Social:Cost to serve
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Cost to Serve (CTS or C2S) is an accountancy tool used to calculate the profitability of serving the needs of a particular customer account, based on the actual business activities and overhead costs incurred in servicing that customer or customer type.[1] Businesses are able to reposition customers and services, and how they are served to improve overall margin.[lower-alpha 1]
The Australian Food and Grocery Council describes Cost to Serve (C2S) as
a generic label for a robust methodology to determine the likely financial outcomes of supply chain investment and collaborative engagement.[2]
Gartner's glossary defines the term as a form of analysis which
calculates the profitability of products, customers and routes to market, and provides a fact-based focus for decision making on service mix and operational changes for each customer.[3]
Supply chain management
In the context of supply chain management the tool can be used to analyse how costs are consumed throughout the supply chain. It shows that each product and customer demands different activities and has a different cost profile. The product and customer profiles are often illustrated using a Pareto analysis curve which highlights those that contribute most to the company's profit and those that erode it.
Cost to Serve is considered less resource-intensive than Activity Based Costing (ABC) as it focuses on aggregate analyses around a blend of cost drivers. The tool 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 identification of easily-achieved process changes to improve profitability.[4] Seifert and Markoff note that{{quote|Cost-To-Serve is one of those supply chain ideas that is so intuitive and the benefits so clear, yet in speaking to supply chain executives we have seen that in fact it is rarely applied in a sustainable, repeatable way.[5]
See also
- Pareto principle
- Activity based costing
- Supply chain management
Notes
- ↑ Cost-to-Serve is a registered trademark of LCP Consulting Ltd.
References
- ↑ "IGD Glossary - Cost-to-Serve". IGD. http://supplychainanalysis.igd.com/index.asp?id=20&rid=1&glosinitial=c. Retrieved 2009-09-09.
- ↑ Australian Food and Grocery Council, A Guide to Using Cost to Serve to Enable Effective Customer Engagement, n.d., archived 22 July 2008, accessed 11 February 2023
- ↑ Gartner, Inc.,Cost To Serve, accessed 11 February 2023
- ↑ O'Byrne, R., Cost to Serve – A Smarter Way to Improved Supply Chain Profitability, Logistics Bureau, published 14 June 2022, accessed 11 February 2023
- ↑ Seifert, R. and Markoff, R., The hidden cost of cost-to-serve, International Institute for Management Development, published August 2018, accessed 11 Februar 2023
Further reading
- Christopher, M (2005), ‘Logistics and Supply Chain Management’, 3rd edition, Financial Times/Prentice Hall
- Braithwaite, Samakh (1998), 'The Cost-to-Serve Method', The International Journal of Logistics Management, Volume 9 Issue 1 p69-84, ISSN 0957-4093
- Guerreiro, Bio, Merschmann (2008), 'Cost-to-serve measurement and customer profitability analysis', The International Journal of Logistics Management, Volume 19 Issue 3 p389-407, ISSN 0957-4093
- Australian Food and Grocery Council / Focus Information Logistics, 'A Guide to using cost to serve to enable effective customer engagement'
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