Toyota Production System Economies Of Scale And Scope

timer Asked: Mar 29th, 2019
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Please answer the two questions in the attached file.

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Economies of Scale & Scope 1- The Blair Company’s three assembly plants are located in California, Georgia, and New Jersey. Previously, the company purchased a major subassembly, which becomes part of the final product, from an outside firm. Blair has decided to manufacture the subassemblies within the company and must now consider whether to rent one centrally located facility (e.g., in Missouri) where all the subassemblies would be manufactured or to rent three separate facilities, each located near one of the assembly plants, where each facility would manufacture only the subassemblies needed for the nearby assembly plant. A single centrally located facility, with a production capacity of 18,000 units per year, would have fixed costs of $900,000 per year and a variable cost of $250 per unit. Three separate decentralized facilities, with production capacities of 8,000, 6,000, and 4,000 units per year would have fixed costs of $475,000, $425,000, and $400,000 respectively, but variable costs of only $225 per unit, owing primarily to the reduction in shipping costs. The current production rates at the three assembly plants are 6,000, 4,500, and 3,000 units respectively. (a) Assuming that the current production rates are maintained at the three assembly plants, which alternative should management select? (b) If demand for the final product were to increase to production capacity, which alternative would be more attractive? (c) What additional information would be useful before making a decision? 2- Are economies of scale and/or scope important considerations for Toyota company ? Explain why or why not. Don't forget to consider "network economies" as well. Is Toyota either vertically or horizontally integrated? Explain. ...
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