1. Cost, supply, and strategy Paul C. Godfrey Mark H. Hansen Marriott School of Management

2. OR The Global Shipping Industry: Asia, 2009

3. The experience curves and costs

4. How can managers use/ influence cost to create competitive advantage?

5. Opportunity costs The price paid to induce an actor to do X and not the next best thing Accounting costs + opportunity costs = true costs What’s the true cost of your BYU MBA? It may be –Tuition + lost wages –Tuition + increased family stress –Tuition differential (HBS-BYU) + Opportunity differential (HBS - BYU) Opportunity costs matter because they reflect what you chose NOT to do

6. Understand costs Understand which costs are fixed and which costs are variable Understand how total costs get allocated –Fixed costs on square footage vs. sales volume –The difference between profitable and unprofitable Activity-based costing schemes are very helpful Identify and understand opportunity costs Understand the time frame for relevant costs –Marginal (short term) –Average (long term)

7. Marginal costs matter Would you buy a 6 th tire for your car? We intuitively understand marginal costs Make them explicit in decision making

8. Productivity is the crucial metric The fallacy is that what you pay drives costs –The case of the hand-held scanners –Why is any production done in high cost countries? It’s what you get for what you pay that matters –Hand held scanners radically improve productivity all along the line –High cost labor works when it is more productive It’s all about productivity

9. It costs money to lower costs Cost reductions aren’t free Investments in new technology and processes Investments in knowledge and skill Investments in changing organizational behavior and routines Investments in personal change