Cost-to-Serve®

In an increasingly competitive climate, business success is about total focus on service and cost.

A central issue for any business is how to meet or exceed customers’ expectations of products and services, at a cost that is affordable in relation to the prices that customers are prepared to pay.

Cost-to-Serve® is for businesses who want to know the profitability of their products, customers and routes to market - and to give a fact-based focus for decision making on service mix and operational change.

Businesses recognise that customers, products and services do not all consume the same resources or therefore incur the same costs. Using Cost-to-Serve® we can segment the customer, product base and the market in order to understand how true profitability is being generated or eroded.

How Cost-to-Serve® works

Cost-to-Serve® is a highly quantitative, financially-driven diagnostic tool that analyses how costs are consumed throughout the supply chain. It shows that each product and customer demands different activities and has a different cost profile. It is these differences that determine the most appropriate actions to increase profitability.

Unlike activity-based costing (ABC), Cost-to-Serve® is not resource-intensive and focuses on aggregate analyses around a blend of cost drivers. A Cost-to-Serve® study typically takes around 10-18 weeks and can be developed into a tactical tool for use on an ongoing basis.

Benefits of Cost-to-Serve®

Cost-to-Serve® gives an integrated view of costs at each stage of the supply chain providing a fact-based view to unravel the complexity of multiple supply chains and channels to market. It enables a focus on both long-term decisions and the prioritisation of short-term actions. Businesses are able to reposition customers and services, and how they are served to improve overall margin.

Unlike many new techniques, Cost-to-Serve® does not try to supersede existing financial controls and ways of working; rather it introduces new insights while enabling the established organisation to adapt to the findings.

Side benefits of Cost-to-Serve® that we routinely experience are that:

• it helps companies to establish sound processes for improving the accuracy and management of their data
• it forms a basis for benchmarking performance and operational improvement.