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.

Purchase further in advance of need

No. Industry SIC Year Notes
1 2111 1997 Forward buying, where more product is bought at lower prices in anticipation of a price hike, is likely to be increasingly difficult because price increases will be phased in over the years by manufacturer.
2 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.
3 4724 2002 gets the rooms cheap because it markets itself as a place for hotels to unload rooms that they otherwise would not be able to sell. The company contracts a year in advance with individual hotels for guaranteed blocks of rooms at set prices.
4 4813 1996 Dial-around companies buy long-distance capacity in bulk from phone giants and resell it at cut rates.
5 4924 1986 CNG has the largest underground storage facilitates in the U.S. Enabled the company to buy gas in summer when prices were low and store it for winter use.
6 5211 1998 Lowe's is building five new one-million-square-foot distribution centers around the country that permit the company to buy larger quantities of products from vendors, resulting in better volume discounts.
7 5331 2002 Where 99 Cents Only stores purchase more than they can sell in their 142 stores, they run the surplus through their $56 million dollar in sales Bargain Wholesale division which sells primarily to other dollar stores.
8 5651 1997 Ross turned around in 1992, which involved buying a larger portion of its merchandise at the end of the season, when discounts are highest, and storing it in a 550,000-square foot warehouse in Newark until it comes back into season.
9 5712 1987 To keep prices down, IKEA buys a whole year's supply of goods in advance for all its stores throughout the world, then bets that its projections are right.
10 5812 1997 Starbucks and several other large chains purchase their coffee months in advance through forward contracts.
11 6141 1996 On a $100 check Transmedia gives a restaurant $50 cash upfront. Then it's up to Transmedia to get customers to go to the restaurant and eat up all those meals it bought up at 1/2 price. Transmedia then refunds 25% of $100 check to customer.

<<Return to Reduce the Rate of Cost