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%.
A. Purchase in Larger Quantities:
Purchase in larger quantities to get lower unit prices. In most markets a customer who purchases in larger quantities gets a lower unit price than one who purchases in smaller quantities. These concepts increase the amount of purchases the company makes at one time.
Warnings and Advice
|1||2273||1996||Shaw starts with a decided advantage: It's immense size enables it to buy raw materials, which make up as much as 60% of the carpet, for 15-30% less than many rivals.|
|2||2844||2004||Avon expanded its cosmetics business globally by rebuilding its manufacturing and transportation infrastructure from top to bottom. Avon is working to standardize its containers to cut costs and increase efficiency. Once convinced that every product should have a distinct bottle and shape, the company now realizes that cap, color, and labeling can be sources of differentiation too. Manufacturing can be more flexible because changeover time if often zero. Suppliers can now run Avon's containers down more efficient high-speed lines. And product costs are lower.|
|3||3312||1986||After Longshoremen union won a promise of no layoffs, wages average $50k/yr plus benefits. But, the number of jobs has fallen to 9600 from 16,400 in 1960.|
|4||3674||2008||Many companies show the need for broader management strategy that addresses how they are creating, sharing, and using knowledge. Intel Corp.'s Technology and Manufacturing Group has a content-distribution approach aimed at helping workers perform closely scrutinized tasks such as capital equipment purchasing. So called dashboards – Web pages set up to pull, organize, and display real-time information from various sources – alert capital-equipment purchasers to critical transactions, price changes, and anything else that might help them make decisions, such as when to buy a particular commodity.|
|5||3714||2005||US suppliers have shed about 179,000 jobs since 1999. Some of those jobs were lost to better productivity, but some were lost because relentless cost-cutting pressure from the big US auto makers has forced suppliers to move operations overseas. "They're squeezing suppliers to pay for the rebates and health costs."|
|6||3721||2006||Faced with mounting problems on two major jetliner programs, Airbus is attempting to overhaul its operations. The company hopes to streamline its procurement practices. Airbus spends $18 billion on supplies and relies on 1,000 suppliers. Components and raw materials are its largest expenditure. Airbus hopes to build more productive relationships with its suppliers rather than focusing exclusively on price. It also hopes to involve them more heavily in the design process. Goodrich Corp. says that it has noticed a positive change in the attitude of procurement staff and has signed a contract with the company for further orders.|
|7||9700||2007||While the Department of Defense has expressed interest in increasing fuel efficiency and reducing costs, it is unclear how much oil the military actually uses. This makes it difficult to see the effects of energy saving initiatives.|
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