Examples of Efficiency through the Reduction in Rate of Costs
Small stationery stores are joining together to form buying cooperatives in order to lower costs to compete with office super stores like Office Depot and Staples. (
Year 1997 – SIC 5943)
Explanation: These stores are combining to reduce the Input costs of Purchases (cost per case). They combine their individual purchases in order to get a lower rate of cost from the stationery wholesalers. They are improving Efficiency of the Input, Purchases.
Hotels.com buys rooms inexpensively. It markets itself to hotel companies as a place to unload rooms that they otherwise would not be able to sell. Hotels.com contracts a year in advance for these rooms. (
Year 2002 – SIC 4724)
Explanation: Hotels.com reduces its Input, Purchases (cost per night), costs by purchasing further in advance of need.
Southwest Airlines flies short trips between city pairs. Most of these trips are to secondary airports. (
Year 2004 – SIC 4512)
Explanation: Southwest reduces its Input, Purchases (cost per landing or take-off), costs by using secondary, rather than primary, airports. This reduces their rate of costs for the Input.
Microsoft self-insures 30,000 workers. The Company believes it has a young, healthy working population that is less costly to cover than the average insured population. (
Year 2001 – SIC 7372)
Explanation: Microsoft has reduced its Input, People, costs of insurance by self-insuring because its rate of costs is likely to be lower than those of the insurance industry. This is also an example of reduced rates on Purchases.
Under the Blockbuster – Hollywood studios’ deal, Blockbuster gets video tapes from the studios at a lower price and then shares the resulting rental profit with the studios. (
Year 2001 – SIC 7841)
Explanation: Blockbuster has reduced its Input, Purchases (cost per tape), costs by breaking the purchase into component parts, a fixed payment and a variable payment based on profit. This new scheme results in lower rates of costs for Blockbuster.
Oxford Resources has formed links with a number of lenders who finance its leases at low costs. These lenders assume the credit risk for Oxford’s leases and pay the company a premium for them up front. (
Year 1996 – SIC 7515)
Explanation: Oxford has reduced its Input, Purchases, costs for money by using the better credit rating of the lenders to indirectly subsidize Oxford’s lending. This action reduces its rate of costs.
Chinese policy makers are aiding Konka in its international expansion with tax credits and cheap capital. (
Year 2000 – SIC 3663)
Explanation: Konka has been able to reduce the rates of cost on its Inputs, Purchases and Capital, by using government subsidies.
Briggs & Stratton relocated its assembly work to factories in the American rural south. The facilities are all non-union, which means much lower labor expenses. (
Year 2003 – SIC 3519)
Explanation: Briggs & Stratton reduced its rate of cost on its Input, People, by changing the source of supply.
Amazon gets a break on shipping rates by using a method called postal injection, in which it uses its own trucks to drive truckloads of orders to local post offices from Amazon warehouses. (
Year 2002 – SIC 5942)
Explanation: Amazon reduces the rate of costs on its Input, Purchases (costs per shipment) of shipping, by doing some of the work itself.
Southwest Airlines has historically purchased only used airplanes. (
Year 2004 – SIC 4512)
Explanation: The airline reduced the rate of costs on its Input, Capital invested in planes, by reducing the quality of the purchase.