Economies of Scale - How One Domino's Factory Makes 750,000 Dough Balls A Week

This clip highlights the adoption of new technology in the pizza industry, looking at how Domino's have automated production, lowering their costs, and changing the nature of work in the sector. A practical example of how a large producer is able to gain economies of scale. Super to use in the classroom to prompt discussion and analysis!

What are economies of scale?

Economies of scale refer to the cost advantages that a company realizes as it increases production of a good or service. As a company grows and increases its production volume, it is able to spread fixed costs (such as rent and salaries) across a larger number of units, resulting in a lower average cost per unit. There are two types of economies of scale: internal and external.

Internal economies of scale are cost savings that a company realizes as it grows and expands its operations. For example, a company may be able to negotiate lower prices from suppliers as it increases its purchases, or it may be able to achieve higher production efficiency through specialized labor or by using more advanced technology.

External economies of scale refer to the cost advantages that a company realizes as a result of the growth of the industry or market in which it operates. For example, if the demand for a particular good or service increases, the industry may attract new entrants, which can lead to the development of new technologies and the creation of new suppliers. These developments can lead to lower input costs and lower prices for consumers.

In general, economies of scale are an important factor in determining a company's competitiveness and profitability, and they can give larger companies a significant advantage over smaller competitors.

How can dominos achieve economies of scale when manufacturing dough balls?

Domino's Pizza can achieve economies of scale when manufacturing dough balls by implementing several strategies, such as:

1. Standardizing production processes: By standardizing its production processes, Domino's can ensure consistent quality and reduce the costs associated with production variability. This can result in lower costs per unit and increased efficiency.
2. Automating production: Automating the production of dough balls can increase efficiency and reduce the cost of labor. By investing in the latest dough-making equipment, Domino's can produce more dough balls with less labor, resulting in lower costs.
3. Purchasing inputs in bulk: Domino's can negotiate lower prices for raw materials such as flour, yeast, and salt by purchasing these inputs in bulk. This can result in lower input costs and lower costs per unit of dough balls.
4. Utilizing economies of scope: By utilizing economies of scope, Domino's can benefit from the fact that many of the inputs used to produce dough balls are also used to produce other menu items. For example, the same flour used to make dough balls can also be used to make breadsticks, which can result in lower costs per unit.
5. Improving logistics and distribution: By improving logistics and distribution, Domino's can reduce the costs associated with transporting raw materials and finished goods. For example, the company can negotiate better shipping rates with suppliers and transport providers, which can result in lower costs per unit of dough balls.

Overall, by implementing these strategies, Domino's can achieve economies of scale and reduce the cost of producing dough balls, which can help the company remain competitive and increase profitability.