Business Unit Level Strategic Planning: Leading with Lowest Total Cost

By Erica Olsen

Creating value through lowest total cost focuses on appealing to a broad spectrum of customers based on being the overall low-cost provider of a product or service because of the company’s focus on efficiency. The company implementing this strategy provides superior value to its customers by offering them lowest total cost. Ultimately, it competes on scale, serving customers who want reliable, good-quality products or services but who want them cheaply and easily.

A lowest total cost value proposition sounds something like this: “We offer products and services that are always consistent, on-time, and low in cost.” Check out these goals if you’re executing this strategy:

  • To continually offer the most attractive prices

  • To purchase and source from the lowest-cost suppliers

  • To offer excellent and consistent quality

  • To ensure that our company has a good product or service selection

  • To make buying from our company easy and fast

To reach your goals, you need to master your operational processes. This process includes monitoring outstanding supply chain management, super efficient operations to control costs, cycle time and quality, and inventory management. See the figure get an overview of this strategy in comparison to two strategies.

[Credit: Adapted from Drs. Robert Kaplan and David Norton, creators of the Balanced Scorecard]
Credit: Adapted from Drs. Robert Kaplan and David Norton, creators of the Balanced Scorecard

Providence Plumbing, a plumbing, heating, and air company, creates outstanding value through a real-time data system. All the company’s technicians have powerful handheld data systems that allow them to accept, respond to, and close service orders all in one smooth process. Through this data system, the company cuts down its operational costs by reducing drive time, service order data entry, and error rates due to lost orders and billing costs.

The company’s customer satisfaction has soared because most service orders are responded to on the same day as requested, customers find little surprise in the final bill, and the company’s prices are the lowest across the board.

Other companies that continue to offer the best buy or lowest total cost through their excellent internal operations include Wal-Mart, Southwest Airlines, Dell, and IKEA.