Advantages or Merits of large scale production

The following are some of the advantages or merits of large scale production.

Advantages or Merits of Large Scale Production

1. Latest machinery: Organizations engaged in large scale production invest in the latest machinery. These machines are able to produce better quality products in large quantities. Since they operate at high speeds, they are able to produce in very short time. The cost of production is low and quality is high.

2. Division of labor: Large scale units which are characterized by mechanization adopt division of labor. Division of labor results in specialization. Workers are able to produce more in less time. The quality of production is high and workers might also suggest methods to further reduce time and costs.

3. Lower cost of purchases: A large scale unit buys raw materials and components in bulk quantities. The orders from large scale units are also regular in nature. Therefore they are able to enjoy quantity discounts. Suppliers would also supply quality raw materials because they do not want to lose the regular and bulk orders. This results in lower cost of purchases.

4. Higher customer satisfaction: A large scale firm can produce a variety of products and satisfy needs of different buyers. It can supply products without any delay. Since its cost per unit is less it can sell at lower costs. All these factors lead to high levels of customer satisfaction.

5. Lower overhead charges: Overheads such as rent, interest, salary remain same whether production is in small or large quantities. If production is in large quantities, the cost is spread over a number of units. Therefore the overhead cost per unit is less. For e.g. assume an organization incurs Rs.10,000 as rent. If it produces 10,000 units, the rental cost per unit is Re. I, whereas if the production is 10, 00,000 units, the rental cost per unit is just 1paise.

6. Innovation: A large scale firm has substantial resources. It can allocate a part of the resources to research and development. Investment in research may result in innovation of new products, new processes etc. An organization might capture a huge portion of the market through its innovative products. Investment in research by Motorola resulted in the development of the cell phone; investments by Sony resulted in pioneering products like Walkman, PlayStation/ etc.

7. Benefits from advertisements: A large firm can afford to spend heavily on advertisements. It can hire the best advertising agencies to create effective ads and release the ads in various media (e.g. HLL, Cadbury’s, Pepsi, Coke etc). This would help it to retain and attract customers. Increased demand from customers results in improved sales and profitability.

8. Large scales force: A large scale firm has the capacity to recruit a large sales force. The sales force would be able to cover the entire market and satisfy the needs of the customers and dealers. They would be able to communicate to the company the changing needs of customers. This would help the company to produce products according to consumer tastes.

9. Attracting best talent: A large scale firm has the capacity to pay high salaries and provide attractive perks. It would be able to attract qualified, experienced and skilled employees. Such employees would contribute to the further growth of the organization.

10. Utilization of by-products: Large scale business would be able to utilize its by-products in a productive manner. Large scale sugar factories (Rajshree Sugars, Bajaj Hindustan, EID Parry etc.) use their by-product molasses to generate power or sell them to alcohol producers, Another by-product ethanol is sold as fuel. Similarly large scale paper manufacturers (ITC, JK Mills, TNPL etc.) are using bagasse (a by-product) to generate power.

11. Risk bearing capacity: A large business has higher risk bearing capacity when compared to small enterprises. Since it has substantial resources it can withstand risks and bear losses in a better manner.

12. Growth and expansion: A large scale business can grow and expand its business in different countries and markets (Sony, Nike, Reebok, Nokia, Tata group, Birla group, Videocon etc.) . It can produce a variety of products to meet customer requirements in different countries. It can benefit from exports.

13. Access to finance: A large scale business would be able to get loans at cheaper rates of interest from banks and financial institutions. For e.g. Reliance borrows money at 7 per cent whereas small firms are charged higher interest. They can also issue shares or debentures to investors to raise the required amount of finance.

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