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Cost-to-Serve and True Profitability Analysis


Chainalytics has a long track record of helping clients develop a detailed understanding of how Cost-to-Serve, by customer and product, functions as a prerequisite for any organization looking to manage its profitability. Cost-to-Serve creates a solid fact base on where and how costs are incurred through the Supply Chain network and thus on where to identify supply chain opportunities. However, the biggest value is generated by assessing the Costs-to-Serve and True Profitability figures between Supply Chain, Sales, Marketing, and Finance. Cost-to-Serve and True Profitability views for each product-customer are the first outcomes of a Cost-to-Serve study, but typically only a starting point to answering frequently asked questions surrounding the following domains:

  • What are the critical cost drivers of the Cost-to-Serve? Are they linked to specific segments of the customer or product portfolio?

  • Can we streamline the service offering? Do we need to differentiate the offering along the customer segments?

  • How do we trigger a customer behavior which is balancing service with costs? Should we consider a higher surcharge?

  • Are all customers profitable? Should we change our route to market?

  • Are all products profitable? What is the cost of complexity? What mix should we promote?

  • What solution and process can help bring the Cost-to-Serve and True Profitability figures in a continual fashion?

  • Is our manufacturing / distribution network equipped for an optimal CtS?

 

We believe Cost-to-Serve should be assessed in a holistic approach, including costs surrounding warehousing, freight, customer service, sales, working capital, quality and product development. In fact, any relevant cost triggered by customer behavior should be evaluated.

Cost-to-Serve analytics enable fact-based decisions relating to the product, customer portfolio, and the service offering by highlighting opportunities in both customer segmentation and supply chain design. While our team is typically looking for immediate opportunities, we can also help embed Cost-to-Serve in a sustainable way (often as part of executive S&OP) in order to structure tactical decisions between supply chain, finance, sales and marketing.

For more information on our Cost-to-Serve and Portfolio Management services, please contact our consultants at info@chainalytics.com.