Cost advantage Essay Example | Topics and Well Written Essays - 750 words

Cost advantage - Essay Example Learning: Productivity improves as the process of learning to do a task attains peak level. It provides opportunities - from a complex machine center operation to even routine tasks like collecting stores or selecting a channel for distribution. It is one of the drivers behind the success of suggestion-box schemes, where employees with hands-on experience are rewarded for suggestions for improving efficiency. (your last name) 2 Capacity utilization: Resources of a firm in the form of different assets like men, machinery, money etc. are put to different levels of utilization. It is possible to improve the levels and achieve better balance in order to reduce fixed/variable costs per unit, with better volumes. Linkages: This explains the interrelationship between activities both within and without a firm. At the broadest level, the critical path method (CPM) or project evaluation and review techniques (PERT) can be seen as typical study of linkages in project planning operations. The id ea is to see that wastage and inefficiency is eliminated in completing different tasks that have dependencies. The Japanese inventory control system, just-in-time (JIT), is typical of the examples of deriving cost efficiencies of input supplies, a process in which even suppliers’ value activities are studied and improved upon to create win-win situation for both. Interrelationships: This is the process of identifying interrelationship of activities of the different units of a firm, which are amenable to improved efficiencies e.g., administration, recruitment/training or purchases. Integration: Popularly called backward and forward integration processes, this identifies activities upstream or downstream of the current operations with a view to locate opportunities for (your last name) 3 integration which would result in cost efficiencies/value addition or both. For example, a steel rerolling unit may examine setting up facilities for steel melting (backward) or end-product fab rication (forward). Timing: First-mover or late-mover advantages/disadvantages play a role in operational costs. First-movers gain brand advantage and enjoy premium prices but may be tied up with expensive/obsolete machinery or methods over a time; Late-movers learn from the mistakes of early-movers, employ more modern and efficient machines but have to fight entrenched players to gain market share. Also, market conditions and seasonal factors influence operations and underscore the importance of timing. Finally, a firm’s discretionary policies as per its objectives and goals, and institutional factors of agencies like the local/state/national governments and creditors, drive the cost advantage of a firm. Porter’s analysis also emphasizes the interplay of the different cost drivers and searches for scope for improved efficiencies, going beyond conventional cost accounting method. In other words, for gaining cost advantage, it is less important to know ‘how muchâ €™ an activity costs than ‘why so much’. 2. Analyzing and deciding steps The competitor enjoys an average price premium of 0.6% and lower costs of 0.5% on account of maintenance and scrap, resulting in net higher pre-tax margin of 5.1%, compared to my 4%. These cost benefits accrue to him due to the modern machinery employed by him. Since (your last name) 4 replacing my 30-year old machinery or charging higher prices is ruled out, I have to look for alternative ways to generate