range of output. These lower costs are an improvement in productive efficiency and can feed through to consumers in the form of lower market prices.

WHAT ARE ECONOMIES OF SCALE? • They can also give a business a competitive advantage in the market as they lead to lower prices and higher profits, also consumers and producers could both benefit from it.

ECONOMIES OF SCALE IN THE CASE OF PARLE PRODUCTS • There are two types of costs incurred by a business, they are classified as Fixed Costs and Variable costs. Fixed costs are those costs which remain the same no matter what the level of production is, whereas Variable costs are those costs which change with the level of output. As Parle Products is a company which produces its products in bulk, the fixed cost they incur, if per unit fixed cost is taken into consideration, is greatly minimized.

ECONOMIES OF SCALE IN THE CASE OF PARLE PRODUCTS • The advantages of purchasing economies can be claimed by Parle Products as they are capable of buying the raw materials required for the large scale production in bulk thereby saving considerably on the cost of raw material and transportation costs.

CONCLUSION The aforementioned factors helps in minimizing the overall cost, thus, the market price of Parle products is comparatively lower than those of its competitors. For example, Parle-G biscuits have a market price which is as meagre as Rs.2.

WHAT IS DISECONOMIES OF SCALE? • Economic theory predicts that a firm may become less efficient if it becomes too large. The additional costs of becoming too large are called diseconomies of scale. Diseconomies of scale result in rising long run average costs which are experienced when a firm expands beyond its optimum scale.

DISECONOMIES OF SCALE IN THE CASE OF PARLE PRODUCTS • Parle Products has diverse product range, that is, it doesn’t produce just one product but many. • Now, as there are diverse products in its range, the economies of scale can be achieved only on a product-wise basis and not on an overall basis. For example, the raw materials required for a sweet produced wouldn’t be the same as the ones required for producing biscuits.

DISECONOMIES OF SCALE IN THE CASE OF PARLE PRODUCTS • Principal-agent problem: This problem is caused because the size and complexity of Parle Products means that their owners often have to delegate decision making to appointed managers, which can lead to inefficiencies. For example, the owners will have to employ managers for each distribution and sales network and delegate some of the jobs to managers but the managers may not necessarily make decisions in the best interest of the owners. For example, a distribution or sales manager may employ the most attractive sales assistant rather than the most productive one.

CONCLUSION • Parle Products have economies as well as diseconomies of scale due to its present scale of operation. But it hasn’t yet reached that level of expansion that would lead to more diseconomies, i.e. the benefits of economies of scale that Parle Products reaps currently is more than the few diseconomies it might be encountering.

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