SELF TEST #25: Evaluate The Company’s Advantages or Disadvantages in Visible Costs

Test #1:

How do companies typically achieve a Rate advantage over competition?

Test #2:

How does a company typically get a Rate advantage from the source of its purchases?

Test #3:

What are the typical major functional costs in a manufacturing business?

Test #4:

What are the typical functional costs for retail and distribution businesses?

Test #5:

Are there patterns in the way companies make choices among alternative approaches to managing functional costs?

Test #6:

What is the major rule in evaluating cost reduction opportunities?

Test #7:

What functional cost is the Company working on in each of the following examples:

Example:

Staples has tweaked the StaplesLink site design to make it easier for clients. New technology lets customers track orders. Other changes let companies track spending accounts and get tips on how to make ordering more efficient. (Year-2003, SIC-5900)

Example:

Hibbett prides itself on obtaining advantageous real estate terms, such as ceilings put on common area maintenance charges, as well as percentage rents.

Example:

Viking Office Products has no retail stores. It sells only by catalog.

Example:

Some bank and mutual companies eliminate the middleman, the insurance agent, in order to offer life insurance plans at discounted prices. These plans are underwritten by an insurance company partner.

Example:

Comcast's digital cable service offers an assortment of HD channels. It insists on sending out a technician to install HD because of the complexity of choosing the right connections. The setup takes only a few minutes and adds about $7 to the cable bill. (Year-2005, SIC 4841)

Example:

Most of Sports Authority suppliers ship their products directly to the stores, eliminating the central distribution that is common in the industry.

Example:

Dollar General all but eliminated advertising, except for direct mail announcements of new stores.

Example:

Large retailers are starting to accept second-hand merchandise for resale on eBay. Circuit City stores have started something called Trading Circuit, which accepts customers’ old gadgets, musical instruments and other goods for eventual resale on eBay. (Year-2004, SIC 5399)

Example:

The size of hyper markets and the volume of goods they purchased granted them greater buying power and lower logistical and in-store costs than other formats.

Example:

Patrick and Company struggled with selling computers because it couldn’t support the guaranty and the work the guaranty implied. It also struggled in offering printing services because it could not compete with Kinko’s after sale services.

Example:

Lowe’s is building five new 1 million square foot distribution centers around the country that permit the company to buy larger quantities of products from vendors.

Example:

Starbucks calls its employees partners and gives them 24 hours of training. It builds the trust of employees by providing an environment that shows them it values their input.

Example:

Some years ago, Pottery Barn decided to stop sending buyers to far corners of the globe to seek out unique products. Instead, it hired a designer to sketch out Pottery Barn’s own merchandise.

Example:

In a move fueled by skyrocketing newsprint prices, the Washington Post plans to publish on slimmer, 50 inch wide web width newsprint by the fall of 1998.

Example:

Coca Cola Foods formed Minute Maid Dairy Business Systems, which established production and distribution partnerships with more than eighty dairies across the U.S.

Example:

Bay Networks moves products through distributors. Cabletron sells direct.

Example:

Regal-Beloit buys equipment for plants by looking at second hand bargains.

Example:

Trying to cut costs, Nabisco had sales people work in teams to oversee accounts. They hired inexperienced merchandises to keep its store displays organized. Then the shelves became messy and unstocked.

Example:

Graphite bikes had high prices because of carbon fiber’s tendency to break apart, leaving manufacturers exposed to expensive liability suits. But computer design systems, capable of predicting failures, have resulted in more durable bikes.

Example:

P&G usually assigns a packaging engineer to a development group in the earliest stage.

Example:

Irvine Company increased its productivity by farming out jobs previously done in house, including supplying security guards and maintenance workers.

Example:

Internet brokers keep their overhead low by having few brokers and fewer offices, with the internet allowing customers to trade on weekends and after work when brokers are not available.

Example:

Amazon will continue to increase direct buying from publishers to improve its cost structure over time.

Example:

Calsouth makes the homes it creates simpler to build, minimizing corners and curves. It also makes nonessential features, like microwaves and fireplaces, optional.

Example:

Bell Labs used to set designs at labs and then send them to a plant for assembly. Now engineers at both locations work together from the start. This has made production cheaper and easier.

Example:

Car makers have globalized to cut costs and have used the build-where-you-sell approached to globalization.

Example:

In recent years, IBM has created some 18 special groups throughout the Company that link researchers with developers.

Example:

Asea Brown Boveri keeps products flowing swiftly by doing more than 90% of R&D in business units rather than in a central lab.

Example:

Many American companies have outsourced their customer service calls to Electronic Data Systems, who handles these calls from operations in India.

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