In recent years many businesses have experienced a proliferation in products, customers, sales channels and distribution channels. This complexity has resulted in many businesses not having visibility as to those products, customers and activities that are profitable and those that are not. A cost to serve analysis and ongoing management can significantly improve overall business profitability.
In recent years many businesses have added new products (including levels of customisation), customers, sales channels and distribution channels to ensure that they are providing innovative products and services in a competitive market. The introduction of these has added complexity to existing product profitability analysis and often the full cost of each is not well understood. By way of example, the increasing amount of sales conducted over the internet whilst increasing sales can add cost depending on how the product is sourced and picked; whether it is delivered to a consumer’s house, to a store, click & collect etc… In order to maximise profitability and fully understand where profits are made in the business it is important to undertake a cost to serve analysis and assess the product, channel and supply chain costs.
Organisations that undertake a cost to serve analysis and manage cost to serve on an ongoing basis have the following business opportunities:
To undertake a cost to serve analysis we customise our approach for each of our clients’ unique requirements. However, our typical approach includes:
At each step of the process it is important to engage across the business and ensure buy-in to key assumptions and the modelling approach. This greatly assists with change management and ensures speed of implementation for key actions / recommendations.
The primary outcome of a cost to serve analysis is to enable informed decisions to be made once the sources of profitability (and losses) is understood by the business. Changing the product portfolio, levels of service for differing customer groups, emphasis on different channel sales and use of various distribution channels can be adjusted to improve profitability for the business and focus limited resources in the areas of greatest value.
After setting a transformation agenda for our supply chain that encompassed business process, organisational structure, and planning systems, they’ve been there to help us make it a reality whenever we’ve needed them.
– Scott Coulter, Chief Operating Officer, Comvita