Reduce the Rate of Cost for the Input Used to Produce the Output

Use the same type of input and the same activities, but pay less for the unit of input employed in producing the output. A reduction in rate is equivalent to a reduction in the number of inputs for the same ICD. For example, if a person who makes $10 per hour could produce the same amount of output as a person making $20 an hour, the substitution of the $10 person for the $20 person in the process would be equivalent to cutting the number of people required to do the work by 50%.

C. Change the components of the rate of costs to reach a lower total rate:

Sometimes it is possible to break the price of a purchase into its component parts. Then the company may seek to substitute a less expensive component for a more expensive component to reduce the effective rate the company pays on its purchases.

Minimum performance required for the standard rate:
Reduce benefits for retirees

No.	Industry SIC	Year	Notes
1	2040	1989	Ralston increased employee stock-ownership plan money match to pay retiree medical benefits–it's phasing out its subsidy of future retiree health costs.
2	3711	2007	In 2005, GM and the UAW created a voluntary employee benefits association trust to fund a small portion of the company's retiree health-care expenses. Faced with crippling costs, this may be wave of the future for Detroit automakers who proposed a deal in which they would hand over their long-term liability for health care costs to an independent fund managed by the UAW, which would be financed by a huge-one time payment of cash and stock. While union workers would likely contribute more toward their own coverage cost, they would gain protection from the devastating prospect of bankruptcy. Unlike pensions, retiree medical benefits are not guaranteed by law and would not be protected in case of bankruptcy. However, questions persist over the funding of the trust and whether or not it would pass muster with antitrust officials.
3	3711	2008	Toyota's advantage in U.S. labor costs is disappearing as its plants age and Detroit cuts back. General Motors currently has 74,500 workers, but will scale back to 68,000 by 2011, and up to one-third of them will be earning the lower wage. GM could potentially cut its wage bill by $2.7 billion annually by 2011, which adds up to $841 a car, half of the current cost differential with Toyota. A retiree health-care deal, which will give the United Auto Workers union about $36 billion in exchange for taking over medical insurance, should cut an additional $699/car on the differential for GM. That would turn Toyota's labor cost advantage over GM of $1,394 per car to $108 disadvantage by 2011.

<<Return to Reduce the Rate of Cost