Japanese clocks and watches, 1962-72 UK refrigerators, 1957-71 g 3 5 e és Ee es g @ 75% Lo z zs 70% slope g e g 100K 200K 500K 1, 000K 5m 10m 50m Cumulative production (log scale) Cumulative production (log scale)‘© Technical input-output relationships ECONOMIES OF SCALE _—" © Indivisibitities © Specialization «© Increased individual skills ECONOMIES OF LEARNING | F—- 6 isnorovedl organizational routines PRODUCTION TECHNIQUES a rate ‘© Re-engineering of business processes ‘© Standardization of designs and components PRODUCT DESIGN 6 Design for manufacture © Location advantages . inpurcosts Ownership of tow-cost inputs ‘© Nonunion labor ‘© Bargaining power ‘© Ratio of fixed to variable costs CAPACTTY UTLIZATION * 6 Fast and flexible capacity adjustment ‘© Organizational slack/X-inefficiency RESIDUALEFFICIENCY — -————>- ¢ Motivation and organizational cuture ‘© Managerial effectiveness FIGURE 9.1 The drivers of cost advantageCost per unit of output t Units of output per period Minimum Efficient Plant Size FIGURE 9.2 The long-run average cost curve for a plant0.20 Schweppes SF Dr. Pepper Tab Diet 7-Up Diet Rite Fresca 0.10 0.15 1g Expenditure ($ per case) 0.05 Dr. Pepper Coke 0.02 10 20 50 100 200 500 1,000, Annual sales volume (millions of cases) FIGURE 9.3 Economies of scale in advertising: U.S. soft drinksTABLE 9.1 Some of the world’s most expensive new product development projects Product Lead company _Estimated development cost Launch date F-35 Lightening II joint strike fighter B-2 Spirit “stealth bomber” A380 "super-jumbo" 787 Dreamliner Windows Vista Playstation 3 Iridium wireless satellite communication system Ford Contour/Modeo Lockheed Martin $40 billion? Northrup Grumman $23 billion Airbus Industrie $19 billion Boeing $16-18 billion Microsoft $7 billion Sony $7 billion® Motorola/iridium $6 billion Satellite LLC Ford Motor Company $6 billion? 2012" December 1993° October 2007 3rd Quarter 2010° January 2007 November 2006 July 1999 October 1992 Notes: Total program cost estimated at $300 billion; » Date of entering service; “Including development of Blu-ray DVD; 4 Including costs of tooling.SEQUENCE OF ANALYSS VALUE CHAIN 4. 1oeney acwmes PunceAsine Exon te ba Famer of wo value iy tig pp sce 2, ALOCATETOTAL costs Fora tststage anaes, run exeate ofthe trakdaw of tal cont by act 8 Sifrtoindeatownavscbvter omer | RED, DESIGN fe grates sap oreo recto, ‘AND e ENGINEERING 2 IDeNTEY cost AVERS (eadagian) eanpes induce component AV cosoldting purchase odes to MANUFACTURE Increase erases etre, agus prs mate eaice Gort of etc er sage ‘Prec muting tet cs wry on 1 Deagaig teat made un aSSEMELY ‘eauco nanacerng cs 5, emer ooroarURITES ost ReDUCTON foreamas TESTING AND fee sigses te masz prong CONTROL ‘oremes ste star tre Component Spt fecenvenes. Invenrones srnesnngirenring Rea, frequency of mol hinges feice INVENTORS rune cfd mee fg. sno ‘geo lta meas). Desgn or PRODUCTS (erent of eanponasand atoms Sales AND MAREETING DsTREUTION ‘AND DEALER ‘SUPPORT FIGURE 9.4 Using the value chain in cost analysi Pe ot toughen retiree pon 5 cage of cn Metin of sues stems cece ‘red ee Soo sarees Zao Sea of pats amber of rds pe pat. Daye of atorion (Senen sane elo uty gt Freenode. Seo pers ode Sreamehestrareten umber sees Solero deer Desa of ele support toate alc ‘COST DRIVERS an automobile manufacturer