The Seven Drivers Of Cost Advantage

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1. 7 drivers of cost advantage and example The seven drivers of cost advantage are listed below: " Economies of Scale: Economies of scale exist where the proportion of input in the production process increases, resulting in a lower unit cost. Economies of scale are usually related to manufacturing. And Economies of scale come from three sources, Technical input-output relationships, Indivisibilities and Specialization. For example, by implementing new facility like automatic production line for a manufacturing company, this company can reduce their unit cost. And this company will have economies of scale and gain cost advantage. " Economies of Learning: This driver is based on a large base of knowledge, and by learning in the production process…show more content…
The smaller the number of suppliers, the greater the power. When there are a large number of suppliers, the company is in a more favorable position. o Bargaining power of suppliers: The bargaining power of suppliers are similar with the bargaining power of buyers, but this time, it is the relationship between producers and suppliers. So, company size, raw material type and quality can affect the bargaining power of suppliers. " Substitutes - Consumers can easily turn from their products or services to competitors. If the customer relies on the tools and services provided by the company, it can be replaced with other tools or services, or through manual tasks. If such replacement is relatively easy and cost-effective, the power of the company is weakened. o Buyer propensity to substitutes: The buyer propensity to substitutes are mostly influenced by product differentiation and prices. If the two products are pretty much same, buyer are able to purchase the other one rather than this…show more content…
This can benefit both manufacturing companies and retailers or their customers. Manufacturers can also maintain greater control over the distribution and pricing of their products by selling to retailers or customers. Disadvantage - The proportion of fixed cost to the company's cost is increased. Therefore, the company faces more cyclical changes in revenue. In addition, the wealth of the enterprise is related to the internal distribution system. Forwarding integration increases business risk. Because the process is interdependent, a slight interruption in a process may misplace the entire production system. " Balance vertical integration Advantage: For balance vertical integration, it has both Forward and Backward vertical integration in the process. So, it can help company to have a better profit margins and will improve in its core

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