Examples of Efficiency

Example 1:

Big Lots buys unwanted and left-over items from brand name manufacturers and sells them at price reductions of 20 to 40%.
(Year 2002 – SIC 5331)

Explanation: Big Lots has reduced its Input, Purchases, costs compared to its traditional store competition by reducing the quality of the Input. This reduction in quality reduced the rate the Company paid for its Purchases and, therefore, increased the Efficiency of the Input by reducing the number of effective Inputs the Company used to produce a product (an ICD) for the customer.

Example 2:

Orbitz sells plane tickets directly to consumers, cutting travel agents out of the loop.
(Year 2002 – SIC 4724)

Explanation: Orbitz enables a consumer to reduce his Input Purchases costs by allowing the consumer to change the source of supply to a new source with a lower rate of costs. This reduction in the rate of cost effectively reduced the Inputs (cost per purchased mile) per ICD (ticket issued), improving the Efficiency of the Input.

Example 3:

Procter & Gamble decided that some of its prices were too high for its basic products. P&G had the highest overhead in the business. It embarked on an aggressive cost reduction effort to reduce overhead. P&G's new management structure is three levels lighter
. (Year 1994-SIC 2940)

Explanation: P&G reduced its management structure by three levels. It therefore reduced the people per Intermediate Cost Driver, increasing the Efficiency of the organization.

Example 4:

UPS has created 46,000 new union jobs. 80% of these jobs are part time.
(Year 1997 – SIC 4513)

Explanation: By using part time employees to meet part of its demand, the Company has reduced its full time equivalent Inputs required for its ICDs.

Example 5:

Aggressive cost-cutting has allowed law firms to stay profitable during hard times. Even growing firms now employ fewer administrative staffers.
(Year 1993 – SIC 8111)

Explanation: The law firms are reducing the number of FTEs required for the administrative ICDs.

Example 6:

Philip Morris plans to eliminate 5% of the salaried workers at the U.S. unit of Kraft General Foods.
(Year 1992 – SIC 2000)

Explanation: The Company is reducing the number of FTEs required to manage the Company despite growth in the business. This improves Efficiency by eliminating Inputs that were previously idle.

Example 7:

Geico found that its insurance counselors taking phone orders during the graveyard shift had a lot of down time. Management filled this idle time with clerical work.
(Year 1986 – SIC 6300)

Explanation: This addition of work to FTEs with idle time reduced the overall need for people to manage the ICDs of the Company.