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%.

B. Reduce the quality of the input used by using a cheaper form of the input:

The reduction in quality should bring with it a reduction in the rate paid for the input.

Warnings and advice

No.	Industry SIC	Year	Notes
1	0	1992	Purchasing tip: have raw materials shipped in a lower-cost form. A pharmaceutical company saved 10-15% by buying chemicals in flakes rather than granules.
2	2052	1998	Trying to cut costs, Nabisco has had salespeople work in teams to oversee accounts and hired inexperienced merchandisers to keep its store displays organized. It was a bad decision as shelves became messy and unstocked.
3	3500	2007	An increase in wages for experienced Indian tech workers coupled with the inconvenience of time differences has caused some tech companies to turn away from outsourcing. Some companies are returning jobs to the U.S. while others are looking to other countries such as Vietnam to provide low-cost labor. Some companies have offered Indian engineers the opportunity to come work in the U.S. which allows them to minimize disruptions due to time differences.
4	4513	2006	FedEx Corp., facing mounting regulatory and labor challenges to the use of independent contractors to drive delivery trucks in its FedEx Ground unit, is quietly rolling out concessions to more than 15,000 drivers. In part to quell complaints, FedEx recently began stationing 18 contractor "advocates," some pulled from the ranks of contract drivers, across North America. The company is also creating an executive position in charge of contractor relations, reporting directly to the head of the ground unit. FedEx has also increased fuel subsidies to drivers who operate multiple trucks and is eliminating some fines on drivers resulting from customer claims of failed deliveries.
5	4813	1996	The phone cables of Deutsche Telekom are built to withstand being run over by a tank. Overengineering wastes money.
6	5731	2007	Circuit City fired 3,400 of its highest-paid hourly workers and will replace them with workers willing to work for less. These workers are typically paid $10 to $11 while entry level workers receive $8. While the company is trying to save money as sales plummet, customers may suffer as the sales force is inexperienced.
7	7389	2004	America's small towns are emerging as alternatives as U.S. companies continue their global search for cheap labor and locations for call-centers and other back-office operations. Companies are finding that the cost of upgrading infrastructure overseas in places, such as India, are comparable, if not more costly than, such costs in the U.S. Small towns often have vacant warehouses and supermarkets that are suited to call centers' wide-open layouts. And rural communities in the U.S. have been wired with high-bandwidth fiber-optic cable over the past decade, allowing for more traffic and cheaper calls. That's not the case in India. Lehman Brothers Holdings Inc. canceled an outsourcing contract in India after the workers there weren't meeting expectations.

<<Return to Reduce the Rate of Cost