Analysis of Purchasing Cost Savings Potential using Cobb Douglas Production Function. Abstract for Asian Technical Purchasing Conference Singapore 2012 Author: Bill Kohnen

1. Abstract for Asian Technical Purchasing Conference
Singapore 2012
Author: Bill Kohnen

2. In its most standard form for production of a single good
with two factors, the function is
Y= AL αK β
where:
Y = total production (the monetary value of all goods
produced in a year)
L = labor input
K = capital input
A = total factor productivity
α and β are the output elasticities of labor and capital,
respectively. These values are constants determined by
available technology.

3.  Cobb Douglas seems to be applicable to understanding
elements of success of cost savings efforts however
elements vary dramatically by countries.
 Developing regional adjustments to formula is needed
for accurate use – matrix for key world areas to be
discussed:
 US
 Europe
 China
 Singapore
 India
 Others

4.  Total Factor Productivity
 Technology – Systems used, general tech infrastructure
 Knowledge of workers – Academic and Professional
Education, Language, Professional Support
Organizations
 Labor Input and factor
 Skill of workers, Experience, Industry Status
 Capital and factor
 While generally not a strong enablers for cost savings a
lack of minimum input would stifle efforts.

5.  Demonstration of simple but more analytic evaluation
of cost savings potential and elements to improve for
success.
 Macro discussion of what analysis shows for key Global
areas for current success and what is needed to
improve
 Invitation to contact author for more detailed review
of region, industry segment or corporation