Final answer:
Strategies for reducing storage costs include the just-in-time inventory system, which orders smaller quantities more frequently, and the use of Universal Product Codes to integrate supplier and customer inventories, alongside leveraging economies of scale.
Step-by-step explanation:
The question touches upon cost reduction strategies within business operations, focusing specifically on inventory management and the advantages of economies of scale. Two such strategies are the just-in-time (JIT) inventory system and the use of Universal Product Codes (UPCs).
The JIT inventory approach involves ordering products frequently and in smaller quantities, which aligns production closely with demand, thus reducing the need for large warehousing costs. Companies like Honda have successfully applied JIT to minimize warehousing jobs and improve quality control.
On the other hand, UPCs facilitate streamline inventory management across the supply chain by linking suppliers' and customers' inventory systems through electronic data interchange, which can reduce storage costs and improve product flow.
Another significant aspect discussed is the concept of economies of scale, where increased quantity of output leads to a reduction in the cost per unit. Large retail stores, such as Costco and Walmart, are examples of businesses that leverage economies of scale to reduce average costs.
Implementing the least costly production technology and determining the optimal scale of production are essential for a firm seeking to maximize these benefits, as demonstrated by warehouse stores and Amazon's low-cost, highly computerized warehouses.