New Research: Cost-to-Serve Methodologies
June 3, 2009 -- CGT and Accenture recently explored the use and scope of cost-to-serve methodologies in the consumer goods industry, and what we found was intriguing: while there is general recognition that such analysis can be extremely valuable, there is plenty of opportunity to improve the way it is performed.
Cost-to-serve analysis can be applied to many business processes, but seems to be most prevalent in customer-facing areas, with 71 percent using it for specific customers and customer segments. In contrast, less than half are using it for product categories, distribution channels or geographies. Ironically, it is more often supply chain (61 percent) or finance (48 percent) that leads such initiatives, with sales following in third.
The cost components included in the scope of profitability analysis vary widely, with freight costs leading the list. Warehousing and manufacturing costs are included a majority of the time. Slightly less than half also include inventory expenses, marketing and trade promotions in the cost-to-serve analysis. Profitability analysis is used to address many strategic business challenges, with the majority (67 percent) leveraging it for overall supply chain optimization. Almost half also use it for resource allocation, with slightly fewer citing customer negotiations and portfolio optimization.
The top benefits companies are seeking with current projects are improved operating cost efficiencies, improved profitability through restructuring of terms and discounts, and increased influence and performance at retail. Expected business benefits for new implementations over the next three years follow similar trends, with half of respondents planning on implementing cost-to- serve strategies for custom pricing by segment or channel.
Click here to read this research in its entirety, and find out more about the adoption, benefits and opportunities of cost-to-serve methodologies in the consumer goods industry.
Cost-to-serve analysis can be applied to many business processes, but seems to be most prevalent in customer-facing areas, with 71 percent using it for specific customers and customer segments. In contrast, less than half are using it for product categories, distribution channels or geographies. Ironically, it is more often supply chain (61 percent) or finance (48 percent) that leads such initiatives, with sales following in third.
The cost components included in the scope of profitability analysis vary widely, with freight costs leading the list. Warehousing and manufacturing costs are included a majority of the time. Slightly less than half also include inventory expenses, marketing and trade promotions in the cost-to-serve analysis. Profitability analysis is used to address many strategic business challenges, with the majority (67 percent) leveraging it for overall supply chain optimization. Almost half also use it for resource allocation, with slightly fewer citing customer negotiations and portfolio optimization.
The top benefits companies are seeking with current projects are improved operating cost efficiencies, improved profitability through restructuring of terms and discounts, and increased influence and performance at retail. Expected business benefits for new implementations over the next three years follow similar trends, with half of respondents planning on implementing cost-to- serve strategies for custom pricing by segment or channel.
Click here to read this research in its entirety, and find out more about the adoption, benefits and opportunities of cost-to-serve methodologies in the consumer goods industry.