Discussion Post

Describe an activity or process or product of your chosen company that exhibits economies or dis-economies of scale. Describe the source of the scale economy. How could the organization exploit the scale economy or dis-economy?

Most of Boeings products are built at a standard rate determined by the available capacity and the demand by the customer. Economies of scale are a big part of any decision the company makes on how, when and where a product will be built.

In the commercial business unit (BCA) the economies of scale are much greater for a product line such as the 737. That product line has a very diverse international customer base with high demand. Boeing produces over one 737 a day and fly it off to a customer somewhere in the world. With large orders and a significant backlog Boeing is able to pass savings along to all of its 737 customers. Other commercial products such as the 747, 767 and 777 have a much smaller demand which affects the rate. These are delivered with much less frequency and produced at a slower rate to respond to the lower demand. These are examples of diseconomies of scale.

The Defense, Space and Security business (BDS) unit has a different demand formula which affects economies of scale for the company. The major customer for BDS is the US military, Department Of Defense (DoD) and NASA. Contracts are typically negotiated for a multiyear procurement buy of a series of fighter jets, missiles, satellites or rockets. The programs may come with a maintenance agreement including spare parts, engineering and logistics support. The amount of unit the customer buys and agreed to delivery date will dictate the rate at which a product is built. An example of this is the F-18 fighter jet in which Boeing delivers 48 aircraft a year to the US Navy. That set the delivery rate at 4 units a month. With increased capacity within Boeing and by its supply base Boeing could deliver more units to the navy within a couple of