Global COST

Leaders

What is cost leadership

Cost leadershipis a concept
developed by Michael Porter,
utilized in business strategy.

It Means the
lowestcostof
operation in the
industry.

Michael Porter
Business Strategist,
Economist

Cost can be reduced in 2 way

Control cost drivers :Drive down
the costs of value chain activities by
doing a better job than competitors.
Revamp value chain: By-passing some cost
producing activities.

Advantages
High returns on their investments in production
facilities and distribution channels.
Profit margins are high.
To beat the competition with market share as
these companies can offer lower prices to
consumers while maintaining a good return.

Disadvantages
Technological advance in the industry
that makes older technologies or products
obsolete.
Price warsbetween companies seeking
cost leadership in the same industry.
Consumers may lose diversity in the
availability of products and services.

Industry Examples
Southwest Airlines
A leading U.S. low cost airline started operations in 1971.

Common Cost Cutting Strategies

High Density Seating, Fewer Galleys and Toilets.
No Free Meals and drinks.
Use of Smaller Airports.
Low hierarchies.

Resulted in a 116% increase

in operating profit to $242
million in 1Q14.

Industry Examples

contd

WALMART
A leading retailer with 8500 stores across the world.
Diversified into Food & Grocery , Private Labels
and online store.
Wal-Mart online is the e-commerce website.
Has started selling online Music and Movies.

Industry Examples

contd

Common Cost Cutting Strategies

Efficient supply chain management
Efficient because almost all product data can be tracked to and
from the manufacturer, warehouse, and the store shelf.

Efficiency in operations and distribution

strategies.

Opens stores outside of large cities and within 200 miles of existing stores.
By bunching stores together in small areas, distribution costs are below
average.
Extensive
use of technology
Information of quantity orders transmitted via satellite to Wal-Mart HQ or
to supplier distribution centers

Cross docking
Products transferred directly from in-bound vehicles to store-bound vehicles,
enabling goods to be delivered continuously to warehouses

Industry Examples

contd

UBER
A leading Taxi service provider.
Uber is an App based service provider that allows
users to summon a car to take you to your
destination.

Industry Examples

contd

Common Cost Cutting Strategies

No vehicular equipment to purchase
Uber does not have vehicular equipment to purchase, maintain, and
depreciate as Capital Expenditure, making the company more agile.

Employs technology
Uber has few fixed costs and employs technology to achieve economies
of scale.

No city taxes and fees

Industry Examples

contd

McDonalds
McDonald's is the world's largest
chain of hamburger fast food
restaurants.
Serving around 68 million customers daily in
119 countries across 36,538 outlets.

Industry Examples

contd

Common Cost Cutting Strategies

Division of labor
McDonalds hire and train inexperienced employees rather than
trained cooks. It relies on few managers. These staff savings allow
the company to offer its foods for bargain prices.

Speede kitchen
The McDonalds Brothers changed the design of restaurant
kitchen. Instead of having lots of different equipment and
stations for preparing a wide of variety food.

Efficient supply chain management

McDonalds E-Procurement System is responsible for their successful
supply chainmanagement.

Industry Examples

contd

Toyota Motor
Toyota Motor Corporation is a
Japanese Multinational
automotive manufacturer.
Produces 10mn vehicles in a year
13th largest company in the world by revenue
($227 Bn in Feb 2016)

Industry Examples

contd

Common Cost Cutting Strategies

Reduction in the number of platforms
By using a common platform for the production of a greater number
of models, Toyota believes that it will be able to decrease the
substantial expenditures required to design and develop multiple
platforms..

Reducing model variations and the number of

parts
Increasing the commonality of parts and components used in
different models.