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Essay on Artemis Sportswear Company: Cost reduction proposal
A primary reason for pursuing forward, backward and horizontal integration strategies is to gain cost leadership benefits. But cost leadership generally must be pursued in conjunction with differentiation. A number of cost elements affect the relative attractiveness of generic strategies. Including economies or diseconomies of scale achieved. Learning and experience curve effect, the percentage of capacity utilization achieved, and linkages with suppliers and distributors. Other cost elements to consider in choosing among alternative strategies include the potential for sharing costs and knowledge within the organization. R&D costs associated with new product development or modification of existing products. Labor costs, energy costs, and shipping costs.
Striving to be the low-cost producer in an industry can be especially effective when the market is composed of many price-sensitive buyers. When there is little way to achieve product differentiation. When buyers do not care much about differences from brand to brand, or when there are a large number of buyers with significant bargaining power. The basic idea is to under price competitors and thereby gains market share and sales, driving some competitors out of the market entirely. (David, 1998)
Building Strategic Cost Reduction into organization
Managers should implement the following five-step strategy to introduce, position, and integrate SCR into the organization.
1. Generate buy-in with key stakeholders on the need and definition of strategic cost reduction. To avoid the negative connotations that employees may have with cost cutting, it is necessary to clearly communicate what strategic cost reduction is and is not. At its core, SCR eliminates waste and conserves resources in order to reinvest the savings in critical business assets like employees, technology, and R&D. Reducing costs does not mean unnecessarily reducing quality, skimping on service, or anything else that could undermine a company's longevity within a competitive marketplace. Instead, strategic cost reduction takes advantage of every opportunity to better leverage existing and new assets to bring value to customers and shareholders....
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