Cost To Serve

Trucks n Sheds

New member
Heard a lot about this recently, but can't find much research on it. Isn't it really just activity based costing (ABC)? Are many people doing it?
 

jeb

New member
yes, it's an interesting subject. There is quite a bit on the net, you just have to get past all the junk and find some useful stuff.

We have done a lot of work in this area recently. Found significant value adding opportunities. It's not as hard as you would think.
 
it is easy, don't worry about complex models, etc, just full out the financials and pull together a quick model with some Access VB, but those consultants will try and sell you a 4 weeks project
 

WH

New member
Re: Cost To Serve

Any tips on where to find good stuff on the web. Maybe Top Link should start compiling a list of good research articles??
 

007

New member
Re: Cost To Serve

Here is a useful short article on cost to serve. Not by me though !

Q. What exactly is Cost To Serve (CTS) and why is it so important?

A. The understanding of CTS has increased a lot in the last 2 years, although the concept has been around for years. CTS is an approach that builds on techniques such as Activity Based Costing (ABC) by including the ‘softer’ elements of product characteristics and customer behaviours. For example, a financial view of the Supply Chain breaks costs down into GL areas such as wages and rental. An ABC approach segments costs into functions, such as transport and warehousing. But a CTS approach is more market focused and might segment costs by channel (Mass retail, independent, route trade) or by product category (Seasonal, continuity, promotional), or even by individual customer and SKU. This segmentation, coupled with the deeper appreciation of product and customer cost drivers, makes CTS reporting so beneficial.

The importance of CTS for many companies, is driven by understanding the impact of changes such as Factory Gate Pricing (FGP). A supplier that does not have a firm grasp of the resource and cost impacts of FGP is likely to suffer, due to changes in demand profile, asset utilisation and delivery timing.
At a simpler level, I have seen CTS deliver significant savings to companies, by merely identifying loss of margin by certain product/customer mixes. These issues being easily reversed by easy to implement process changes.
 

a.otoole

New member
Re: Cost To Serve

Cost to serve and ABC is similar, I think, but not the same. COS is a bit more broad while ABS's aim is to understand how resources are used by different activities in a business.

COS, I gather, tracks the profitability of individual products, customers or transactions, or of groups of products or customers.

But that's just me.
 

superbobby

New member
Re: Cost To Serve

Thanks for the explanation. They both provide different information and that is good because better decision making is all about analyzing and using all the available information that is out there.
 
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