Can you please give me 5 intelligent questions about this power point to ask to
ID: 1110380 • Letter: C
Question
Can you please give me 5 intelligent questions about this power point to ask to the presenter?
General Motors Decides Smaller Is Better
Case 7- 4 Review:
GM Decides Smaller is Better
• Until 2008, GM was the largest carmaker in the world.
• 1st loss was in 1990 for a total of $2 Billion.
• 2nd loss was in 1991 for a total of $4.5 Billion.
• These major losses were due to:
• A bloated workforce and management
• Low capacity utilization
• Too many divisions and models
• High-cost suppliers
Case 7- 4 Review:
GM Decides Smaller is Better
• The data provided below on sales per employee indicates:
• GM was too large and faced strong diseconomies of scale.
• Chrysler was too small.
• Ford was just about right, with the largest sales per employee.
Case 7- 4 Review:
GM Decides Smaller is Better
• GM in 1990’s:
• Cut more than half of its capacity.
• Shed more than half of its labor force.
• Lost more than half of its market share in North America.
• GM in 2009:
• North America capacity was at $2.1 Million automobiles.
• Labor force was less than 150,000.
• Market share was 19% (down from 45% in 1980).
Case 7- 4 Review:
GM Decides Smaller is Better
• So what did GM do to close the productivity gap?
• They decided that smaller was better.
1. GM consolidated its North American and International operations.
2. Reduced further the number of models produced.
3. Cut average manufacturing time per vehicle.
4. Centralized its sales, service, and marketing system.
5. Spun off its auto components group (Delphi Automotive Systems).
6. Outsourced more of the assembly task.
• Through massive job cuts and plant closings, GM all but eliminated the
substantial labor cost disadvantage it had with domestic and foreign rivals by
2008.
Now that you know the case, lets review
some definitions:
• Inputs: Resources used in the production of goods and services.
• Examples: Labor, capital, land, and natural resources.
• Fixed Inputs: Inputs that cannot be changed readily during the time
period under consideration.
• Examples: A firm’s plant and specialized equipment.
• Variable Inputs: Inputs that can be varied easily and on a very short
notice.
• Examples: Raw materials and unskilled labor.
• Short Run: The time period when at least one input is fixed.
• Long Run: The time period when all inputs are variable.
What is Returns To Scale?
• Returns To Scale: Refers to the degree by which
output changes as a result of a given change in the
quantity of all inputs used in production.
• It answers the question of whether a firm gets more
cost effective, less cost effective, or neither as it
increases its output quantities.
• There are 3 types of returns to scale:
1. Increasing Returns to Scale
2. Decreasing Returns to Scale
3. Constant Returns to Scale
Returns To Scale Continued…
• Something to think about…
• If a firm doubles its inputs there is only 3 possible things that
could happen to its outputs:
• It could more than double, double, or less than double.
• If output more than doubles than a firm is experiencing increasing
returns to scale. Because getting bigger is better this happens
because they can use mass production techniques that smaller
firms can’t.
• Now if the output doubles than that company has constant returns
to scale. So they have kind of maxed out on the gains of getting
bigger.
• If that output less than doubles, then they are experiencing
decreasing returns of scale. They are just too big.
Increasing Returns to Scale
• Occurs when a firm increases its inputs, and a
more-than-proportionate increase in production
results.
• For example, in year one a firm employs 200
workers, uses 50 machines, and produces 1,000
products. In year two it employs 400 workers,
uses 100 machines (inputs doubled), and
produces 2,500 products (output more than
doubled).
Decreasing Returns to Scale
• Decreasing returns to scale is closely associated
with diseconomies of scale.
• Occurs when the firm’s output rises
proportionately less than its inputs rise.
• For example, in year one, a firm employs 200
workers, uses 50 machines, and produces 1,000
products. In year two it employs 400 workers,
uses 100 machines (inputs doubled), and
produces 1,500 products (output less than
doubled).
Constant Returns to Scale
• Constant returns to scale occurs when the firm’s
output rises proportionate to the increase in inputs.
• Problem: In the previous slide (decreasing returns
to scale), after doubling the inputs in year one,
what would output have to be in year two for the
firm to experience constant returns to scale?
• Solution: 2,000 products. At 2,000 products, the
output doubles. Because the inputs double, the
increase in production is proportionate. By
definition, this equates to constant returns to scale.
So why did GM decide
smaller is better?
Because they were facing decreasing
returns to scale!
GM’s Decreasing Returns to Scale
• When input prices remain constant, decreasing
returns to scale results in increasing long-run average
costs (diseconomies of scale).
• GM became too big. Too many layers of management,
too many departments, too many models, too many
plants, etc. This led to a lack of communications,
inefficiency, delays in decision-making, and inefficient
production.
• Result: GM decided smaller is better!
GM is continuing to have decreasing
returns to scale:
1. Detroit
• General Motors will close a Detroit factory for six weeks starting in mid-November due to weak
sales.
• The move will affect 1,500 workers who work on four models that are in low demand among
consumers: the Buick LaCrosse, the Cadillac CT6, the Chevrolet Volt and the Chevrolet Impala.
• The Detroit-Hamtramck plant will likely produce 20% fewer vehicles once production resumes
in 2018.
2. Indonesia
• In 2013 General Motors had impressive plans for Indonesia. After letting its Bekasi factory
outside of Jakarta sit idle for roughly a decade, the automaker reopened the plant to
produce an all-new model — the Chevrolet Spin MPV.
• During the plant’s opening ceremony, GM made headlines by making another impressive
announcement: it was planning to add a second shift at the facility within a year by growing
further in the market. The Spin was a vital part of that growth.
• Two years later, GM closed down the factory, fired all 500 workers, and transitioned into a
national sales company with no local manufacturing presence.
Explanation / Answer
Some questions that can be asked are mentioned below-
1) What are some diseconomies of scale involved in large-scale operation?
or
What are some disadvantages of large-scale operation?
or
What are some risk involved in large-scale operation?
2) What are some economies of scale involved in small-scale operation?
or
What are some advantages of small-scale operation?
3) What is the importance of management in large-scale operations?
4) Does small-scale operation always ensure efficient cost management?
5) Explain with the example of General Motors' losses, the importance of optimal use of labor?