Totaling Costs_WS_2.2_Brown,LaVern

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1 Totaling Costs LaVern Brown Indiana Wesleyan University ECON-510-01: Economic Analysis for Managers Professor Oladele Omosegbon February 3, 2024

2 Totaling Costs Inflation, labor, and volumes are collectively impacting production costs in the automotive industry. Suppliers are grappling with material price increases and rising labor costs, which are identified as top concerns leading to reduced earnings. The high turnover and fluctuating releases in the labor force have rendered suppliers approximately one-third less efficient than pre-COVID-19. Additionally, the supply chain instability is creating choppy waves of demand from original equipment manufacturers (OEMs), further exacerbating costs and stress on the supply base. The reference to “choppy waves of demand” suggests inconsistent and unpredictable patterns in the demand for automotive products. Achieving economies of scale, which involves spreading fixed costs over a larger number of units to reduce production costs per item, becomes challenging in such an environment. Economies of scale are most effective when production volumes are stable and predictable. The fluctuating demand described as choppy waves disrupts the ability to consistently achieve the desired scale. This unpredictability may lead to underutilization of production capacity during periods of low demand, impacting cost efficiency. Inconsistent demand patterns can also result in challenges related to inventory management, further affecting the overall effectiveness of economies of scale. References Kowal, T. (2023, June 12). Challenges Facing Global Automotive Supply Chains. SupplyChainBrain . https://www.supplychainbrain.com/blogs/1-think-tank/post/37191- challenges-facing-global-automotive-supply-chains

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