Answer to Question #310498 in Management for Paballo

Question

State whether the following statement is true or false. Cost reduction does not necessarily mean higher productivity.

Answer 1

True. Productivity increases help to increase output, cost reduction decreases input. In the long run, the combination of the two results is maximum efficiency. For example; fleet cost can be reduced without any corresponding increase in productivity, even resulting in a decrease in productivity. Reducing vehicle size could conceivably result in fewer products delivered, or an increase in the individual cost of a customer contact. Contrarily, one can increase productivity and produce more per unit of time by increasing cost. Using a larger delivery truck might enable a company to deliver more product per load, but the truck might cost more to acquire and operate. Cost reduction and productivity gains are not always compatible with one another.