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%.

A. Purchase in Larger Quantities:

Purchase in larger quantities to get lower unit prices. In most markets a customer who purchases in larger quantities gets a lower unit price than one who purchases in smaller quantities. These concepts increase the amount of purchases the company makes at one time.

Combine purchases with another purchaser: With similar unrelated institutions such as coops and associations

No.	Industry SIC	Year	Notes
1	0	2007	Lobbying and legislation has made it easier and cheaper for small companies to offer health insurance to their employees. The HealthPass purchasing cooperative handles much of the backend work for employers. It gives small companies access to more than 30 coverage options. By banding together, entrepreneurs can take advantage of the discounts granted to larger companies.
2	2731	1990	Booksellers association has its own subsidiary, Booksellers Order Service Inc., which sells small orders of books to independent book stores at bulk rates. (Group buying to compete against large chains).
3	3334	1991	Kaiser, Reynolds, and ALCOA all worked together to negotiate with unions.
4	3711	2008	BMW and Daimler’s Mercedes-Benz division are in talks to explore teaming up developing, producing, and purchasing car components. The talks seek to identify components and technologies where both companies could cooperate on lowering costs without diluting their brand values or conceding a competitive advantage. Both companies have appointed key executives to head “profitability teams” to explore ways to increase their profits.
5	3851	1989	Optometrists (losing market share) in Michigan have formed a buying group in hopes of getting volume discounts from lens manufacturers and other suppliers.
6	5112	1997	Small stationers joining to form buying cooperatives in order to lower costs to compete with office superstores like Office Depot, Staples. Before the coming of the superstores, customers were paying high prices for office supplies, profits were fat.
7	5900	2008	Refined group buying services in China, called Tuangou, are proving to be more successful than the original group buying services in the U.S./Europe. While earlier online groups gave shoppers discounts if enough people agreed to buy an item by a deadline, Tuangou services form teams of shoppers who visit stores to negotiate deals in person and take immediate delivery of their goods. Sometimes theTuangou service tells the vendor how large the group is, and sometimes the vendor announces discounts in advance.
8	5900	2008	Refined group buying services in China, called Tuangou, are proving to be more successful than the original group buying services in the U.S./Europe. Original group services depended on website traffic and commissions per transaction. Tuangou sites are also free to customers. Instead, they charge sellers for registering on the site and for advertising. Sometimes the Tuangou sites also offer and charge fees for additional web page design and postings.
9	5900	2008	Refined group buying services in China, called Tuangou, are more proving successful than the original group buying services in the U.S./Europe. The original services linked the price to the number of customers that enlisted for the product, so customers wouldn’t find out the price until the deadline. Tuangou services sometimes announce the size of a discount on the site ahead of the scheduled buying events, but for the most part, they leave the negotiations to the shoppers, who choose leaders among themselves to conduct the bargaining. Typical discounts are 10% to 30% of the MSRP. Shoppers know what the final price is at the end of the event, which is key to satisfied customers.
10	5943	1997	Small stationers joining to form buying cooperatives in order to lower costs to compete with office superstores like Office Depot, Staples.
11	6324	2001	Many commercial medical-malpractice insurance carriers like St. Paul were bloodied by the price wars in the 1990s. In the early nineties, physician-owned carriers began showing good profits, which attracted commercial carriers.
12	7011	2002	A buying exchange for hoteliers and its Web site, Choicebuys.com – shampoos, bedding, TVs and so on-brings in on $12 million a year.
13	7375	2004	Wireless internet is gaining popularity as more neighborhood groups set up Wi-Fi networks to deliver access for free. A Seattle based company called Speakeasy, an independent broadband access provider, actually promotes wireless network communities. Speakeasy customers subscribe to the service and then become “administrators” who can set up wireless zones within an available area – usually 300-500 feet without any unnecessary fees and restrictions. However, there are rising complaints from other companies that provide internet access, especially cable companies who say sharing bandwidth is just like sharing cable service.
14	7379	2000	Commerce One developed the world’s first Internet based B2B procurement network, where companies can buy everything from office supplies to telecommunications equipment. The firm is expanding through partnerships with blue chips such as Microsoft and GE.
15	7900	1994	Trend to larger travel agencies. Airlines making noises about cutting commissions to agents, typically about 10%. Huge travel agencies can counter such threats through purchasing muscle. Many small agencies forming alliances.
16	8099	1996	MedPartners/Mullikin will acquire Caremark International, creating the largest U.S. manager of doctors’ groups. Part of a trend to control medical costs through consolidations.
17	8221	2005	The University of Minnesota, University of Iowa, Iowa State University and the University of Wisconsin will buy their own link to a nearby research hub. It will cost each school $2.5 million to $5 million over five years. The universities will be able to use the network for engineering experiments they wouldn’t be able to do with a rented fiber system.

<<Return to Reduce the Rate of Cost