Assessment of Economies of Scale in Multiproduct Manufacturing Companies of a Developing Economy

Adebambo Olayinka Somuyiwa

Abstract


Attempts to overcome the problem of complex trade-offs among components of logistics cost have resulted in the creation of supply chain management and consequently ushered in detailed analysis such as holistic approach that hitherto impossible. It is in the light of this that the paper examines the potentials of economies of scale in downstream logistics of manufacturing companies of a developing economy, with a view to harnessing various cost components of this outbound logistics, such that customer service could be enhanced and competitive advantage could be achieved.
The paper adopted a case study approach, and collected primary data through questionnaires administered on twenty manufacturing companies based on multistage sampling techniques. The 110-item questionnaire elicits secondary data on components of outbound logistics for the period of 2002-2006. The data were analysed using a software application that was packaged and designed for the study and incorporated Generalised Translog cost function that places no priori restriction on the elasticities of substitution between the various restrictions such as homoscedasticity, homogeneity and unitary elasticities of substitutions, as well as its flexibility for allowing testing for specific characteristics of technology, input demand elasticities, economies of scale and output cost elasticities.
The findings revealed economies of scale and scope among input of outbound logistics resources indicating that logistics costs are characterized by joint distribution process, consequently concluded that resources management should be based on multiproduct distribution theory, and that explicit recognition of the economic interactions among resources should be incorporated in any regulatory process, through various categories of logistics service providers that must be encouraged in the country. The paper then recommended that group distribution by logistics service providers, as well as outsourcing be encouraged. This is in order to promote economies of scale which reduces cost, enhances fleet management, as well as customers’ satisfaction.

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Asian Social Science   ISSN 1911-2017 (Print)   ISSN 1911-2025 (Online)

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