Economies of Scale in Eco-Friendly Packaging Industry

How does sustainability complement economies of scale?

The Corporate Finance Institute defines economies of scale as the cost advantage experienced by a firm when it increases its level of operations. To simplify, let's say a food processing company produces goods using eco-friendly glass bottles:

Small-Scale: If the company produces 10,000 bottles per month, the cost per bottle might be high due to fixed costs like packaging material acquisition, equipment, salaries, and utilities.

Large-Scale: If two or more companies pool their orders for the same glass design, this increases their bargaining power with glass suppliers. For example,  to purchase 100,000 bottles per month, the acquisition costs for their packaging are spread over more bottles. This reduces the average cost per bottle and savings can be shared between them.

Economies of Scale: The larger production scale allows the company to buy raw ingredients and packaging materials in bulk at discounted rates.

In essence, by “pooling” or combining orders for glass bottles, the company benefits from purchasing at scale, reducing overall costs and increasing potential savings for the end-user. Misconceptions often arise around sustainability and economies of scale ultimately affecting business decisions; like choosing unsustainable packaging due to its lower unit cost. This is beneficial for small and medium scale producers and end-consumers by maximizing savings, using a material that has been generally regarded as safe for use in food and beverages, and friendlier to the environment.