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 low-cost labor:
|1||2300||2004||Number two discounter Target set up a sourcing center in Shenzhen, China. Levi Strauss closed its last two US sewing plants, and this spring it will shut down its three plants in Canada, completing a shift of production in China and other countries with cheap labor.|
|2||2339||2006||Chinese factories are ramping up production of knock-off denim meant to compete with the expensive Japanese fabric that has become the hallmark of premium jeans. Eddie Bauer, which mostly produced $50 jeans made with basic U.S. denim, will also start selling “premium” trouser jeans, trench coats, and skirts made of Chinese denim and priced between $68 and $98. On the high end, makers like Joie and Odyn are planning to use the less-expensive Chinese fabric for jeans with more costly hand-distressing or embellishment. Chinese denim has always been good, but basic. Rocawear, which makes $59-to-$128 jeans, to use Chinese denim for 95% of its line, up from 50% just two years ago.|
|3||3315||2006||Belden was in a strong strategic position following its merger with Cable Design Technologies. However, the company and its leadership wished to be great rather than just good. The CEO worked to increase efficiency and costs by closing factories in high-cost locales and shifting to lower-cost locations where freight is easily accessible. It began outsourcing the manufacture of its braided cord to China from the Netherlands, a move that Belden expects will result in savings of about $2 million a year starting in 2007.|
|4||3571||2006||IBM Corp. plans to invest $100 million over the next two years to fund business ideas generated by a world-wide innovation contest. IBM also has signed an agreement with China's Ministry of Education to develop courses for Chinese universities to teach skills for the information-technology and business services sectors. IBM hopes to establish the curriculum at 50 Chinese universities over the next two years.|
|5||3711||2004||U.S. auto giants have begun pushing their suppliers to take advantage of the plunging cost of manufacturing in China and do the outsourcing for them. Big auto supplier Delphi Corp. has found savings of as much as 40% by shifting production to China. Last year, Delphi shipped roughly 20% of components produced in China to North America and other destinations around the globe.|
|6||3714||2006||China is shifting its manufacturing resources to increasingly sophisticated goods, as shown by its rapid emergence as a global powerhouse in the auto-parts industry. Last year, China for the first time exported more parts than its fast-growing auto industry purchased from abroad. Quality has improved so much that major Western auto makers like Volkswagen AG and DaimlerChrysler AG say they plan in coming years to buy billion of dollars of Chinese-made components. China continues to evolve as a manufacturer, posing new challenges for rivals in the U.S., Europe, and Japan. After earning its stripes as a maker of simple consumer goods, such as furniture and textiles, China is quickly coming to dominate more labor-intensive parts of the consumer-electronics business.|
|7||4812||2005||While French telecom-equipment maker Alcatel SA and other Western telecom gear makers have focused on penetrating China, Chinese equipment companies have set their sights abroad. To better compete, Alcatel, for one, has focused on trimming costs by improving the design of its products, pressuring suppliers to reduce their prices and shifting its manufacturing to lower-cost areas. About 70% of Alcatel's manufacturing of equipment for high-speed internet connections now is all done in China or Mexico instead of Western Europe. And Alcatel is focusing on more sophisticated products, such as equipment that enables telecom operators to supply consumers with video, as well as voice and data, over their telephone lines.|
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