Economies of Flow

 

Anyone with more than 6 months in manufacturing has heard of “economies of scale.” That concept is the basis of large lot sizes, as well as many equipment recommendations and costing decisions.

Not a manufacturer? The concept, perhaps under a different name, likely permeates your business nonetheless. Is work processed through stations / people in batches, or one-at-a-time? If in batches, economies of scale thinking is intertwined with your processes.

The “economies of scale” concept says we will reduce costs by processing large batches to spread out high fixed costs to a larger number of units. But the unrecognized costs of economy of scale thinking can be more significant than any alleged savings. Instead, consider economies of flow.

Any time product (whether in the form of physical product or in paperwork or computer information) sits waiting, lead time is being lengthened and costs are being increased. Faster lead times on existing products/services and reduced time-to-market with new products/services improve cash flow, profits, customer satisfaction and market share. The quality advantages are equally significant.

Ask yourself, why do we process in quantities greater than one?

Your answers give you the list of problems you need to solve to move from economies of scale to economies of flow.

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One thought on “Economies of Flow

  1. I’m in the technology field and fully agree with your idea on economies of flow especially in my line of work because just about every situation requires a customized solution which demands more time. However there is a certain economy of scale in having resolved similar problems multiple times – unfortunately thanks to Microsoft!!

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