Economy of Scales Example

All these parts go into a commercially sold machine. Try to guess what the machine is and does. The answer to the mystery machine is on the next page.

This FLEXIBLE printed circuit has: three computer chips attached to it; all kind of surface mounted devices (I have no clue as to their functions); a small green LED (light emitting diode); a small RIGID printed circuit board (in left hand). This flexible PC board is folded and bent and goes in 15 different directions where it is attached to bigger components. The printed leads pass electrical power, sensor data and electrical commands to and from the various components. It easily could be the working heart of a $100,000 medical instrument. But is it??

Shown here are the 21 gears and one indexing sprocket that are used in the machine. Note the teeny, teeny pinion gear on the shaft of the electric motor (upper right). This is one of two motors used in the device. You can easily spend $20 to $50 each for subminiature motors. Also, the cost for precision injection molding tools to produce all these little gears has to be well over $100,000. The tolerances on these gears has to be awesomely tight (and expensive) to have them meshing right and running efficiently.

Shown here are most of the extremely small screws that hold everything together. What would you charge someone for your labor to put all these screws in the right places and to tighten them up to a specific torque amount? Think about just trying to pick the right one up! It would really drive me nuts trying to align the little buggers up to the right little holes (in order to get it started properly without cross threading it and stripping out the plastic receptacles). Tough, eye straining work! Could a $100,000 assembly robot even do such intricate work??

Here is a closer view of the flexible printed circuit board. My index finger is pointing at the second even smaller motor. MMM. I think I see a fourth computer chip up to the right. Maybe their are even more that I am not smart enough to identify as such. My thumb is grasping the electrical lead attached to a skinny glass tube. If I tell you what that tube does, you will instantly know what the product is - so I won't!

Besides the parts shown in the photos above, the mystery machine has: many more plastic injection molded parts; numerous steel stampings; three more smaller flexible printed circuit boards, over a dozen coil and leaf springs, two color printing on it's plastic housing and a couple of small adhesive labels - WOW!

Now, besides guessing what the product is, try guessing HOW MUCH it might have to sell for! You have to consider what a person would reasonably charge to make all those parts and the extra labor one would have to pay to get all the soldering done and to get all parts attached together with those teeny screws. Once assembled, how much more would you have to pay some other person to inspect all the previous work and check if the machine even works at all, let alone does exactly what it is intended to do. Then, don't forget you have to also pay for a pretty printed outside cardboard display box that contains cushioning to protect the machine. You also have to pay for and insert printed instructions into the box. DOUBLE WOW!

Then it has to be shipped to a store (which costs more money) so it can be displayed for potential customers.  Since the store's owner and his/her sales people must earn a living, they have to be able to purchase this product at an even lower price than the final customer. TRIPLE WOW!

Then be astonished, when you learn the realities of high volume mass production
and THE ECONOMIES OF SCALE!
CONTINUE