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Why can production costs rise when a factory becomes too large?
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mass production
An assembly line at a Ford factory in Wayne, Michigan, 2011.
When a factory grows too large, it may encounter diseconomies of scale, where the average cost per unit begins to rise rather than fall. Several factors contribute to this increase in production costs:12
- Operational Strain: Production lines are typically designed to operate at a specific, optimal rate. If demand forces the system to exceed this capacity, operators may require overtime, and machines may suffer from inadequate maintenance, leading to frequent breakdowns.3
- Coordination Failures: As facilities reach an excessive size, the complexity of managing the production system increases. Failures in coordination and the inability to maintain smooth workflows can disrupt efficiency.3
- Inflexibility: Mass production systems are often inherently inflexible. When a facility is too large, it becomes difficult to reorganize tasks or adapt expensive, specialized tooling to design changes, which can lead to inefficiencies.3
Because of these risks, planners often limit the size of a single facility. If higher production is required, they may choose to construct an independent facility rather than continuing to expand an existing one.3