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%.
G. Expand in-house ICDs to reduce rate on purchased ICDs:
Sometimes it is better for the company to increase the activities (ICDs) inside the company in order to reduce the effective rate paid on purchased ICDs. This occurs when the price on purchased ICDs is high enough to allow the company to make a return on its investment by producing the same ICDs in-house rather than purchasing them from third parties.
Make rather than buy ICDs:
|1||1041||1997||Self-mining is being considered rather than contract mining. The change would lower costs to $200/oz.from $218/oz.|
|2||3535||1986||Frost Inc. formulated its own automation plan for about a third of the cost of outside proposals. Automation has cut prices by 30% while lifting gross margins to a respectable 35%. Sales per employee are up nearly 50%.|
|3||3711||2008||Toyota's advantage in U.S. labor costs is disappearing as its plants age and Detroit cuts back. To offset rising wages, Toyota is pushing plants to get even leaner. The company has set an on-site medical center at its San Antonio factory as an experiment in cutting health-care costs. Also, new hires will reach top wage after five years instead of three. And starting wage in the new Mississippi plant will be lower than Toyota's traditional $16/hr.|
|4||4899||2005||Comcast Corp. is forming its own nationwide fiber network so it won't have to rely entirely on satellites to beam TV signals among its local cable systems. Universities are taking lines at discount prices to form their own data sharing networks. Some banks, trading firms and large corporations have increased their interest in buying and maintaining their own fiber lines so they can save money and have more control over their connections. Buyers can get dark fiber lines on the secondary market for $35 a mile even though the average price is close to $350 to $400. A buyer is likely to pay $750 to $1,000 a mile to lease a desirable route down from $1,500 to $2,000 a mile. New buyers are smaller phone and Internet companies that have decided its cheaper to own their lines than to rent capacity on a network operation's system.|
|5||5211||1997||Menards is barely 1/5 the size of Home Depot, so it doesn't enjoy the purchasing discounts HD does. But Menard invested in a manufacturing facility that produces Menards' own products, cutting about 10% off the cost of going through a supplier.|
|6||7011||1993||Sunday River has capitalized on crowds at festivals by keeping control over amenities like day care, restaurants and ski schools that other resorts often contract out.|
|7||7372||1994||Last year Intuit (financial software) purchased San Diego's ChipSoft, publisher of popular TurboTax programs; intends to buy Parsons Technology which has programs to help get car loans and mortgages. Competing against Microsoft.|
|8||8069||2000||NovaMed owns all of its surgery centers and has avoided managed care.|
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