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.
Pay according to varying levels of efficiency: Pay for personal performance:
On employee profit contribution
|1||1623||2007||Even a few outstanding bills can have a dramatic influence on a small company's bottom line. As they do not have the resources to hire full-time collection agents, some are turning to alternative resources. Nicholas & Co. realized that many of their clients took more than a month to pay. In response, the company changed its sales-pay structure to base commissions partly on how much of a sales representative's accounts are current and how long customers take to pay. Previously, representatives received their commissions before customers paid their bills, reducing their incentive to go after delinquent clients. Stricter payment standards were imposed for high risk clients. This has reduced the firm's reliance on borrowing although some staff initially resisted the change.|
|2||2800||1988||Monsanto hands out an annual $50,000 prize to the scientist or team of scientists who have come up with big commercial hits.|
|3||3571||1994||IBM is tying 60% of sales-force commission to the profits they bring in (last year only 20%).|
|4||4513||2004||FedEx has a service called FedEx Custom Critical that uses five different types of vehicles to cover all the services the customer might need and the customer’s cargo is the only one carried in the truck. Some hauls are delivered the same day of pick up. Most of the shipments are picked up within 90 minutes of receiving a customer’s order and the service delivers faster than airfreight. 96% of the time FedEx delivers on time. The company uses independent fleet truck drivers contracted on demand and pays these contractors 58% of the shipping costs while the drivers pay for the fuel. The dispatchers are key to this business. They must make quick decisions and understand the driver’s capability. The company uses a two-way satellite communication system to locate instantaneously any of the trucks in the fleet. Then software determines what trucks the dispatcher should send and where. A system of computers immediately alerts a driver if he falls more than fifteen minutes behind schedule. To keep the product personal, FedEx broke the company into Customer Assistant teams, each of which always deal with the customers in the same area.|
|5||6531||1987||At Re/Max, the agent who handles the sale of a property keeps all of the commission, paying any expenses incurred. Re/Max receives a management fee that is a predictable cash flow. The average Re/Max agent handled 60% more deals than conventional-agency peers.|
|6||6722||2004||In a world once dominated by Wall Street stock-trading houses like Citigroup Inc. and Goldman Sachs Group Inc., Fidelity Investments and other big money managers now hold most of the cards. Fidelity has cut its mutual-fund trading costs by hundreds of millions of dollars per year. One of Fidelity's key tactics is persuading brokers to commit their own capital on many Fidelity trades. When a broker commits capital, it in effect buys shares from Fidelity, then tries to sell them on the market. That can leave brokers swallowing losses when a stock keeps falling.|
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