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.
Offer security in return for lower rate: Offer supplier longer term contract
|1||0||1991||A McKinsey survey of 39 German assembly companies found that the best performing companies source from fewer suppliers, have longer-term relationships with suppliers, jointly develop products, and entrust a larger share of quality control to suppliers than less successful companies.|
|2||3312||1989||Timken has Partnership for Progress program, in which partners were carefully selected and vendors are rewarded with long-term contracts and increased volume.|
|3||3711||1996||Instead of forcing suppliers to win its business anew every 2 years, Chrysler now gives most of them business for the life of a model and beyond; detailed contracts have given way to oral agreements.|
|4||3711||2004||DaimlerChrysler announced plans for a $1.2 billion factory expansion in Ohio under an unusual agreement that would allow it to share the cost of rolling out new models for the U.S. with its contractors. The agreement allows contractors to own vital parts of the manufacturing process. Suppliers will pay $300 million to construct three buildings, including the paint shop and the body shop that will help in the assembly of two new vehicles. DaimlerChrysler hopes such agreements could reduce the investment required to develop new models and help it produce a broader array of vehicles down the road.|
|5||3724||1995||In 1993, Allied-Signal offered to double its orders from Mech-Tronics in exchange for a 10% price cut.|
|6||4513||1995||UPS has signed 5-year contract to become preferred carrier for JC Penney's small package air deliveries. UPS will handle 98% of residential deliveries for Penney's catalog division & about 1/3 of shipments between Penney & its merchandise vendors.|
|7||5331||2004||Suppliers working with Wal-Mart get long-term contracts in return for lowered costs, which can motivate firms to seek ways to cut costs and improve their productivity. On the downside, Wal-Mart's relentless cost pressure can lead vendors to cut corners.|
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