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.
Sell direct rather than through intermediaries:
Form company owned customer or distributor
|1||100||1994||North Dakota farmers to form a coop in order to turn their grain into pasta; profits to be distributed to the farm owners. Grain is to be purchased by the coop at market price. Usual route is to sell grain to a food processor. Coops a trend.|
|2||2273||1996||With the advent of tufting technology in the 1950's, mass production of carpets began to explode. Big fiber producers like West Point Peperill and Fieldcrest integrated forward into this growing outlet for their end products.|
|3||2300||1994||Many apparel manufacturers becoming retailers themselves, opening factory outlets to protect their retail distribution.|
|4||2452||1995||Oakwood sells mainly through its own centers rather than to independent dealers.|
|5||7500||1987||Quaker State has franchised only about 40% of its 210 stores and plans to expand mostly with company-owned stores. Owning ultimately offers a higher ROI estimated to total about 19% annually at company-owned stores.|
<<Return to Reduce the Rate of Cost