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%.
C. Change the components of the rate of costs to reach a lower total rate:
Sometimes it is possible to break the price of a purchase into its component parts. Then the company may seek to substitute a less expensive component for a more expensive component to reduce the effective rate the company pays on its purchases.
Change the basis of payment:
Make payments fixed vs. variable
|1||4522||1997||Variability of expenses is minimized through long-term agreements whereby KLM Royal Dutch and GE provide aircraft and engine maintenance at a fixed cost per flight hour.|
|2||5122||2006||Distributors have forged new agreements with distributors in recent years, changing the ways they do business. Manufacturers have created a fee-for-service model. Drug makers pay distributors out-right for the work they do. In the past, distributors were compensated indirectly, via fatter gross margins and discounting. The manufacturer pays the wholesaler for the distribution function, the wholesaler provides a bit of data and insight and does not hoard inventory, and distributors, such as AmerisourceBergen, end up with a very efficient distribution model with a lot less inventory than before.|
|3||7999||2006||StubHub Inc. is a leading Internet player in the burgeoning market of ticket reselling. StubHub also altered its initial strategy for its agreements with pro teams that help match season ticketholders with StubHub. Originally, the company would split commissions with the teams on sales of season ticketholders' extra seats. But under the newer deals it has been striking with teams, StubHub keeps all of the commissions and instead pays the teams a straight fee for promoting its Web site and providing contact information on their season ticketholders.|
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