Question

In topic 4, we discussed cost-leadership as a means of achieving a competitive advantage. Specifically, the top 10 areas for achieving these efficiencies were presented (see Cost-Efficient Management of the Value Chain discussion of topic 4 PPT). In your opinion of what you now know about cost suppression as a competitive strategic priority, which three (3) of these top 10 are the most important to achieving a cost advantage AND how would a firm implement these efficiencies in a way that makes each one difficult to imitate by competition. Offer separate imitation discussions for each of the 3 initiatives. I do realize that these three discussions might have some ideas/arguments in common. Please feel free to answer (although you are not required to do so) this question from the standpoint of your current firm, the firm for which you worked in the past, and/or the firm you have chosen to analyze for your project.

The 10 areas for these efficiencies are:

1. Striving to capture all available economies of scale

2. Taking advantage of learning/experience curve effects

3. Trying to operate facilities at full capacity

4. Pursuing efforts to boost sales volumes and spread R&D and SG&A costs over more units

5. Improve supply chain efficiency

6. Substituting the use of low-cost for high-cost raw materials or component parts

7. Using online systems and software to achieve operating efficiencies

8. Adopting labor-saving operating methods

9. Using the company's bargaining power vis-a-vis suppliers

10. Being alert to the cost advantages of outsourcing and vertical integration.

Answer 1

Following three (3) are the strategies and ways firms can use in achieving cost advantage:

1. Striving to capture all available economies of scale.

• How firms can implement it to achieve cost advantage?

• An economy of scale is the concept which helps in reducing cost of products in order to gain cost advantage. When goods are produced all the variable and fixed cost are involved in the product price. Hence, the principle of economies of scale says that when goods are produced in large number to quantities there price falls. This happens because fixed cost which is attached to the product is distributed amongst large number of products. Also variable cost which varies as per product is also reduced. Hence, economy of scale is important to achieve cost advantage.

2. Trying to operate facilities at full capacity.

• How firms can implement it to achieve cost advantage?

• Firms have to determine their capacity rates in order to see maximum rate of out they can produce. This will help them estimating their present capacity. When firm aims at maintaining full capacity cost per unit reduced, this is because more products are produced in that same time. This will help firm maintain their other related cost associated with the product and achieving cost advantage.

3. Improve supply chain efficiency.

• How firms can implement it to achieve cost advantage?

• Improving supply chain efficiency will help in reducing supply chain cost. There is variety of factors involved in supply chain like, transportation, storage, warehouse, laws and regulations, market procedures etc. adverse effect of these factors will affect supply chain management. Hence, firms have to increase efficiency of supply chain management in order to avoid negative effects of these factors.