Brainstorming Ideas: 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.

Service in-house rather than through outsiders

No. Industry SIC Year Notes
1 3571 2000 Emachines hope to make up for its thin margins by getting a steady stream of revenue from offering Internet access in house and through its investor AOL.
2 3579 1996 At Motorola's Automotive and Industrial Electronics Group, it was determined that not only would the volume of service allow an in-house copier to pay for itself, it would also allow a reduction in the charges made to in-house customers.
3 4512 2004 Historically the company has purchased only used airplanes, which they serviced themselves rather than outsourcing maintenance.
4 5411 2001 Webvan delivers products from its own network of high tech warehouses, each of which costs $30 million. In comparison, Tesco delivers directly from its 639 stores.
5 6300 1988 Doctor-owned insurance companies account for about 55% of all malpractice insurance written.
6 7500 1988 Valvoline is creating a financial subsidiary and will use Ashland's and Valvoline's good standing to borrow at favorable rates. Valvoline then plans to pass on the savings to franchisees, giving them rates 4-5 points lower than Jiffy Lube or Quaker State's franchisees.
7 8011 1997 Additionally, owning an independent lab should dramatically lower Concentra's cost for providing such services, since the company previously out sourced drugs-of-abuse testing to multiple third-party labs.

<<Return to Reduce the Rate of Cost