Increase the Output Over Which a Fixed Cost ICD is Used
This action reduces the quantity of a unique fixed cost ICD used to produce a unit of Output by increasing the units of Output. For example, a new product design, or a new process patent, are both ICDs that have virtually limitless capacity for use. These are fixed cost ICDs. You pay for them once and you can use them over a virtually unlimited amount of Output. Their ICD/O ratios are limited only by the current demand level for Output.
Acquire similar organization to spread fixed cost ICDs
The acquisition of another organization with a similar business enables the company to take certain fixed cost ICDs in the form of processes and designs and use them over a larger amount of Output.
Buy company in same market: For cost reduction opportunity in larger business:
Leader buys a follower
|Johnson milks mature markets by gaining share through acquisitions, and fattening profit margins by pressing for operating efficiencies. It institutes quality programs to get continuous improvement that drives costs down.
|General Mills is considering acquiring RJR Nabisco's cereals. Would be a low-cost way of having new products: rolling out a new cereal costs millions of dollars.
|Mohawk does not pursue hostile takeovers, instead notifying candidates of their interest to acquire. From the signing of a definitive agreement, it sets up cooperative teams with the acquisition target to analyze every cost center and identify cost saving.
|Valero Energy has built its strategy around buying relatively inexpensive refineries and often upgrading them to process heavy, high-sulfur crude oil. Both this crude and the more desirable light, sweet crude are used to make gasoline, jet fuel and heating oil, although the heavy crude costs a bit more to process. But it also costs much less to buy than the lighter oil, easily offsetting the additional production costs and leaving the refiner with a hefty profit.
|Valero Energy's potential acquisition of refiner Premcor would bring Valero's annual revenue to about $70 billion. Premcor is strictly a wholesale supplier. Valero expects to realize cost savings of $350 million a year annually in the second year after closing the deal.
|Hasbro has reduced costs after having acquired the Tonka Corporation in 1991.
|Greyhound agrees to acquire all routes and some assets (450 of 1200 buses) of Trailways. Trailways failed to sell stock, company earlier.
|CPC agreed to acquire the baking business of Philip Morris Co.'s Kraft food unit for $865 million. Kraft's distribution system will help expand sales of CPC's baked goods.
|When NationsBank takes over a bank, it boots local management, rips down signs, fires workers, and absorbs the victim.
|Coventry grows through acquisitions. "These guys are typically buying health plans owned by hospitals."
|Travelers has bought the property-casualty unit of Aetna and combined the businesses. It hopes to chop $300 million in costs.
|Management expects cost savings of a little more than $1 million from the merger with OccuSystems, which include the elimination of certain administrative and duplicative services, such as annual reports, investor relations, lawyers, accountants, etc.
|When NHI acquires small money losing hospitals, it reduces staff and fixes lax accounting, employment, and inventory control.
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