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Rob O'Byrne is Managing Director of specialist consulting firm . is one of their core services.
So What is Cost to Serve? Well, its an approach that will allow you [link widoczny dla zalogowanych] to identify the total cost of servicing your customers, at a customer and product level; so the Business can provide appropriate levels of service to its customers; to achieve it Business goals. And why is this so important? Because many Businesses today, maybe 50-60% still adopt a one size fits all service policy, that under [link widoczny dla zalogowanych] services some customers and over services other customers and that drives high logistics costs.
Let me give you a couple of simple [link widoczny dla zalogowanych] examples. Your company supplies Bread to the retail market. You have grocery retail customers who order Bread by the Truck Load, literally! Your logistics costs to supply that Bread might be 50c/unit. But you also deliver to small high street customers, cafes, milk Bars and corner stores. They only order 5-10 units each time. It could be costing you 2 or 4 times as much to service those customers. If you are able to identify the costs of activities such as: Order processing, picking & packing orders, [link widoczny dla zalogowanych] delivery, and invoicing the customer, you will be shocked to see the variation in cost to serve across your customer base.
You see; different customers drive different supply chain & logistics costs. Just think of the characteristics of your customers that [link widoczny dla zalogowanych] might impact your cost to service them. Large customers; small customers; large orders, small orders; frequent orders, perhaps once per day, and less frequent, perhaps once a month. Strict delivery time windows, detailed invoices required in [link widoczny dla zalogowanych] triplicate, constant account management needs.
And the same is true of your products. Large products that take [link widoczny dla zalogowanych] up more warehouse space. Products that have to be kitted or bundled, products that need temperature controlled storage and many more. So, [link widoczny dla zalogowanych] if [link widoczny dla zalogowanych] you can identify the characteristics of your customers and products or services that drive your cost to serve, you will be well on your [link widoczny dla zalogowanych] way to identify, low margin customers, low margin products or services and high cost processes. This will help you make sure all [link widoczny dla zalogowanych] of your customers are more profitable, by providing the right service levels to the right customers.
If you have never tried taking a cost to serve view before, just see if you can identify the 20% of your customer orders, that have the smallest value. The results might shock you. It's not unusual to see that 30% of your customer orders are so small, that once you subtract logistics costs, all margin has been eroded.
Unfortunately most ERP systems do not have the level of detail required to [link widoczny dla zalogowanych] carry out Cost to Serve reporting. Here at Logistics Bureau we have [link widoczny dla zalogowanych] developed specialist Cost To [link widoczny dla zalogowanych] Serve tools over the years, But you would be surprised at what you can [link widoczny dla zalogowanych] do yourself with some simple database and spreadsheet models. So Good luck with your Cost To Serve Analysis.
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