Read this article to learn about Advantages and Disadvantages of Small-Scale Production!
Advantage of Small-Scale production:
As against the large-scale producer, the small producer has advantages of his own.
(i) Close Supervision:
The small producer can himself supervise the minutest details of the business. Nobody will be allowed to spoil machinery or waste materials. The master’s eye is everywhere. There can be no fraud or idleness anywhere.
(ii) Economical Management:
It is unnecessary to engage large staff. Verbal messages will take the place of written orders which are generally half understood. No elaborate accounts need be kept. All this means a great saving.
(iii) Personal Attention to Customers:
The small businessman sends away his customers perfectly satisfied. He personally attends to their orders and at once removes difficulties and misunderstandings. Personal contact is pleasant and profitable.
(iv) Personal Touch with the Employees:
The employer is in constant touch with his employees. He can promptly attend to their difficulties or grievances and remove them without delay. Peaceful relations can be thus easily maintained, and strikes and lock-out avoided. This makes the business smooth and prosperous.
(v) Greater Adaptability:
If conditions of trade change, the small producer can change his front. He is in a position to take quick decisions. He has to consult nobody except himself.
The small-scale producer is happy that he is independent. He will not like to work as a subordinate in a big business. This sense of independence is a great incentive for hard work.
(vii) Nature of Demand:
The small producer has an advantage over the large producer when the demand is either small or is constantly changing. He has thus a sphere of his own where he has advantage over the large-scale producer.
(viii) Nature of Industry:
There are some industries where the personal factor is very important, e.g., tailoring. It is quite advantageous to run such business on a small scale.
It is due to advantages like the above that the small-scale businesses have survived and are able to compete with big businesses even in modern times. These advantages make production economical and help the small business to survive and compete.
Disadvantages of Small-scale Production:
The small-scale production cannot reap those economies which are available to a big concern.
His drawbacks can be enumerated thus:
(i) Less Scope for Machinery:
There is less scope for the use of modern machinery and labour-saving devices. The cost per unit, therefore, of the small-scale producer is generally higher.
(ii) Less Scope for Division of Labour:
There is little scope for division of labour. The advantages of division of labour are, therefore, lost to the small producer. He cannot put the right man in the right place. Goods are not, therefore, made by experts. They are, thus, inferior in quality and higher in cost.
(iii) Disadvantages in Purchases and Sales:
The small-scale producer is at a disadvantage both in the purchase of raw materials and other accessories and in the sale of his finished goods. This also raises his cost of production and marketing.
(iv) No Research and Experimentation:
A small businessman cannot afford to spend large sums of money on research and experiments. He cannot, therefore, discover new processes or new materials. He treads the beaten path and is soon overtaken by rivals.
(v) Higher Overhead Costs:
Cost of rent, interest, advertisement, etc., per unit of the output is higher. A small-scale producer has, therefore, higher overhead charges.
(vi) Inability to Face Misfortunes:
With his limited resources the small- scale producer cannot meet bad times. The business may, therefore, collapse at the slightest touch of adversity. A small business is financially weak.
(vii) High Cost of Credit:
A small-scale producer cannot secure cheap- credit because the credit of a small business is not generally as high as that of a big business. Since he has to pay high rate of interest, his cost of production is higher.
(viii) By-products Wasted:
By-products have to be thrown away as so much waste. A small-scale producer cannot have the equipment to make an economical use of the by-products. This also raises his cost of production.