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||1521||2004||Prefabricated building companies are revising their images with custom homes. Detailed drawings and numbered panels are provided for the workers who assemble the homes while all the sections complete with windows are fabricated in Estonia. The cost is 20% less than traditional construction methods and boasts higher quality and fewer defects.|
|2||2844||2004||Avon expanded its cosmetics business globally by rebuilding its manufacturing and transportation infrastructure from top to bottom. Avon's new end-to-end view also changed how the company works with suppliers. The company used to seek out the least expensive material and buy in large volumes to keep costs low, but that didn't necessarily mean the lowest price equaled the lowest total cost. Today, Avon buys most of its inventory from suppliers close to its factories in Poland and Germany. Although the company may pay a slightly higher price on a per-unit basis, managing fewer relationships with more flexible, responsive suppliers resulted in a lower cost.|
|3||2844||2004||Avon expanded its cosmetics business globally by rebuilding its manufacturing and transportation infrastructure from top to bottom. After creating a common database, the next critical step was to redesign the supply chain in a way that made sense operationally. Avon kept a manufacturing plant in Germany but consolidated other production at its plant in Poland. That expanded manufacturing capability in the heart of Avon's emerging markets. And it delivered major cost efficiencies, mainly because of the lower cost of labor. Avon also created a centralized inventory hub in Poland, near the production facility, to serve the company's European branches.|
|4||3621||1997||The company is absorbing start-up costs at its three new plants located in Reynosa, Mexico, the Czech Republic and Shanghai, China. These costs should decline as the plants mature.|
|5||3711||2004||Germany's auto wages are about $40 an hour including benefits, the highest in the world. Volkswagen is trying to reduce its dependency on German manufacturing. Japanese and Korean car makers are beginning to build factories in Central and Eastern Europe to increase their advantage over U.S. and European car makers. Toyota manufactures in Turkey for $3.60 an hour per worker. Workers at Hyundai's Slovakian plant earn about $4.80 an hour. Honda is introducing a new line in Europe that will be built in China, where wages can be as low as $1 an hour.|
|6||3721||1993||A few years ago Boeing hired, through a subcontractor, 300 Japanese engineers for its biggest airplane project. Then last year, Boeing said it planned to hire hundreds of engineers in Taiwan and Russia.|
<<Return to Reduce the Rate of Cost