Test Your Knowledge: Sources of Cost Advantage
Answer to Question 1: Approach to managing cost functions. LandStar is using a different Approach to the Make function in its industry.
Answer to Question 2: Phillips is offsetting a Rate disadvantage in North America by moving the production of color TVs from North America to other countries. It also changed its Approach to the Create function by licensing technology from JVC.
Answer to Question 3: Approach to managing cost functions. The direct selling computer companies had lower Sell costs than did their manufacturing competitors, who sold through channels of distribution.
Answer to Question 4: Productivity. There is no indication that the Company has advantages on Rate or Approaches to managing functional costs. However, the consolidation of facilities usually increases the Productivity of the Company.
Answer to Question 5: Rate and Productivity. Non-union shops often have lower rates of cost, measured in compensation per hour, than do their unionized counterparts. However, there are many cases where the non-union shops have higher costs per person per period of time than do the union shops. These non-union shops do this by achieving higher Productivity than the union shops because their work rules are less restrictive. So the advantage here may occur in Productivity as well as Rate.
Answer to Question 6: Approach to managing cost functions. The Company is using a different Approach to both the Make and the Sell cost functions than the average competitor in the industry. It manufactures its products only on waterways and sells only to customers within economic reach of these waterways.
Answer to Question 7: Rate. The example claims a Rate advantage of 30% for non-union locations compared to union locations. However, part of that 30% may also be due to a Productivity advantage through less restrictive work rules.
Answer to Question 9: Productivity. Both companies may pay similar Rates of cost for their Building Block Costs and follow similar Approaches. The advantages they are creating through their consolidations increase the Productivity of their fixed costs.
Answer to Question 10: Approach to managing cost functions. Wilson used a unique Approach to manufacturing. This Approach raised its cost of manufacturing, but enabled its customers to reduce their inventory costs since Wilson could deliver products must faster than its competition. The net savings for the customer made Wilson’s unique approach to the Make functional cost attractive.