Reduce the Units of Input Not Producing Output
Reduce units of Input (I) available but not producing Intermediate Cost Drivers (ICDs). This action makes Input levels more directly variable with the quantity of the ICD by reducing the amount of the available Input that is wasted or idle. For example, an employee (I) might produce one subassembly (ICD) per day. During that day, the employee spends a total of one hour waiting for parts for the subassembly. If the Company could eliminate that one lost hour of the employee's work day by providing parts in a more timely manner, the Company could reduce the number of employees (I) needed to produce the same subassembly (ICD) by 1/8th.
A. Assist Input in increasing ICDs.
Recognize efficiency. When people understand that the company is measuring efficiency, they pay more attention to what is measured.
Add evaluation of levels of efficiency: Establish internal benchmarks of efficiency:
|1||0||2006||Companies can curb costs even before employees get on a plane or make an unauthorized stay at a 5-star hotel. T&E audits can be outsourced to India so managers can review employee spending daily instead of monthly. Many companies now make workers pay out of pocket for egregious and unapproved deviations. Email alerts about overdue expense reports are copied to superiors if unheeded.|
|2||3312||2007||Nucor relies on wireless technology to work its furnaces at maximum capacity while preventing overheating. The systems are often easier to set up and cheaper and easier to maintain.|
|3||5311||2002||The vice president of operations and customer service employs a team of a half-dozen mathematicians who devise models for, say, the best way to spread book inventories throughout Amazon's six warehouses in the U.S.|
|4||5331||2007||As energy costs rise, many industries have been forced to make gains in efficiency. However, the process is complicated by the fact that companies are often reluctant to make big investments in energy savings. Wal-Mart controls energy usage in all its stores from Bentonville, Arkansas. A monitoring team of 100 specialists keeps track of energy usage and controls key systems, including air conditioning. The team monitors for broken equipment which can cause energy waste and food spoilage.|
|5||5511||2006||CarMax is the nation's biggest used-car supermarket. Everyday CarMax's system looks at every car it is offering for sale – how many test drives it's been taken on, how many credit applications it has attracted, how prominent a space on the lot it has occupied. If the car isn't likely to sell within two weeks, CarMax lowers the price. The value of a late-model used car declines 10% to 20% a year, and CarMax's after-tax margin is only 2%. Cars remain in inventory for, on average, about a month.|
|6||5511||2006||CarMax is the nation's biggest used-car supermarket. As CarMax was struggling when it first started, along came AutoNation, the giant new-car dealership group, with a plan to compete with CarMax head-to-head in used cars. In December 1999, after losing $1 billion, AutoNation gave up on the used-car-superstore idea. With AutoNation out of the picture, CarMax halted its growth so it could get healthy. It did that with a database. By tracking, with help from a handful of outside sources, everything they can about every car CarMax ever appraised, bought or sold. CarMax's 600 inventory buyers can now tap into enough information to guide them to that perfect price – the one that will persuade the customer to sell CarMax the car but will allow CarMax to make a profit.|
|7||5812||2007||In order to reduce energy consumption, McDonald's introduced a system which monitors and controls the equipment, lighting and temperature at McDonald's outlets. The equipment, provided by Echelon technologies, allows the restaurant to adjust usage according to peak times. While existing franchisees will not be required to purchase the expensive equipment, new and remodeled outlets will have it installed as part of the standard procedure. The company hopes to reduce usage by 10%. This is part of a larger trend as prices for commercial power rose 23% in just one year.|
|8||6021||2007||Real estate is often the largest long-term cost after employee salaries and benefits and analysts suspect that the average company wastes 5% of its annual occupancy costs . Companies are turning to software produced by companies like Manhattan Software to better manage their real estate and cut costs. The software monitors prices, clauses and dates in the contracts and can also help evaluate new sites for stores. Bank of America used Manhattan's software to consolidate multiple offices.|
|9||6141||2006||Companies can curb costs even before employees get on a plane or make an unauthorized stay at a 5-star hotel. Today, credit card companies and online upstarts have revolutionized the process with an array of Web-based tools and electronic filing systems. American Express Co. now spits out reports that highlight, for instance, the gap between company approved compact car rentals and prohibited upgrades to luxury cars. It can also aggregate what items were paid for in cash and how often receipts fall under the company's daily cash threshold. MasterCard totals commercial transactions daily and shoots the data directly to companies. These systems also help companies negotiate bulk discounts with suppliers.|
|10||6141||2008||MasterCard, in partnership with the Royal Bank of Scotland, is launching a corporate card that allows companies to set strict parameters on which restaurants, bars, and hotels their employees can patronize. It will help reduce maverick spending, improve compliance with corporate policies, and simplify accounting. On inControl's web interface, a supervisor can set up an overall spending limit for an individual employee or an entire staff category, as well as compile a list of approved hotels and restaurants. They can also choose to have charges declined after a certain hour or at a questionable establishment. A feature allows managers to receive real-time updates on their employees' spending via email or text message. The system also allows companies to issue cards that are good for one time use or expire in a week.|
|11||7372||2002||Thirty production plants now employ dynamic performance measures (DPM), as the system is called. DPM comes with an airplane-like dashboard with dials on which yellow arrows, moving among green, gray, and red ones, indicated whether consumption of a chemical or another ingredient is within limits, borderline, or excessive.|
<<Return to Reduce Input Not Producing Output