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:
Eliminate one of two levels of intermediary
|1||2321||2000||Most foreign suppliers use importers in order to distribute their goods. Gildan, however, sells directly to European distributors with duty-free access.|
|2||4812||2006||Direct contracting helps big employers save money by cutting out the middleman and extra layers of bureaucracy and cost. When employees need care, they pay a co-pay each visit.|
|3||4813||1999||The key for Leap is selling directly through local store owners.|
|4||4832||1997||Broadcast rights to major sporting events, such as the newly acquired rights to the Cleveland Indians, can be programmed and sold from a central location, thereby increasing the quality of programming of smaller markets and reducing costs.|
<<Return to Reduce the Rate of Cost