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.

Make rather than buy ICDs:
Raw materials and components

No.	Industry SIC	Year	Notes
1	2000	1991	Gold Mine Natural Food is stepping up a program to collect used boxes from health-food retailers. It intends to recycle the boxes by using them itself, at a savings of $500-600 a week.
2	2273	1993	Shaw cut costs mercilessly and gained success and market share. S. makes virtually all its own yarn.
3	2273	1996	The current focus of capital spending has thus been towards continuous filament processing of pre-dyed yarns, which eliminates reliance on spinning mills. Shaw has adequate continuous filament processing to take advantage of these developments.
4	2510	1992	Masco now covers all furniture price points except the low end. Masco acquired several fabric companies Masco has advantage w/ economies of scale.
5	2600	1985	Scott to up production efficiency: includes equipment to make Scott self-sufficient in energy, and wood-handling system that should give Scott the lowest raw material costs in the industry. In Maine energy costs per ton paper fell from $140 to $40.
6	2621	1996	Mosinee makes 80% of its pulp internally. It can pass pulp costs on to customers for the 20% of its products made with purchased pulp.
7	3241	1991	Calmat's coal subsidiary provides it with 100% of its fuel needs.
8	3241	1991	TI started a coal-mining operation which produced half its fuel needs for its Texas cement plants in 1981.
9	3312	1997	Since scrap typically accounts for between 30% and 40% of costs and scrap prices are on an uptrend as a result of rising mini mill capacity, CMC's ability to internally supply one-third of its requirements is a meaningful competitive advantage.
10	3572	1996	Seagate also owns its own tape head manufacturing, which could lower costs in this area as well.
11	4813	2001	Lucent sold Sonet card interfaces for fiber optics long distance lines for $10,000 though they only cost $100 to make. So, Ciena and Corvis and Cisco began developing products to send internet packets directly over fiber to get around the Sonet cards.
12	4953	1997	ADSI has its own collection operations which serve more than 105,000 residential, commercial, and industrial customers.
13	7372	2006	As oil prices soar, some of the nation's biggest energy consumers are revamping their operations to shrink energy bills. Microsoft Corp. just installed 2,288 tiles of solar electric paneling at its Silicon Valley campus in Mountain View, CA, that can supply up to 15% of the campus' energy needs. That's important since California can experience blackouts in the summer.
14	7375	2006	While many companies have been installing solar power to reduce energy costs, none have gone as far as Google. The company plans to install a system which would generate 1.6 megawatts of electricity in the spring. Despite the massive scale, the project will only provide 30% of the company's power. However, the company hopes to encourage others and prove that a company can be green and profitable.
15	8361	1997	While many industry players lease their facilities through arrangements with healthcare REITS or other real estate investors, SNRZ has chosen to buy the majority of its facilities. The core of this strategy is careful site selection.

<<Return to Reduce the Rate of Cost