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.

Coordinate all company purchases from one or a few locations:
Do all purchasing from a few locations

No. Industry SIC Year Notes
1 1521 2005 Pulte Homes Inc. is insulating itself from downturns. In rethinking what a homebuilder should look like, Pulte has plucked ideas from all over the business world. It seeks to use its scale to build a more efficient supply chain, using Wal-Mart Stores Inc. as its model. Homebuilders usually let subcontractors buy materials and fixtures. Now, Pulte buys directly from manufacturers in bulk, using its heft to get a better price. By offering fewer options, and buying on a national scale, Pulte will save 5% to 10%. Like Wal-Mart, Pulte will use regional distribution centers to deliver materials for a house just when they are needed.
2 1521 2005 To help keep its homes affordable, Technical Olympic uses as many prefabricated components as possible. It also has adopted project-management and inventory-flow technology to make sure things happen where and when they should. The system also calls for builders and superintendents walking around with PDAs, entering every stage of construction in every house and sending that information in on the network. That's an immediate edge over the smaller, local builders with whom Technical Olympic mainly competes. Another advantage over the little guy is discount prices on large quantities of appliances.
3 2834 2005 In an attempt to manage healthcare costs, General Motors requires its workers to fill prescriptions for chronic conditions through the mail-order operation of Medco Health Solutions and has recently banned workers from filling prescriptions at the Walgreen Co.
4 2834 2007 As Medicare reimbursement procedures become more complicated, some doctors are taking part in the government's Competitive Acquisition Program which allows doctors to order drugs directly from a vendor which then bills Medicare. The doctors are then paid only to administer the drug. However, it has been criticized for being complicated and requiring uncompensated administrative work.
5 3312 2004 The purchase of International Steel Group by Mittal Steel will displace Arcelor as the number one producer of steel. The combined operation will have $30 billion in revenue and 165,000 employees throughout the world. The deal could encourage consolidation in the still fragmented industry. Strong demand from countries like China and rising prices are spurring interest in acquisition. Ispat International will merge with LNM Holdings which is controlled by Mittal. The combined company will have strong positions to negotiate in raw material pricing, such as coal, coke and iron ore. This access will be invaluable for ISG which has been undermined by insufficient coke and iron supply. Despite the mergers, Mittal will account for less than 6% of the global output, illustrating how fragmented and large the market is.
6 3571 2006 Hewlett-Packard is making sweeping changes in the way of HP operations. The company will soon replace 85 loosely connected data centers around the world with six-cutting edge facilities. It will also be slashing thousands of smaller projects at the decentralized company to focus on a few corporate-wide initiatives – including scrapping 784 isolated databases for one companywide data warehouse. If the changes are successful, HP's annual spending on tech should be cut in half in the years ahead, from $3.5 billion in 2005.
7 3571 1995 NEC to buy 20% of privately held Packard Bell. Packard Bell could use the cash, and will be able to more readily obtain NEC components short in supply. NEC will cut costs by pooling purchases with Packard Bell.
8 3621 1997 If all the plants can speak to each other, then it is easier to determine the materials needed by the organization as a whole and one larger order can be placed for a specific material rather than five different orders, thereby increasing Baldor's purchase.
9 3674 2004 In 1968, Robert N. Noyce, co-inventor of the integrated circuit, Gordon E. Moore and chemical engineer, and Andrew S. Grove left Fairchild Semiconductor International Inc. and founded Intel, short for integrated electronics. They set a pace of technological innovation, with the development of a chip that can be packed with 1.5 billion transistors each. More than 80% of the world's 1 billion-plus PCs run on Intel chips. They centralized manufacturing in giant chip fabrication plants, helping them undercut competitors, encouraged their engineers to constantly think of new ways of doing things faster, cheaper and more reliably. Massive Japanese investment in the chip industry nearly bankrupted the company in the 1980's, forcing Intel to sell 12% of the company to IBM and dump the memory business and focus on microprocessors.
10 3711 2008 BMW and Daimler's Mercedes-Benz division are in talks to explore teaming up developing, producing, and purchasing car components. Other rival companies that have parent companies, such as Audi of Volkswagen, Ford Motor's Volvo, and Lexus of Toyota, are able to leverage the resources and scale. Sharing parts and research, plus making bulk purchases of raw materials such as steel allow them to squeeze costs. Audi has been able to use VW's diesel-engine technology and is benefiting from VW's economies of scale purchasing. Lexus has been able to launch a hybrid luxury sedan thanks to hybrid technology pioneered for Toyota.
11 3711 2004 Originally, Ford tried to boost profits and slash costs by using the platforms in luxury cars that were used in Ford's lower-end models which damaged the exclusive images of the brands as customers were unwilling to pay more for a brand that shared a foundation with a more humble car. This policy has been replaced and Ford executives manage to cut costs by using standard Ford parts when possible, installing the same navigation and sound systems across the luxury brands and pooling individual resources for logistics, information technology, engine development and back-office expenses. Each undercarriage will be built exclusively for the brand but each will derive as many vehicles as possible from the platform.
12 3724 1992 Allied-Signal is generating major savings by consolidating purchases of raw materials at single locations, resulting in better prices and lower transaction costs.
13 3845 1992 Coulter found that the same 3-way solenoid valve cost $20.87 in France, $17.50 in the UK, and $10.54 in the U.S. By consolidating the purchasing of this valve, Coulter saved over $100,000 annually.
14 3861 1992 In the 1970s, Xerox companies controlled their own suppliers, assembly plants, and distribution channels. They had little communication between them. In 1980s, faced with competition, Xerox created a central purchasing group with representatives from the various companies. It trimmed its suppliers from 5000 to 400. Xerox now saves over $100 million annually on raw materials.
15 4213 1997 Yellow Freight System has 30,000 vendors and is now in the process of centralizing its purchasing program.
16 5112 1995 In the past, Boise Cascade Office has chosen vendors & let its distribution center decide when to reorder from them. Now it will pick out about 3000 most frequently ordered items for centralized buying.
17 5211 2004 The CEO of the Home Depot began undoing part of the Marcus and Blank legacy by centralizing purchasing to achieve economies of scale, and he made sure inventory was restocked outside store hours, to allay complaints about messy aisles.

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