Cost to Serve enables you to asses what the profitability is of a certain customer or a specific SKU enabling you to optimize your route to market.
Most companies allocate average delivery costs to their customers, but that often gives a wrong picture. Without an effective activity-based cost allocation there is no real insight into customer behavior, lossmaking patterns and area’s of improvements.
All relevant costs must be included including any logistic discount or trade terms linked to specific service conditions agreed with customers
Key benefits
- Insight into quick wins: where is the supply chain set up inefficient and can we save on costs immediately from today?
- Insight how customer behavior influences the supply chain: what can we save if we change the customer order behavior?
- Insight into profitable or loss-making customers: how important is this customer for us? How can trade terms design support the profitability?
- Insight into costs versus lead time: what do I find important as a company?
The flaw of averages
Not allocating the real cost of supplying products to your customers means you are not taking into account the real complexity of your supply chain operations. Decision will be made on misleading indicators because of low visibility.
To improve visibility of real profit and to find the focus area's of improvement you need to have a more detailed cost breakdown, as deep as the SKU level.
Only with this level of cost detail you can make sound decisions to serve a customer directly of indirectly via another hub or location ...or to determine the customer discount rate based on their behavior?