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%.

F. Change source of supply to a less expensive supplier:

A change in the supplier relationship may enable the company to switch to a less expensive supplier. The supplier may be less expensive because it has lower costs or because it reduces the company’s logistic expenses.

Source from new suppliers in better locations for costs:
Near sales markets

No. Industry SIC Year Notes
1 2834 2007 VTI could not bring an artificial liver to market in America because it could not find enough people to participate in its clinical trials. It turned to China, which has huge numbers of patients with cancer, diabetes, cardiovascular issues and infectious diseases. It is expanding research and testing facilities to take advantage of low costs, the availability of patients and to comply with Beijing regulations that stipulate drugs must be tested locally before going on sale. Running a trail in China may cost as little as 15% of what a company would pay in the West.
2 3571 1995 Flextronics and Nam Tai, contract manufacturers, are expanding in China, expecting the country to become a major world electronics production base and market.
3 3571 2003 IBM's iSeries and pSeries midrange servers for the Asia-Pacific market used to be made in Rochester, Minnesota but now are made in IBM's plant in Dublin, Ireland to save on labor and shipping.
4 3711 2005 The three big Japanese auto makers, Toyota, Honda and Nissan, are insulated from currency swings because they build significant numbers of vehicles in the US. That also pushes them to cut prices, because they have an incentive to prop up US production and avoid layoffs. And with lower employee-related costs contributing to heftier profit margins, they also have some insulation against the ongoing price war in the US market.
5 3721 1995 Whether Boeing, Airbus or MD get a new jet order, a lot of the jobs created will be in Asia, not in the US or Europe. Labor costs are lower there, the planes will be for Asian carriers, and the planes will be built by partnerships involving Asian companies.
6 4512 2004 Airlines are cutting fuel bills by cramming their tanks with jet fuel in cities where it's less expensive. Like Southwest, most of the airlines use computer programs. Frontier Airlines started tankering significantly this year, hiring an aeronautical engineer to design a computer program that calculates potential savings. Frontier says it's poised to save at least $1.8 million over a year. UAL Corp.'s United says its tankering program could save it up to $6 million over 12 months.
7 5411 2007 As energy costs rise, many industries have been forced to make gains in efficiency. However, the process is complicated by the fact that companies are often reluctant to make big investments in energy savings. Wal-Mart is working to cut fuel costs by buying produce closer to the customer.

<<Return to Reduce the Rate of Cost