Cost-to-Serve Overview and Case Examples

July 2014

2  

Introduction to Cost-to-Serve

What  is  Cost-­‐to-­‐Serve?  §  Cost-­‐to-­‐Serve  is  an  analysis  that  helps  calculate  the  total  cost  of  servicing  customers  at  a  customer,  product,  or  channel  level  

§  Once  Cost-­‐to-­‐Serve  is  in  place,  it  can  be  overlaid  with  Customer  Life>me  Value/Revenue  and  create  customer  segments  to  develop  segment  specific  strategies  on  service  mix  and  opera>onal  changes  

 Key  business  ques6on  that  Cost-­‐to-­‐Serve  can  help  answer:  §  What  is  the  break  down  of  cost  components?  §  Which  cost  has  the  highest  propor>on?  §  Which  customers,  products  or  channels  have  higher  propor>on  of  costs?  §  Who  are  the  most  profitable  customers?    Business  impact  of  Cost-­‐to-­‐Serve:  §  Visibility  on  customer  profitability  §  Customer  service  teams  can  develop  differen>ated  service  when  combined  with  revenue  §  Supply  team  can  op>mize  picking  and  ordering  costs,  and  to  formulate  policy  such  as  minimum  order  value  

OVERVIEW  

3  

SELECT  CASE  EXAMPLES  

Study  Objec6ve   §  The  client,  a  UK  energy  and  home  services  provider,  wanted  to  iden>fy  cost  saving  opportuni>es,  understand  various  cost  profiles  and  user  segments  based  on  overall  cost  to  serve;  TSC  to  create  a  cost  to  serve  model  

TSC  Approach   §  TSC  analyzed  the  individual  cost  center  datasets  (inbound,  outbound,  complaints,  etc.)  and  mapped  them  to  the  major  process  heads  (billing,  metering,  etc.)  to  create  consolidated  master  data  

§  Various  parameters,  such  as  average  cost,  percentage  split  and  overall  CTS,  were  derived  at  a  cost  center  level  and  process  level  

§  Detailed  analysis  for  each  process  was  carried  out  to  understand  the  cost  profiles  of  cost  centers  under  each  process  and  subsequently  a  drill  down  analysis  was  performed  to  derive  insights  related  to  process  improvements  and  cost  savings  opportuni>es  

§  Using  the  consolidated  dataset,  customer  segments  were  created  through  sta>s>cal  techniques  and  were  then  profiled  to  derive  ac>onable  insights  at  the  customer  level  

Cost-to-Serve Analysis – Utilities

4  

Study  Objec6ve   §  The  client,  a  leading  pharmaceu>cal  and  consumer  goods  manufacturer,  wanted  to  analyse  cost-­‐to-­‐serve  (warehousing  cost,  transporta>on  cost,  sales  value,  etc.,)  for  all  shipments  across  its  distribu>on  network  

§  The  key  objec>ve  was  to  reduce  distribu>on  spend  through  cost-­‐to-­‐serve  program  by  determining  op>mal  “Way  to  Market”  and  developing  best-­‐in-­‐class  trade  terms  specific  to  DAHB  regional  requirements  

TSC  Approach   §  Order  lines  data,  freight  audit  data  and  warehousing  reports  were  linked  to  each  through  unique  keys  to  create  a  master  dataset  covering  all  cost  components  and  sales  value  for  each  delivery  line  

§  The  level  of  linkage  between  various  datasets  was  assessed  by  means  of  valida>on  reports,  and  correc>ve  ac>ons  were  taken  to  enrich  the  data  

§  Further,  addi>onal  details  on  customer  category,  trade  terms,  etc.,  were  included  in  the  master  database  

§  Post  finalizing  the  database,  various  cost  reduc>on  policies  such  as  minimum  order  value,  direct  vs.  wholesalers,  unit  vs.  case  picking,  etc.,  were  analysed  and  compared  to  further  decision  making  

Cost-to-Serve Analysis – Pharmaceuticals

SELECT  CASE  EXAMPLES  

5  

SELECT  CASE  EXAMPLES  

Study  Objec6ve   §  The  client,  a  leading  pharmaceu>cal  and  consumer  goods  manufacturer,  was  interested  in  analysing  its  shipment  transporta>on  costs  to  es>mate  the  cost-­‐to-­‐serve  customers  and  evaluate  its  impact  on  the  company’s  P&L  

§  TSC  was  required  to  model  the  various  transporta>on  cost  components  such  as  product  mix,  shipment  route/customer  loca>on,  ordering  profile  and  frequency,  and  develop  cost  profile  for  each  customer  highligh>ng  the  scope  for  cost  reduc>on    

TSC  Approach   §  TSC  analysed  the  components  of  transporta>on  cost  and  their  impact  on  overall  P&L,  considering  mul>ple  variables  such  as  shipment  order  frequency  and  size,  distance  travelled  and  overall  sales  value  (by  pallet,  business  units  and  brands),  using  regression  analysis  

§  Further,  the  team  analysed  cost  opportuni>es  such  as  shipment  consolida>on  and  co-­‐loading,  to  es>mate  poten>al  savings  and  highlighted  large  savings  areas  

§  Based  on  the  above  parameters,  the  project  team  also  developed  a  ‘Customer  Analysis  Dashboard’  to  help  the  client  track  and  assess  various  parameters  such  as  customer  order  profile,  trends  in  transporta>on  cost  and  shia  in  P&L,  through  user  generated  reports  

Cost-to-Serve Analysis – Transportation

6  

Our solutions combine cost components from disparate data sources to provide a holistic view of the cost it takes to serve a customer

APPROACH  

The Smart Cube is a global professional services firm that specialises in delivering custom research and

analytics services to corporations, financial services, and management consulting firms.

The Smart Cube has conducted more than 17,000 studies to date across virtually every major industry, function, and region through its global team of over

400 analysts.

The firm is headquartered in the United Kingdom with additional offices in the United States, China, Germany,

Hong Kong, India, Romania, Switzerland, and Uruguay. The Smart Cube is ISO 27001 certified and audited by BSI for assurance on data protection and

confidentiality.

Here to take your business

forward.