What Does Economies Of Scale Mean? The increase in efficiency of production as the number of goods being produced increases.

Typically, a company that achieves economies of scale lowers the average cost per unit through increased production since fixed costs are shared over an increased number of goods. There are two types of economies of scale: -External economies - the cost per unit depends on the size of the industry, not the firm. -Internal economies - the cost per unit depends on size of the individual firm. Read more: http://www.investopedia.com/terms/e/economiesofscale.asp#ixzz1Xd1CIQph Investopedia explains Economies Of Scale Economies of scale gives big companies access to a larger market by allowing them to operate with greater geographical reach. For the more traditional (small to medium) companies, however, size does have its limits. After a point, an increase in size (output) actually causes an increase in production costs. This is called "diseconomies of scale". Read more: http://www.investopedia.com/terms/e/economiesofscale.asp#ixzz1Xd1Mrajw

What Are Economies Of Scale?

When more units of a good or a service can be produced on a larger scale, yet with (on average) less input costs, economies of scale (ES) are said to be achieved. Alternatively, this means that as a company grows and production units increase, a company will have a better chance to decrease its costs. According to theory, economic growth may be achieved when economies of scale are realized. Adam Smith identified the division of labor and specialization as the two key means to achieve a larger return on production. Through these two techniques, employees would not only be able to concentrate on a specific task, but with time, improve the skills necessary to perform their jobs. The tasks could then be performed better and faster. Hence, through such efficiency, time and money could be saved while production levels increased. Just like there are economies of scale, diseconomies of scale (DS) also exist. This occurs when production is less than in proportion to inputs. What this means is that there are inefficiencies within the firm or industry resulting in rising average costs. Internal and External Economies of Scale Alfred Marshall made a distinction between internal and external economies of scale. When a company reduces costs and increases production, internal economies of scale have been achieved. External economies of scale occur outside of a firm, within an industry. Thus, when an industry's scope of operations expands due to, for example, the creation of a better transportation network, resulting in a subsequent decrease in cost for a company working within that industry, external economies of scale are said to have been achieved. With external ES, all firms within the industry will benefit. Where Are Economies of Scale? In addition to specialization and the division of labor, within any company there are various inputs that may result in the production of a good and/or service.

Lower input costs: When a company buys inputs in bulk - for example, potatoes used to make French fries at a fast food chain - it can take advantage of volume discounts. (In turn, the farmer who sold the potatoes could also be achieving ES if the farm has lowered its average input costs through, for example, buying fertilizer in bulk at a volume discount.) Costly inputs: Some inputs, such as research and development, advertising, managerial expertise and skilled labor are expensive, but because of the possibility of increased efficiency with such inputs, they can lead to a decrease in the average cost of production and selling. If a company is able to spread the cost of such inputs over an increase in its production units, ES can be realized. Thus, if the fast food chain chooses to spend more money on technology to eventually increase efficiency by lowering the average cost of hamburger assembly, it would also have to increase the number of hamburgers it produces a year in order to cover the increased technology expenditure.

Specialized inputs: As the scale of production of a company increases, a company can employ the use of specialized labor and machinery resulting in greater efficiency. This is because workers would be better qualified for a specific job - for example, someone who only makes French fries - and would no longer be spending extra time learning to do work not within their specialization (making hamburgers or taking a customer's order). Machinery, such as a dedicated French fry maker, would also have a longer life as it would not have to be over and/or improperly used. Techniques and Organizational inputs: With a larger scale of production, a company may also apply better organizational skills to its resources, such as a clear-cut chain of command, while improving its techniques for production and distribution. Thus, behind the counter employees at the fast food chain may be organized according to those taking in-house orders and those dedicated to drive-thru customers.

Read more: http://www.investopedia.com/articles/03/012703.asp#ixzz1Xd4oxqDt

Learning inputs: Similar to improved organization and technique, with time, the learning processes related to production, selling and distribution can result in improved efficiency - practice makes perfect! External economies of scale can also be realized from the above-mentioned inputs as a result of the company's geographical location. Thus all fast food chains located in the same area of a certain city could benefit from lower transportation costs and a skilled labor force. Moreover, support industries may then begin to develop, such as dedicated fast food potato and/or cattle breeding farms. External economies of scale can also be reaped if the industry lessens the burdens of costly inputs, by sharing technology or managerial expertise, for example. This spillover effect can lead to the creation of standards within an industry. But Diseconomies Can Also Occur As we mentioned before, diseconomies may also occur. They could stem from inefficient managerial or labor policies, over-hiring or deteriorating transportation networks (external DS). Furthermore, as a company's scope increases, it may have to distribute its goods and services in progressively more dispersed areas. This can actually increase average costs resulting in diseconomies of scale. Some efficiencies and inefficiencies are more location specific, while others are not affected by area. If a company has many plants throughout the country, they can all benefit from costly inputs such as advertising. However, efficiencies and inefficiencies can alternatively stem from a particular location, such as a good or bad climate for farming. When ES or DS are location specific, trade is used in order to gain access to the efficiencies. Is Bigger Really Better? There is a worldwide debate about the effects of expanded business seeking economies of scale, and consequently, international trade and the globalization of the economy. Those who oppose this globalization, as seen in the demonstrations held outside World Trade Organization (WTO) meetings, have claimed that not only will small business become extinct with the advent of the transnational corporation, the environment will be negatively affected, developing nations will not grow and the consumer and workforce will become increasingly less visible. As businesses get bigger, the balance of power between demand and supply could become weaker, thus putting the company out of touch with the needs of its consumers. Moreover, it is feared that competition could virtually disappear as large companies begin to integrate and the monopolies created focus on making a buck rather than thinking of the consumer when determining price. The debate and protests continue. Conclusion The key to understanding ES and DS is that the sources vary. A company needs to determine the net effect of its decisions affecting its efficiency, and not just focus on one particular source. Thus, while a decision to increase its scale of operations may result in decreasing the average cost of inputs (volume discounts), it could also give rise to diseconomies of scale if its subsequently widened distribution network is inefficient because not enough transport trucks were invested in as well. Thus, when making a strategic decision to expand, companies need to balance the effects of different sources of ES and DS so that the average cost of all decisions made is lower, resulting in greater efficiency all around. Read more: http://www.investopedia.com/articles/03/012703.asp#ixzz1Xd5DjAyr

Production & operations - Economies of scale Consider the following questions: Why can you now buy a high-performance laptop for just a few hundred pounds when a similar computer might have cost you over 2,000 just a few years ago? Why is the average price of digital cameras falling all the time whilst the functions and performance level are always on the rise? How can IKEA profitably sell flat-pack furniture at what seem impossibly low prices?

The answer is economies of scale. Scale economies have brought down the unit costs of production and have fed through to lower prices for consumers. Economies of scale are a key advantage for a business that is able to grow. Most firms find that, as their production output increases, they can achieve lower costs per unit.

Economies of scale are the cost advantages that a business can exploit by expanding their scale of production. The effect of economies of scale is to reduce the average (unit) costs of production. Here are some examples of how economies of scale work: Technical economies of scale: Large-scale businesses can afford to invest in expensive and specialist capital machinery. For example, a supermarket chain such as Tesco or Sainsburys can invest in technology that improves stock control. It might not, however, be viable or cost-efficient for a small corner shop to buy this technology. Specialisation of the workforce Larger businesses split complex production processes into separate tasks to boost productivity. By specialising in certain tasks or processes, the workforce is able to produce more output in the same time. Marketing economies of scale A large firm can spread its advertising and marketing budget over a large output and it can purchase its inputs in bulk at negotiated discounted prices if it has sufficient negotiation power in the market. A good example would be the ability of the electricity generators to negotiate lower prices when negotiating coal and gas supply contracts. The major food retailers also have buying power when purchasing supplies from farmers and other suppliers. Financial economies of scale Larger firms are usually rated by the financial markets to be more credit worthy and have access to credit facilities, with favourable rates of borrowing. In contrast, smaller firms often face higher rates of interest on overdrafts and loans. Businesses quoted on the stock market can normally raise fresh money (i.e. extra financial capital) more cheaply through the issue of shares. They are also likely to pay a lower rate of interest on new company bonds issued through the capital markets.

http://tutor2u.net/business/gcse/production_economies_of_scale.htm

CASE STUDY: Transitioning to organic Harmoney Valley Farm

Finding economies of scale in organic vegetable production

Developing a profitable mix of crops and markets in the Midwest.
By Erika Jensen

Farm at a glance

editors NOTE: Richard de Wilde and Linda Halley have parted ways since the writing of this case study. Linda is farm manager at Gardens of Eagan in Farmington, Minnesota and Richard continues to operate Harmony Valley. This case study was written prior to their split.

Richard de Wilde and Linda Halley are veteran organic farmers, with more than
40 years of organic vegetable production and marketing experience between them. Together they own and manage Harmony Valley Farm, a 200-acre, diversified farm nestled among the rugged valleys of southwestern Wisconsin, not far from the town of Viroqua. Harmony Valley cultivates about 80 acres, employs up to 15 experienced workers and supplies a variety of markets, including wholesale accounts, food co-ops, a farmers' market and a 450-share CSA (community-supported agriculture). Although technically in Zone 4, it enjoys a warmer microclimate, collecting a few more frost-free days than surrounding areas. Madison, the farm's primary marketing destination, is about 90 miles away. Richard grew up on a family dairy farm in South Dakota and has been farming on his own account since 1973. As a young man he got a degree in mining engineering, then went back to school and earned a degree in education, all the while maintaining an interest in farming. Richards teaching job provided some money for start up costs, and he continued to teach in the winter for many years after beginning to farm. He founded Harmony Valley in 1984, after relocating from the Minneapolis-St. Paul area. Linda Halley has been at Harmony Valley since 1993. She also took a degree in education before starting to farm. Richard and Linda met at the Dane County Farmers' Market, where both were selling vegetables; Linda was interested in farming organically and adopted Richard as a mentor.

Harmony Valley Farm Viroqua, WI Year established: 1984 Size: 80 acres in production Products: Mixed vegetables, specialty vegetables, beef, wreaths and ristras Markets: Wholesale, CSA, farmers' markets, restaurants

Breaking new ground

When Richard began farming organically in the early '70s, he was a maverick. I was a young idealist concerned about the environment. I had also read Rachel Carsons book Silent Spring," he recalls. He possessed basic farming skills, including a good working knowledge of soils and machinery, and he had learned a good deal about organic gardening from his mother and grandfather, but when he started out he lacked equipment, capital andmost importantly reliable information about organic farming on a commercial scale. An early attempt to get help from the University of Minnesota Extension Service didnt go well. "'You may be able to do an organic garden,'" Richard remembers being told, "'but you cant make a livingit just cant be done. I didnt go back. I had nothing to do with them for 20 years. Then they came around and said

Could you teach us something about organic? Because it seems like youre doing pretty good. Lacking information from conventional sources, Richard became an avid reader, seeking out everything he could find on organic farming. Rudolf Steiners teachings about managing land the way nature does were a key influence. For example, Steiner observed that bare-soil fallows are useful but not naturalnature always has a living plant present to capture every bit of sun and rain. This insight led Richard to think carefully about cover croppingnow an essential part of his rotation. He also learned from older farmers in the neighborhood, from visits to experienced organic growers in California and from a steady process of selfeducation. A lot of changes we have made have been based on observations and experimentation, he reflects. From the beginning, Richard had a strong soil management ethic. When he moved to the new farm in 1984, soil tests came up low in almost every nutrient. Richard applied compost, consulting with Midwestern Bio-Ag founder Gary Zimmer and paying special attention to micronutrients. I invested sometimes my last dollar on fertilizer and soil tests," Richard recalls. "We added cal-phos, we made our own compost, and added a lot of trace minerals. As long as I can remember its been a basic philosophy for me. Youve got to give the plant everything it needs.

Rotations and cover crops

Richard and Linda grow a full range of vegetables on their farm, from arugula to zucchini, as well as specialty crops like Jerusalem artichokes, burdock and scorzonera. They follow a five-year rotation based on botanical families shifting fromSolanaceae (tomatoes, peppers, eggplant, potatoes) toCruciferae (cabbage, broccoli, cauliflower) to Cucurbitaceae(melons, squashes, cucumbers), for instance. Some areas are double cropped spring to fall. They plan their rotations at least a year in advance and seed everything down to cover cropsmainly peas, oats, rye and vetchin the fall. We tried triticale for a number of years, but found that in a mild winter it didnt winterkill," explains Richard. "Weve tried a number of different cover crops, but weve gone back to those that are easy to source. They are even available in organic seed now. In areas where they need to get an early spring start, they use a peas/oats combination for good winterkill. Other areas, such as those scheduled for fall plantings of cabbages, turnips and beets, are seeded to rye and vetch. Both cover crop mixes include a legume to fix nitrogen and a grass to provide carbon. For new farms or land in transition, Richard recommends sweet clover for its combination of nitrogen fixation and subsoiling potential, with long, branching taproots penetrating as deep as five feet. Deadlines for planting fall cover crops can pass quickly, Richard notes, with the days getting shorter and the heavy fall crops coming in at the same time. Over the years he's learned to put fields to bed promptlyspreading compost, subsoiling the field and seeding down the cover crop almost immediately after harvest.

Tillage
In the early years some of Harmony Valley's fields suffered from plowpan, a hard soil layer caused by plowing too wet and/or plowing at the same depth every year. The compacted layer inhibits drainage and root penetration. To correct this, Richard and Linda borrowed a neighbor's subsoiler and eventually purchased their own, a vibrating subsoiler with six-inch-wide shanks 18 inches

apart, made by an Australian company called Yeoman. The vibration promotes shattering along the soils natural lines, helping to preserve soil structure and pore space. The subsoiler has helped not only with hardpan, but also with drainage in low-lying fields. After primary tillage, Richard creates raised beds with a lister plow and Lilliston cultivators. The raised beds improve drainage and help get cold soils warmed up in the spring. Most vegetable crops do best in well-drained soils, Richard notes; but good drainage is essential for early plantings of beans and corn, since untreated seeds can rot in cold, wet soils, and for the prevention of other disease problems, like certain onion diseases. Even at a young stage onions can be damaged from waterlogged soil, though the damage may not show up until the onions are in storage.

Seed selection
Richard and Linda put a great deal of thought into variety and seed selection. They save their own seed for crops such as peppers and edamame soybeans, but for the most part they feel seed-saving is too labor intensive, requiring a completely different set of skills and equipment. Richard says that many of the open-pollinated varieties hes trialed exhibit poor seed quality. Most of his favorite varieties are hybrids; his preferred companies are Snow Seed, Seedway and Johnnys. Richard is concerned about seed supply issuesin recent years, he feels, quality has gone down while prices have gone up, and the cost to the organic producer sometimes goes beyond the purchase price. What weve learned about seed is that it very often carries disease, he explains. Organic producers are not allowed to use fungicide-treated seeds, so Harmony Valley uses hot water to treat seeds such as tomatoes, peppers, brassicas and onions. Although this can lower the germination rates (especially with poor quality seed), Richard feels its worth it for the protection it offers against diseases like bacterial leaf spot. In February and March, prior to planting, they run germination tests, noting uniformity and speed of germination as well as overall seedling vigor. Richard advises farmers to know the name and reputation of the seed breeder responsible for each variety they grow; Dutch-bred varieties, for instance, he says, are among the best. Richard and Linda trial every new organic variety they can find and record the results in a database. I used to keep it all in my head, but [then] Id find seeds at the bottom of the bin that I should have trialed and I didnt, says Richard. The information is useful for certification as well.

Soil management
Richard and Linda raise a few steers every year, but these are fed on pasture, so to make compost they buy in dairy manure, mixing it with chopped corn stalks in long windrows. Compost temperatures are monitored and the pile is turned regularly (though not often enough to meet the guidelines for in-season application). Harmony Valley's compost is spread in the fall at the rate of six tons/acre; it's also usedalong with sterilized garden soil, peat and perliteto make potting mix for the greenhouse. Every year, Richard and Linda get their soils tested for organic matter (most of their fields are now at about 3 percent SOM), macro- and micronutrients. Each of their 37 fields is tested at least once every four years; fields identified as problem fields are tested more often. They apply some purchased amendments, paying particular attention to calcium, sulfur, trace minerals, phosphorus and potassium. A granulated fertilizer from Midwestern Bio-Ag goes in with the corn seed in the spring; a midseason application of Chilean nitrate (aka Natural Nitrate of Soda, NPK 16-0-0) supplies additional nitrogen to cold weather crops like garlic and late-season brassicas. After you get your soil tests up there, you can maintain the quality of your soil with compost and gypsum, Richard says. Another kind of soil testing is done with the soil

tensometer, which measures compaction and helps evaluate equipment functioning. "Organic isnt just not doing things, Richard emphasizes, adding that readily certifiable or even certified organic land can in some cases be in almost as bad [condition] as conventional. To build organic matter in new fields, Richard and Linda use rye cover crops, cutting the rye in the spring and tilling it under. The decomposition time of the incorporated rye is a good indicator of the health of the soils' microbial populations, Richard notes. Microbes need the same [nutrient] balance that plants need"the trick is to manage organic matter so that the microbes always have something to feed on, creating a slow release of nutrients for the plants. Its no accident that the transition to organic period is three years," he adds. "It takes three years before soil starts to work right and five years before its good. Most of Harmony Valley's fields lie on flat bottom land along Spring Creek and the Bad Axe River. Erosion is a concern but not a serious problem. Grasses and other vegetation protect the waterways, as does Harmony Valley's conscientious use of cover crops. Well-managed soilshigh in organic matter, with good tilth and good drainageand well-formed raised beds also help minimize erosion, Richard notes. In some poorly drained areas they have corrected the grade to better manage water movement. For irrigation, Richard and Linda use a combination of drip tape, overhead sprinklers and a traveling gun, with some form available for every field they farm. Drip tape is used beneath plastic mulch for crops like tomatoes and peppers, which are susceptible to foliar diseases that thrive in wet conditions. Water for the drip irrigation is delivered using a water wagon with 1000- to 1500-gallon tanks. The traveling gun, used in more accessible areas, can irrigate a larger area with less set-up labor.

Weed management
Richard's approach to weed management is summed up in a piece of advice he recalls receiving years ago from one of the older farmers in the neighborhood: If you can see them from the tractor seat, theyre too big. To live up to that rule of thumb, he says, the first key is prevention: "Youre always weeding for next years crop, not just this years crop. Always aim to keep the weeds from going to seed." For early season weed control, Richard uses stale seedbedding with a rolling basket cultivator: preparing beds for planting, waiting about a week for weed seeds to germinate, and then making a final, shallow pass with the rolling baskets covering the full width of the bed. He used to do a lot of flame weeding, but now uses it exclusively for slow-germinating crops like parsnips and early plantings of carrots. The second fundamental of organic weed management, Richard says, is to know your adversary. You have to know where the weeds are, and when theyll germinate. Every weed has its season. There are different control strategies for each weed. Eliminating perennial weeds is comparatively easy, according to Richard: use a season-long fallow to let the perennials grow up and repeatedly till them under, gradually exhausting their energy reserves. A mid-season smother crop of buckwheat or sorghum-Sudan grass can help suppress perennial weeds while adding organic matter to the soil. Annual weeds like purslane and chickweed are tougherbut again the key is to familiarize yourself with the growth habits of specific problem weeds. Purslane germinates in warm soils, for example, so it can be combated by stale seedbedding, or by planting early- or late-season crops, when soils are colder.

Pest management
For insect and disease problems, Richard says, the organic farmers first line of defense is healthy soil: If your plants are vigorous, they are less likely to be affected by insects and diseases. Still, Harmony Valley typically has to contend with fungal and bacterial diseases like septoria leaf spot, early blight and late blight on tomatoes, brought on in the fall by cool evening temperatures and heavy dews. As a preventative measure, Richard uses copper and the relatively new biofungicide Serenade (Bacillus subtilis), spraying once a week or once every other week up until the beginning of harvest. They havent done a controlled study of Serenades effectiveness, but they believe it has some efficacy. Brassicas are bothered by a number of different insect pests. During the spring when plants are small, flea beetles can do severe damage. Richard covers the first plantings with a poly row cover and for later plantings uses a combination of organic pesticides, including Entrust, Pyganic and rotenone. For cabbage loopers and cabbage worms, he sprays Bt (Bacillus thuringiensis var. kurstaki) if necessary. Careful monitoring is essential, he stresses: you don't want to spray if you don't need to. Richard and Linda have planted some hedgerow areas with curly willow, pussy willow and other ornamentals to provide food and cover for beneficial insects such as the wasps which parasitize important vegetable pests like cabbage loopers, tomato hornworms and European corn borers. The willows produce a sap that attracts aphids, and the wasps feed on the aphids' honeydew. By providing a food source for the wasps, the farmers hope to improve the wasps longevity, egg laying potential and percentage of parasitism. Beneficials provided about 85 percent effective control at Harmony Valley in 2004, with workers resorting to Bt only a few times. Results can be uneven, however, with 100 percent control close to the hedgerows and reduced control further away. Because of this, Richard says, its important to monitor the entire field, rather than checking just one or two areas. Cucumber beetles are a problem pest for summer squash, damaging young plants and vectoring viral diseases. To moderate their effects, Richard uses a trap crop of zucchini grown on yellow mulch. Both the yellow mulch and the zucchini attract the cucumber beetles, and then Richard sprays the row with rotenone. In this way he minimizes his pesticide use and time spent spraying while achieving good control of the pest. In 2004 they also tried reflective silver plastic mulch, designed to disorient and repel cucumber beetles, and were moderately pleased with the results. Carrots occasionally get a disease in which the leaves die back before the carrot is fully mature. Richard notes that hybrid varieties like Bolero show greater resistance to this than older varieties such as Nantes. Celeriac (celery root) sometimes gets a leaf spot disease. Richard and Linda have used a copper spray in conjunction with Serenade with some success. Since the alternate host for this disease is wild carrot, eliminating the wild carrot may also be a way of controlling the disease. In 2004, Richard also tried using Serenade as a seed treatment, applying it via the insecticide boxes on his corn planter. Even though they planted in the last week of April (quite early for this area), they had one of their all-time best plantings of corn and beans, with near-perfect stands despite a very wet spring. Whatever the pest or disease problem, Richard emphasizes that its important to learn to identify pests, monitor for them, and develop preventative strategies. Two books he recommends areVegetable Insect Management: With Emphasis on the Midwest(Meister, 1995), edited by Rick Foster and Brian Flood, andDiseases of Fruits and Vegetables: Diagnosis and Management(Springer, 2004), edited by S. A. Naqvi.

Predation by wildlifeincluding deer, woodchucks and raccoonsis another ongoing challenge at Harmony Valley Farm. Organic cropsespecially lettuce, beans, peas, melons and sweet cornare notoriously tasty, and wild animals naturally want to take their share. As with weeds and invertebrate pests, the first step in protecting your crops is to understand the habits of the pest animals so as to better anticipate their behavior. Richard and Linda use trapping to keep raccoons and woodchucks at bay and allow deer hunting on the property year-round. They also take advantage of a Wisconsin Department of Natural Resources program to protect their most susceptible crops with electric fencing. After much experimentation, they've found that plastic mesh fencing combined with a low hot wire works well, as does a triple run of electrified tape at five, eight, and 16 inches off the ground. The trick with electric fencing, Richard says, is to get it up when it's needed, keep it hot, and then take it down promptly so that animals don't become accustomed to it. He recommends setting up the fence on a strip of bare soil so that growing vegetation doesn't ground out the charge.

Equipment and machinery

Its really expensive! Richards says of equipment. Although hes found equipment difficult to afford over the years, hes also a firm believer in investing in labor saving deviceseven if you have to take out a loan to do it. When choosing equipment, he says, its important to get advice from a knowledgeable farmer. After you build a list of needed items, you can be ready to jump on good deals when they appear. When should a farmer make an equipment purchase? Richard's approach is to ask himself, If a crop is not profitable, what equipment could make it profitable? Then calculate how long it will take to pay for itself. Recently he bought a Lely flex-tine weeder, which uses ranks of coiled tines to rake the soil surface and expose emerging weeds. It cost $3,200 new, but it cleaned up 98 percent of the weeds in fields where it was used. A good cultivator can save up to $1,000 an hour compared to hand-hoeing or lost yields, Richard has calculatedso the implement paid for itself in the first year. Because timely cultivation is so important, Harmony Valley has five cultivating tractorsincluding an International Harvester A, an IH Super C and an IH 140each one dedicated to a specific cultivating task. Having equipment ready to go saves time and maximizes the window of opportunity for cultivation. Cultivating tractors hold their value if well maintained, Richard notes, so they are usually a safe investment. Other components of the mechanical weeding lineup include Besserides sweeps, spring hoe weeders, Buddingh finger weeders, and Buddingh rolling baskets with shields. Richard also uses side knives or beet knives for running close to the row. Another recent purchase is a precision air planter. It cost $13,000, but Richard feels it's worth it because it doubles their planting speedincreasing their ability to make use of short planting windowsand because it has excellent depth control, resulting in good, solid stands. Modifying traditional equipment is also sometimes necessary. For bed-forming, Richard starts with a lister plow (traditionally used in the West for dryland farming) to dig a furrow and throw soil up onto the bed. He added a marker to the plow to help space the beds evenly. Then they use a Lilliston rolling cultivator to smooth out the soil on the top of the bed. The sides of the beds are a challenge to cultivateafter some experimentation Richard added side knives to the tool bar to slice off weeds without disrupting the soil. The Lilliston is also used to reshape beds and throw dirt back out of the pathways.

Harvest and post-harvest handling

A final key to delivering a good product is making sure every employee

understands and adheres to harvesting and handling standards. Harmony Valley sets a very high standardRichard aims for 90 percent good stuff." Wagons are covered to provide shade and carry water tanks for hydro-cooling, enabling workers to harvest through the heat of the day if necessary. Next, the experienced farm crew carefully washes and packs the vegetables. Richard and Linda have made a number of labor-saving equipment purchases here, including a barrel-washer for root vegetables, an industrial-sized spinner for washing salad mix, and a bagging device. The packing shed is also outfitted with a 20-gpm well, a large-capacity ice machine and a number of pallet jacks. Flanking the packing area are a vast walk-in cooler and a loading dock. Harmony Valley uses refrigerated transport for CSA deliveries, wholesale accounts and the farmers' market. Some of their wholesale customers, such as Whole Foods, pick up at the farm.

Marketing and distribution

Richard emphasizes three key points about working with buyers: be dependable, be timely, and deliver a good product. That starts with the initial contact. When you're approaching a retailer, drop off a box of your product, and make sure it's beautiful. If the buyer is unavailable, get his or her name. Arrange a time you can talk on the phone, and make the call punctually. All this may seem fairly basic, but by doing it youve proved several thingsthat you can provide a good product, that you are good at timely communication, and that youre dependable. Richard points out that his product sells itself, but in fact the buyer isnt just purchasing the product. He or she is buying into a dependable working relationship. Maintaining communications after the initial sell is equally important. Since both Linda and Richard hate making sales calls, they fax their wholesale customers each week with a produce availability list, inviting the customers to return the fax with their order indicated on a form. We didnt lose a single customer when we started doing that, Richard notes. The system works better for the buyers too, since they can place orders at their own convenience rather than under the pressure of a phone call. Richard and Linda also sell vegetables at the Dane County Farmers' Market in Madison, where cleanliness and presentation matter a lot. A friendly sales manner is vital, as is simply showing up every week so that customers know they can depend on you. Were there every single week from the last week in April through the last cold day in November, Richard says. To promote the farm and reinforce their marketing identity, they have a number of different itemsincluding bags, twist ties and labelsprinted with the Harmony Valley name and logo. A major shift in marketing strategies came in 1993, when Harmony Valley added a CSA. They started with 35 shares and over a period of four or five years expanded to their present total of 450 shares. Initially, Richard and Linda priced their CSA low to attract customers. Careful bookkeeping, however, showed them that costs like office expenses and advertising were much higher with the CSA than with other parts of the business, and they decided they needed to raise the share price. Now customers pay an average of $20 per box for weekly deliveries from May through December. As an incentive, members are offered a $10 gift certificate (good for farmers market produce, canning shares, or beef shares) for each new member they recruit. Members provide feedback about the CSA through a core group that meets annually to guide decisions from season to season. One disadvantage of the CSA is that it obliges them to grow crops they would otherwise avoid because of low profitability. The farm has addressed this challenge through economies of scale and by looking at the balance sheet of the CSA program as a whole, rather than for individual crops. A 450-share CSA is large enough for efficient production of crops like peppers, tomatoes and sweet corn, Richard says. "We can afford some of the specialized equipment,

such as a sweet corn picker. For CSA, its not whether you can grow any one of the crops. We know we cant grow broccoli and make a profit. But if the whole package is profitable then thats OK. Today the CSA is their most profitable venture, followed by the farmers' market. The wholesale operation has the lowest profit margin but the highest volume; the most profitable wholesale crops are specialty items like burdock. Richard and Linda say they let the market drive their crop selection from year to year: If theres a demand, we try to grow it. Each winter they meet with their wholesale client to discuss anticipated needs for the coming season.

Recordkeeping and farm management

Harmony Valley was first certified in the late '70s by the Organic Growers and Buyers Association; in 1988, Richard helped start Wisconsin's first OCIA chapter. Perhaps not surprisingly, he's a strong supporter of the principles of certification and an old hand at facilitating a smooth audit trail. Maintaining good recordkeeping practices isn't easy, he says, but it's an essential part of running a business. How can you run an effective business if you dont know what crops are making money? A good audit trail affords the farmer some protection if any problems arise down the road, Richard points out, and makes inspections less intimidating. Our inspections are quick and easy, he says. The inspector loves our recordkeeping because its easy for him to evaluate and get the information he needs. Harmony Valley's recordkeeping system wasnt difficult to set up, but it took many years to perfect. Its a two-part process, Richard saysdiligent field records in conjunction with data entry and fact checking. You need a form and a pencil to take out into the field. The form will evolve over time. Its also a management issuethe whole farm needs to buy into the recordkeeping. We have one person who is responsible for all the data entry. We check the entries on a daily basis, and that helps with daily planning. All the farms records are computerized with Access and Quickbooks. One of their CSA farm members helped them tailor Access to the farm's needs. They've developed a sheaf of forms to track every detail of the operation, from inventory records to harvest and packing plans to CSA box check-off forms. All these and more help organize the tons of product flowing through the farm. When purchasing inputs, Richard says, he always double-checks organic permissibility. Its simple, he says: If it's on the OMRI list I can purchase itif its not on the OMRI list, I cant. They order all their supplies in the winter, before the busy season starts. The final, indispensable element of a successful farm operation is an expert, smoothly functioning workforce. Each season Linda and Richard appoint two specialized tractor drivers (with an emphasis on mechanical cultivation), a harvest crew boss, a packing shed czar and a seasonal chef to prepare two meals a day for the crew (using farm produce of course). They provide room and board to as many employees as possible and give everyone the opportunity to participate in a retirement benefit program. They also look for ways to extend their employment season with maintenance, processing and management tasks. All of these measures contribute to a good retention rate, with most workers staying at the farm for three to seven years.

Conclusion
After many years of hard work, Richard and Linda are now enjoying the rewards of a mature business. In 2003, they received the Midwest Organic and Sustainable Education Service's inaugural Organic Farmer of the Year award, an acknowledgment not just of their expert growing skills but also of their pioneering role within the region's organic farming community. We worked against conventional wisdom," Richard reflects. "People told us it

couldnt be done and we said, we think we can do it. . There were definitely a lot of mistakes and a lot of losses and struggles. But we made observations and acted on them in a timely and diligent manner. We have good management systems and great employees. That helps, too. Overall, Richard says, the most satisfying aspect of his career as an organic farmer has been deciding to do the impossible and doing it.
Erika Jensen is a vegetable and flower farmer living in Waupun, Wisconsin.

http://newfarm.rodaleinstitute.org/casestudies/harmonyval/jensen.s html http://www.casestudyinc.com/pg-expansion-supply-chain-strategy

P&G Being where future customers are

In December 2008, Procter & Gamble Co. (P&G), announced an aggressive expansion plan to build 19 production plants to cater to future consumers in developing countries (where the GDP has grown quickly and which have vast populations). By 2010, P&G wants to reach an additional 1 billion consumers. Presently, it caters to 3.5 billion people out of 6.5 billion globally.

Being cost-effective in hard-to-reach and hard-to-serve environments

P&G already has its presence in around 80 countries where it has 145 facilities. As per the new plan 18 new facilities will be built in developing countries like Malaysia, Romania, India and Pakistan. Competitors Unilever and Colgate-Palmolive already have a presence in emerging markets. Therefore, expansion is one thing, but doing so cost-effectively becomes paramount for P&G. Economic crisis and corruption pose additional pressures.

Exhibit: P&Gs target markets (future consumers) in developing countries

P&Gs strategy to be cost-effective

Extending competitive advantage

Enter markets with products with less competition Establish state-of-the-art facilities (In most cases by providing P&G technology to low-cost machine builders instead of buying a complete production unit)

Produce more affordable goods for low-income consumers. Leave competition far behind

Tags: Emerging Markets, P&G, Procter & Gamble, Supply Chain

BY CASE AUTHOR IN ARTICLES ON JANUARY 8, 2010

Methods of growth, economies of scale

Category: Strategy Businesses can grow either organically i.e. through internal growth where profits are ploughed back into the business, or through external growth such as through take-over or merger with another business e.g. when Cadburys and Schweppes joined together. Growth enables a business to benefit from economies of scale with profound implications for the economics of production. Technical economies are when businesses are able to benefit from improved techniques involved with large scale production. For example, a company like Gillette or BIC operate with very large modern factories using automated production technology. The result of using these technologies is that costs of production are reduced significantly while quality control is kept to a very high level with virtually zero defects. Managerial economies of scale involve these firms in employing skilled production managers with the experience of working with modern technologies enabling them to manage highly sophisticated state-of-the-art factories. Just-in-time Commercial economies are concerned with the purchase of stocks (and the selling of end products) using a large scale approach. Modern production plant are able to operate using components and materials that are purchased just-in-time for their use. The production line is managed at the speed required to meet the needs of end consumers just-in-time. Because companies like BIC and Gillette use mass production techniques they are able to operate their plant at high levels of capacity, while benefiting from bulk purchasing of components, equipment and materials. Risks spreading economies of production mean that plants are able to produce a wide variety of products. For example, in a modern confectionery plant run by Cadbury Schweppes, it is possible to switch part of factory capacity from lines where demand is falling, to lines where demand is rising through well organised production management. By growing a business so that it operates on a large scale it is possible to benefit from a variety of production economies of scale. These economies enable large scale production at much lower costs per unit than would be possible in a small plant.

Read more: http://www.thetimes100.co.uk/theory/theory--methods-growth-economies-scale--212.php#ixzz1YmPrQNYh

To what extent has the merger of Cadbury Ltd and Schweppes Ltd has led to improved performance?

In the year 1969, two major food and beverages companies merged together renaming the company to Cadbury Schweppes plc. This merger now has led to improved performance towards the company through innovation, increased profitability, lower costs and higher market shares. These reasons have made the company more profitable allowing it to compete more effectively against its big competitors such as Nestle and Coca-Cola. In this coursework, I will be analysing other important factors that have led to the increased performance of the company. Both of the companies have an origin of more than 200 years old with Cadbury selling confectionery items while Schweppes selling beverages. This meant that the merger was said to be conglomerate integration as both firms were selling different products in different markets. Conglomerates are formed from the amalgamation of firms with differing products sold in different markets. Firstly, the joint venture of Cadbury and Schweppes has increased market shares. One of the big advantages of merging is that now you have access to a bigger market than the company did individually. Both of the companies were dependent on the UK market only before but after merging, opportunities have been opened for growth and expansion. Their products are now sold globally which has helped to reduce the risk from failure giving greater protection from market downturns. Apart from reducing risk, their growth has allowed to increase their market share. As reports prove, Cadbury Schweppes boosted its market share by 0.2 percentage point to 14.5 percent[1], while its competitors Coca-Cola Co. and PepsiCo Inc. saw their share of the U.S. soft-drink market decline in 2004. Cadbury Schweppes are enjoying from the various economies of scale. In mergers, economies of scale are a straightforward motive. They allow to reduce average total cost and therefore make the business much more efficient. The principle economies of scale that this firm have benefited from are the technical and financial, however there are others which have helped to improve its performance on profitability. The multinational has gained from the technical economies of scale where they are able to purchase bigger, better and faster equipment and machinery allowing the firm to produce large quantities more cheaply reducing unit costs. Cadbury Schweppes also benefited from the financial economies of scale. Since the firm is big, it is considered to be a secured firm, hence they have found it easier to borrow capital at a lower interest rate. This is because banks know that the company is less risky now. Apart from all this, the company now operates under a board of directors so the administration costs are shared for the both companies. The company has also enjoyed purchasing economies of scale. These give the business a larger discount for buying in bulk. This has be vital for the company as it reduces costs, which are passed on to the consumers in form of cheaper and lower prices than the competitors, thus gaining a competitive advantage over rival suppliers where price competition is the main form of interfirm

rivalry. In addition, Cadbury Schweppes is a marketing focused company which has always relied on gaining higher performance through innovation. Innovation is the process of developing better solutions and methods of conducting business. Cadbury Schweppes has tried to increase the volume of sales and market share by a process of innovation. They have promoted the culture of innovation which helps the company to stay ahead of the competition. Their touch in the changing business environment and its consumers changing perceptions, interests and needs have facilitated to create innovative products which best satisfy consumer requirements. A good example is the Cadbury Yowies product. Yowie is an exceptionally successful product which has won a large share of the childrens confectionery market in Australia. The Yowie demonstrates the innovation process of adding more value to a product in a socially desirable way. All this innovation has led to improved performance of which the Yowie is just an example that was voted best new confectionery product in the world in 1997. Furthermore, after the merger of Cadbury Schweppes, the firm has acquired many other brands which are enjoyed by billions of people around the world throughout the year. Since the mid 1980s, Cadbury Schweppes has expanded throughout a programme of acquiring important brands and focusing on its core capabilities in order to concentrate in the confectionery and soft drinks market. Over the years, Cadbury Schweppes has strengthened its product portfolio with some famous brand icons such as Dr. Pepper in 1995, the third best-selling soft drink in the world 7 UP and first sugar free chewing gum Trident. All these famous brands have helped to integrate into new markets with customer loyalty as these brands have already been established. Thanks to these acquisitions, sales and profits have been increased. Today Dr. Pepper accounts for around half of the volume for US subsidiary Dr Pepper/Seven Up, while Trident accounts for sales of over $850 million per year. --------------------------------------------------------------------[1] http://www.messenger-inquirer.com/features/business/8178346.htm

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