This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Building Small: In Many Industries, Economies Of Size Is Shifting To Economies Of Numbers

NEW YORK, Nov. 2, 2012 /PRNewswire/ -- For decades, "bigger is better" has been the conventional path to efficiency in industries ranging from transportation to power generation. Food once grown on small family plots now comes overwhelmingly from factory farms. Vessels that carried 2,000 tons of cargo have been replaced by modern container ships that routinely move 150,000 tons. But now, new research shows, we are on the cusp of a radical shift from building big to building small—a change that has profound implications for both established and emerging industries.

(Logo:  http://photos.prnewswire.com/prnh/20120905/NY68578LOGO )

Many industry sectors are nearing or have reached a tipping point in which efficiency of unit size is being replaced by efficiency of numbers, according to a recent study by Garrett van Ryzin, the Paul M. Montrone Professor of Private Enterprise at Columbia Business School, Caner Gocmen, Ph.D. candidate at Columbia Business School, and Eric Dahlgren and Klaus S. Lackner of Columbia University's School of Engineering and Applied Science. Rather than relying on custom-built, large-scale units of production – e.g. massive thermal power plants - industries can benefit from a shift to small, modular, mass-produced units that can be deployed in a single location or distributed across many locations – e.g. photovoltaic (PV) panels mounted on utility poles.

Conventional wisdom holds that capital cost per unit of capacity decline with increasing unit size. Other efficiencies of unit size arise from manufacturers' ability to spread out the fixed-costs components of production, as well as factors such as operator labor and design costs. This alternative approach to infrastructure design offers new possibilities for reducing costs and improving service, the researchers found.

The authors identify three driving forces underlying this shift. First, new computing, sensor, and communication technologies make high degrees of automation possible at a very low cost, largely eliminating the labor savings from large units. Second, mass production of many small, standardized units can achieve capital cost savings comparable to or even greater than those achievable through large unit scale. And third, small-unit scale technology provides significant flexibility—a benefit that has been largely ignored in the race toward ever-increasing scale and one which can significantly reduce both investment and operating costs.

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Submit an article to us!
SYM TRADE IT LAST %CHG

Markets

DOW 18,024.06 +183.54 1.03%
S&P 500 2,108.29 +22.78 1.09%
NASDAQ 5,005.3910 +63.9670 1.29%

Partners Compare Online Brokers

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs