Low Cost Producers and Cost Efficiency

The various costs involved in manufacturing of the product could be reduced in a company and can be achieved by applying certain strategies. These strategies include the centralization of the purchase department in the Loughborough branch compared to its offshore plant. The centralisation will have a considerable effect on cost. Assignment modelling technique also works well in which cost efficiency could be achieved. (1)The company has a centralised structure for the personal and purchasing departments. The personal department has a good advantage and control over the company when it is centralised. But the purchasing department has various advantages in terms of cost when it is de-centralised. Decentralisation results in better relation with the local buyers, suppliers and users. The choice of suppliers will also be more. Due to competitive natures they will try to supply or buy at a competitive price which benefits the organisation. Due to this the local buyers will be more motivated. The company will have a greater advantage in the local market (i.e.) their subsidiaries. Assignment modelling strategy should be used to achieve cost efficiency and to be a leading low cost producer. The cost of a product depends on the departments like design, R &D and manufacturing. If the expertises are drawn out from each department under the control of the main manager who controls it, the lowest cost of producing a product is possible. Each expertise will be involved in carrying out their own tasks at the aim of achieving the cost efficiency in their respective processes without compromising on the quality. This will result in the reduction of design costs, R&D costs and manufacturing costs which in turn reduces the total unit costs. A matrix structure is used in the Loughborough and its subsidiary to achieve cost efficiency. By implementing matrix structure the employees can be allocated tasks in an optimized manner which will aid in cost reduction. (2)Standardisation of the manufacturing firm is related to centralisation. Standardisation is the most vital technique which benefits in the cost efficiency. The purpose of standardisation is to achieve a good marketing performance and to lower marketing costs which results a gain in competitive advantage. If the standardisation which works well in parent manufacturing plant can be implemented in off shore manufacturing plant to gain higher profits and lower cost associated with it. Standardisation technique results in the reduction of costs thereby the resources can be focussed to gain the complete control over the headquarters and its subsidiaries as they both know the precise needs. By providing the same products in several international markets the shorter production runs can be achieved in which the design costs, Research and development costs involved can be greatly reduced. This results in the reduction of total unit costs and achieving greater efficiencies. (1)Advanced manufacturing plays in major role in improving the production and flexibility. If the advanced manufacturing technology is introduced in the Loughborough and its subsidiary there will be a faster production and the production rates will be flexible according to the requirements. (2)The quality of the product is also increased by introducing advanced manufacturing technology. The main reason that distinguishes this technology from other is its ability to achieve low costs and flexible manufacturing. The difference in cost will be not being evident immediately after the implementation but it will be gradually seen.

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To compete in the local markets as well as international markets the company has to be highly responsive and flexible in order to react with the rapid order changes and changes in the market conditions. (5)The importance given to the manufacturing technologies is also given to infrastructural ones like production norms and procedures in which high flexibility and responsiveness could be obtained. (1)The fundamental technique that can be used is adopting the technique of agile manufacturing. The fundamental requirement is to eliminate the outdated human management practices. (1)To make the company more agile there should be a change in the management of people in areas like design, production procedures, equipment maintenance and continuous training. These main key elements will result in high contribution of the team work system, good training and contracting practices and a good suggestion system and organisational structures. When the production level is suited to accommodate with the working hours in manufacturing a good flexibility could be achieved and can also react to changes or alterations in operating conditions so that rapid changes in orders can be easily met. (3)To tackle responsiveness the company has to develop an organisational model based on process management which turns in to system management those results in the good co-ordination between departments resulting in giving a good flexible and prompt response to changing situations. A decentralisation model is used where people from different departments are given a specific task to work on where the rapid responsiveness and changes to order changes can be met. The creation of various production lines which should be suitable for concurrent versatile manufacturing results in good responsiveness. The location of the storage areas near the production lines will lead to efficient management and great inventory control. The outsourcing of the non core activities will greatly help in increasing the responsiveness and rapid changes in order. The creation of work cells contained of trained employees for flexibility will result in great control over the management rather than the past.


(1)The need for innovation is required for this company and its subsidiaries to cope up with its competitors. The best way to introduce innovation in the industry is to collaborate with the small innovative companies to work on new product development. The company’s management has to predict how the future market will be and the variety of innovative products expected in the market. This reduces the risk levels. The innovation of the products depends on the company startegic decision. (10)This decision is based on make or buys strategy. ‘Make’ means the company should develop or come with the innovation with its own research and development organisation. ‘Buy’ decision means the research and development is contracted out to external consultants. The costs on R and D can be greatly reduced if it is outsourced. (1)The effect of decentralisation in design and R&D department will also result in the great innovation. If the freedom is given to the people working in various departments the innovation of a new product will be quicker and effective.


The main developing markets for the company based on Loughborough is the united states and far east which includes china, Japan ,India and Singapore. (1)An offshore factory is basically established to produce the standardised products at a lower cost .Items are then exported to another location for further work or for direct sale. The investments that are made in technical and managerial resources are kept very less that is required for the production line. Only little development occurs on the site where local managers rarely choose the key suppliers or negotiate the prices. The accounting and finance staffs provide a good support for the managers in providing data’s in the home country. It is very vital to select a location for off shoring where a location should be selected centrally. If an off shoring plant is setup in Singapore it can serve the Indian, Chinese, Japanese markets very well as these markets are developing and the standardised products can be greatly established. (2)The company mainly focus on achieving a cost efficiency in its off shore plant. Achieving cost efficiency relates to the low labour costs and the utilization of the resources available. The off shore location is selected based on the great product demand on the particular location. The off shore location depends on the diversity of the products on the developing markets so that a great competitive advantage is obtained over the other companies. The offshore plants don’t focus on innovation or high quality of the products initially. (6)The utilisation of the resources in an offshore plant is also helpful in low material costs. The costs involved in the transportation is also very less even if the products are exported from an off shore location to nearby countries where the market is very demanding and developing. [2]By manufacturing at an offshore location and transporting to nearby markets which is developing, the costs involved is very low compared to transportation costs involved in exporting from a parent company which is very far. By setting up of an offshore location it is very easy to reach the demanding markets located nearer to the offshore plants. Before selecting an offshore location the company should consider various factors of market conditions after the setup of its offshore plant and the demand condition created on the developing markets. This will benefit the company from having an idea of the production capacities and the costs involved in the purchasing of the machineries and procurement of labours related to the manufacturing that will take place. (6)The company should also do a good research on the local suppliers that will manufacture their sub parts involved in the manufacturing of the complete product. It should consider whether the local suppliers will meet the quality policy of the company and will be cost efficiency. Multi-domestic strategy should be used in order to produce a product that suits the local market demands. Product produced in the parent company may not perform well in its offshore location. In this strategy the local managers who are responsible for the offshore plants production will be in touch with the parent company manager to discuss the various aspects in which the product can be produced in which it suits the offshore locations demands and satisfies the customer’s needs. The various benefits that can be obtained from this strategy is a good product differentiation, local responsiveness and the minimisation in the exchange rate. In setting up of an offshore plant all the innovation and new product developments happens in the parent company due to which only the production happens in the offshore plants.


There are some factors that should be considered before outsourcing it to offshore producer. The main factors which are involved in the local outsourcing results in the better innovation of the products and the local manufacturer has a very good knowledge of the parts that the produces. The company can focus well on designing the products in a better way that suits the local market well and it will also be highly cost efficient for the company. The local manufacturer also has a wide knowledge of the resources available locally. A lot of burden is reduced on the company when the outsourcing of the activities is given to an off shoring specialist. When outsourcing is given for the specific parts of the product there is a good scope of the product being successful on the local markets as the outsourcing specialists can design it in a demanding way as they have a good idea of customers advanced needs. The product flexibility can also be obtained with the outsourcing specialist. The specialist can also respond to the markets needs well and prepare according to it. Due to the high pressures on the outsourcing specialists to perform well for the companies they will have to select a greatly skilled labour who can work well with the firm in maintain the plant in a competitive manner. Whenever the off shored company is in demand of product needs the outsourcing specialists greatly help in meeting the demand working for the company. Since the product has to be designed for the local market the local designers will have a greater freedom in implementing their own ideas in designing. The opportunities are widened to attract the talent globally. Each firm will have its own freedom in carrying out the various processes depending upon the rapid changes. The companies will also save a huge amount of costs in buying the equipments used for manufacturing of the parts that are not of core competence and the necessary costs involved in maintaining them. This will result in the parent company giving more importance to the innovation in design and work on strategies that will improve the product demand. The products manufactured by the specialists can also be exported to other countries if the costs involved in transportation are cheaper. This will also help the firm in understanding the value of the product in its neighbouring markets and designing the products according to that.


If a product has performed well in the home base it is an indication for the company to increase its product range by introducing them to the nearby international markets it is an indication that the product can be exported to increase the profitability and the market size. The exporting of the products is cost efficient up to a certain level. The price of the product will be decided by the company before exporting that includes the cost of exporting, manufacturing and marketing. If the product has a lesser value in the local market but the same product has a good demand in another market it can increase the product value by selling the product at a greater price and greater quality markets so that exporting is beneficial to the company. The exporting also differs from country to country. Some countries may have a high export duty which will not be beneficial for the company to focuses on profits. [16]Thus exporting depends on the market demand, methods of distribution and distance involved in exporting the product. The standardised products can be sold on the international markets with the setting up of overseas sales offices. But the engineer to order products are carried out from the home base as the customer directly contacts the home base with his precise requirements. The main motive for a Loughborough and South Africa base to export its products to the nearby developing markets is to achieve a good efficiency in cost. To succeed in exporting the company has to gain a good export competitive advantage over the other manufacturers. The competitive advantage is defined end users who place a good value for the product. The competitive advantage is classified in to two categories such as cost advantage and differentiation advantage. The advantage in cost is gained with the lower unit costs and lower selling price of the product after exporting. Differentiation advantage results in the new products that can be sold in which the competitors have not come up with.


If the company makes a licensing with another organisation and if it’s not in a position to invest on its targeted offshore base as it is very risky because it doesn’t have an idea of the performance in the targeted market. Licensing is the safer way of attaining the market initially. By sharing the technology through the licensing agreements the company, the burden is on the licensee to manufacture the product the home base will also help in marketing the products well. [16] If the hoists starts to do well then the company can open an offshore plant after the license expires to increase the cost efficiency, huge profits and product productivity. The company should also be careful about the licensee as the company can exploit the technology and can be a competitor to the licenser.


(4)If the company is sure about the fact that the customers have a good requirement of hoists it also makes sure that the company will make a foreign direct investment there are five major reasons for making an foreign investment. One is the low cost production through low cost labour. Second is the local demand it will be getting from the government for subsidiaries. Third is the protection from imports. The company should target the under developed markets in order to take the competitive advantage By making an FDI the company can achieve a high profit margin and gain a competitive advantage over others. In an FDI high revenue will be obtained as the company have the full control of the operations taking place.


If the company has decided to distribute its product from its own base it has to be well prepared and should forecast the future demands well in advance that it may face. The most important factor is the inventory control management. Without the availability of proper raw materials the demand could not be met.

Cost minimisation

(8)As per the manufacturing point of view the efficient resource utilisation will automatically lead to a reduction in Costs. The Company should always concentrate on having a excess buffer capacity of the inventory which leads to lesser material costs. The material costs may change anytime due to market conditions. The selection of the supply chain based on the selection of supply chain partners. (8) They are basically selected based on the performance of quality. The cost efficiency also depends on the volume flexibility, delivery speed of the supply chain partners. The companies should expand span of supply chain operation that could be planned and controlled in an integrated fashion. This leads to the proper forecasting which results in efficient cost management.


(8)When the organisational structure is improved in the Loughborough base it will automatically lead to the reduction of cycle time inside the supply chain. The company have to rapidly react to the change in the business environments. The sudden changes in the competition between the various companies is a proof that the company should mainly focus on the reduction in cycle times in order to gain the benefits of the flexible response to rapidly changing conditions. The suppliers to the parent company who are able to respond quickly to the changes in the volume of products within the supply chain can be applied through various techniques like vendor management, just in time technique and inventory positioning. (8)There are very less producers of hoists in the global markets and due to which in most of the situations the company mostly relies on the supplier. The supplier is also aware of the fact that there are very limited alternatives that the company has. There is need of trust that the company need to have on the suppliers to cope up with the rapid order changes and responsiveness. The trust between the suppliers and the buyers within the supply chain will increase a good communication in turn creates a common strategic vision which is useful in reacting rapidly to the sudden order changes.


(5)The innovation can be achieved in supply chain distribution is the introduction of various information and related technologies with original logistic and marketing procedures that will improve the Loughborough and SA base operational efficiency and to implement the service effectiveness. The innovation also includes the efficient response from the consumers and continuous replenishment. [5]The company can be more innovative by allocating new investments of contracting out the products to produce it in a very innovative way. Standardised products can be outsourced and the company can concentrate in core competence to focus on more innovative hoits.This not only results in the huge profit gains for the parent company but also to the supplier. The company can be more innovative if it can do either a licensing or a foreign direct investment in the markets which will be very difficult for it to reach. This includes the countries like Australia, United States and some parts of Europe. By innovative ideas such as licensing or FDI the various costs spent that will reduce the profit gains can be avoided.

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Low cost producers and cost efficiency. (2017, Jun 26). Retrieved February 5, 2023 , from

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