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%.

C. Change the components of the rate of costs to reach a lower total rate:

Sometimes it is possible to break the price of a purchase into its component parts. Then the company may seek to substitute a less expensive component for a more expensive component to reduce the effective rate the company pays on its purchases.

Warnings and Advice

No.	Industry SIC	Year	Notes
1	0	2008	Managers need to learn how to bond with remote employees by close contact and clear objectives. One way to avoid some common miscommunication blunders among remote workers is to hire people who are ready to work in a virtual environment from day one. Train your workers in the technologies you use to keep in touch. Remote workers should be comfortable with voice over Internet protocol (VOIP), video streaming, and instant messaging.
2	3312	2002	Costs for retiree benefits, promised in successive labor contracts through the years, exist to some extent at all old-line U.S. Manufacturers and industries with unionized work forces, such as coal, railroads, and autos. But steel's situation is graver and more complex. The seeds were sown a half-century ago. The industry agreed in 1949 to labor contracts that tempered the wage boosts the union wanted by providing it with retiree benefits, such as hospital coverage and life insurance. The steelmakers saved cash by agreeing to the benefits, and the union won its members some old-age security.
3	3600	1992	When GE threatened to jettison any GE business not No. 1 or No. 2 in its market, its electric motors division demanded that its hourly workers accept an 11% cut in pay and forgo scheduled raises of $1.30 an hour. After closing 2 of its 12 motor plants, GE guaranteed the remaining 5,400 workers their jobs for 3 years. The pay cuts saved $25 million a year, but worker morale sank like a stone and productivity went down.
4	3711	1988	The largest supplier to General Motors does not sell auto parts, but health insurance. Lesson: when cutting costs, don't automatically focus on purchases or even direct labor costs; examine where your real costs lie.
5	3825	2000	When key capital is human, you have to help employees align their best interest with that of the business. That's why traditional talent-based organizations have been partnerships–like law and accounting firms.
6	5331	2005	Benefits can boost worker retention, slashing costs of employee turnover and training. The idea is that keeping trained and valued workers through juicy perks is better for a company's long-term performance. Poorly compensated workers often take out their frustrations on customers. And while there may be plenty of people eager to replace those who quit, quality workers who know and do their jobs are hard to recruit. Costco and Starbucks are examples of some businesses that offer generous perks like health care benefits and above average wages. Costco's staff turnover averages only 20% – 21% annually. Inventory shrinkage, also known as inventory theft, is a mere 0.2%, while grocery stores might have a shrinkage rate of 0.5%-1%.
7	5600	2007	Fraud and the associated costs has forced some retailers to modify their return policy. Even honest customers are facing more stringent policies. L.L. Bean departs from this trend, offering a 100% satisfaction guarantee. Returns can be made at any time and personalized merchandise was not excluded.

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