Economies of Scale (Push) vs. Economies of Flow (Pull)
- May 13th, 2009
- Posted in Systems Thinking Concepts
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I remember sitting in my economics class at Hanover College my freshman year and the professor explaining to the class about “economies of scale.” Definition: Reduction in cost per unit resulting from increased production. We all know this one: the more produced or purchased the lower the cost. This is the American way, mass produce in batches for less 
cost or “economies of scale.” With schedules and targets needed to produce batches, overproduction is common place. This overproduction requires marketing to sell this excess inventory.
Taiichi Ohno (Toyota) looked at production as a supermarket. Each time product is pulled of the shelf one is made to replace it. This gives less inventory, less time, less waste and good service. A wholly different view that (for the most part) has been rejected by Americans that favor the command and control thinking associated with economies of scale.
John Seddon in Freedom from Command and Control) said it best when comparing the 
American view vs. the Ohno view, “So it comes down to a choice: use marketing to stimulate demand for what we have made, or build relationships with customers to deliver what customers want – push vs. pull.”
Systems thinking organizations understand the problems of economies of scale (push) and that a better way is to achieve economies of flow (pull). But making this change in thinking is not easy . . . it will require a different leadership strategy that requires a change in thinking.
Tripp Babbitt is a speaker, blogger and consultant to service industry (private and public). He is focused on exposing the problems of command and control thinking and the termination of bad service through application of new thinking . . . systems thinking. Download free from www.newsystemsthinking.com “Understanding Your Organization as a System” and gain knowledge of systems thinking or contact us about our intervention services at info@newsystemsthinking.com. Reach him on Twitter at www.twitter.com/TriBabbitt.
Tripp
Let me begin by saying that I agree with you (and John Seddon) on the really important things. Where we depart is at the point of fundamentally dismissing the concepts of economies of scale, standardization and specialization. I encourage you to read a little deeper into the world of systems thinking. starting perhaps with Fritjof Capra’s The Turning Point. He explains that our current (production) ways of thinking have their roots in Rene Descartes and Isaac Newton (not Adam Smith). Indeed, quantum physics fundamentally challenges Cartesian-Newtonian thinking, in the very same way that systems thinking undermines conventional production thinking. But quantum physics’ discovery that sub-atomic particles do not behave in accordance with Newtonian laws does not invalidate them. It just means that those laws apply to a certain point, but not to everything. Within their realm of application they are completely valid. Quantum physics did not change the laws that govern how planets behave (after all, we did land on the moon and return using those laws). The problem comes when we believe we can answer everything using them. We can’t. because, as we now understand, they are limited. So, systems thinking does not dismiss economies of scale, rather explains that there’s more to it than that. And, when we don’t see this, we create problems, such as but not limited to waste. I welcome any thoughts you might like to share on this.
Jim
From the broader systems thinking community some theories make contact with this world and others don’t.
Ignoring variety of demand in service and standardization creating failure demand is something we learned from application . . . a counter-intuitive truth. I would suggest readers look for themselves and the theorists can read this white paper http://newsystemsthinking.com/article_details.asp?ID=49.