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%.

E. Request supplier to lower the price of the input:

Negotiations with the supplier may sometimes result in a lower unit price for the input.

Impose rate reductions on suppliers

No. Industry SIC Year Notes
1 2834 2004 Because of the patents and high cost of drug development, drug companies often have to enter into licensing agreements with multiple parties. Often, royalties to the parties can eat up 10% of revenue. Abbott Laboratories is now trying to muscle its biotechnology partners into accepting lower royalties which could impact future negotiations. Cambridge Antibody Technology Group, which created the arthritis treatment Humira, is fighting to stop Abbott from cutting royalties from 5% to 2% of revenues.
2 3711 2005 Ford Motor Co. plans to overhaul its global purchasing process to offer larger, long-term contracts to a smaller group of suppliers on future models, a switch that could save billions of dollars a year. Ford is following General Motors example by telling suppliers they will have to match prices for products manufactured and shipped from low-wage countries. Ford will also agree to pay suppliers upfront money for their engineering, development, and testing.
3 3711 2006 General Motors. Corp is looking to cut $2 billion from GM's purchasing bill every year indefinitely and ax many of its 3,200 suppliers. GM is being particularly brutal by cutting off any supplier that demands higher prices for its parts. GM sees outsourcing to low-wage redoubts or inviting foreign companies to set up shop in the U.S. as fair game. Lately, GM has been buying many parts from China. GM has boosted its Chinese parts bill by 60%, to almost $3 billion, since 2003.
4 3800 2004 In today's cut-throat world, companies are fighting to stay ahead by cutting costs. When recession struck Marlow Industries Inc., which makes temperature-control instruments for high-tech companies, and revenue dropped 60%, the company acted fast. It moved low-end production to China, automated work and removed a layer of midlevel managers, including a personal assistant who booked travel. Employment plunged from 800 to 200 workers. Those who kept their jobs had to take 5% pay cut; managers took an even larger cut.
5 4111 1990 On Greyhound strike: management has hired substitute drivers who after 3 or 4 weeks of training are earning top wage instead of working 10 years up to it; and management has assured that these jobs are permanent. Strikers feel total loss of morale.
6 4512 1996 Seniority-based "step" wage increases have been eliminated for nonunion ground workers at America West.
7 4512 2005 Despite early signs of victory, discount airlines are getting squeezed by traditional carriers and a new set of insurgents. Delta's revamp is enabling it to become a more-viable competitor. After years of dismissing low-cost carriers as fly-by-night charter operations, Delta, facing bankruptcy, last year mapped out a survival strategy based on cost cuts and a retooled domestic pricing structure. In August last year, the airline began a test of its new fare formula called SimpliFares in Cincinnati. Since its introduction, Delta's passenger traffic there is up about 30%. In November, Delta pilots approved a 32.5% paycut with the airline minutes from its seeking bankruptcy protection. Delta also imposed deep cuts on other workers, including a 10% salary reduction for flight attendants. Altogether, it has cut more than $12 billion in operational costs since mid-2002.
8 4513 1987 Flying Tiger was threatening to liquidate until its pilots accepted deep wage cuts & work-rule changes.
9 4724 2002 When airlines cut their commissions to travel agents in recent months, online travel firms stood to lose millions revenue.
10 5995 2002 Last April, Luxottica demanded price cuts from the chain's suppliers and all except for Oakley accepted the terms, so Luxottica cut its Oakley order by two-thirds.
11 7514 1995 Avis has had scattered layoffs, salaries have been frozen for 60 Vice Presidents, and merit raises for managers have been cut in half.

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