Cost to Serve Analysis
To fully understand the true profitability of individual customers, products and services, Cost to Serve analysis is applied, which aligns granular cost data to actual business operations, at transactional level.
PCM goes beyond traditional activity based costing methodologies and defines how and when costs are incurred for individual transactions, processes and product movements. This effectively builds up costs as they incurred, by leveraging existing business data, process mapping and powerful cost allocation models.
The result is full cost transparency, consistent with actual business operations, to a transaction line item level of detail.
This provides insights that highlight the true profit contribution of customers, products and services based – as opposed to average costing.
PCM then applies this information to identify and analyse variations specific costs, which in turn may highlight profit leakage points for specific customers or transaction types.
Examples of Cost to Serve Analysis
- Multi-handling of products within the distribution chain, including freight and warehousing
- Excessive sales and marketing support for unprofitable customers
- Inconsistent support for higher margin products and services.
- Under recovery of freight for customer deliveries, particularly for urgent small deliveries.
- Excessive order frequency and/or small order size, resulting in very high costs as a proportion of invoice value.
- Additional (working capital) costs associated with holding finished goods, debtors and payment methods.
- Costs associated with stock returns, warranty and product quality