Cost to serve
Encyclopedia
Cost to Serve is a process-driven accountancy tool to calculate the profitability of a customer account, based on the actual business activities and overhead costs incurred to service that customer.
In the context of supply chain management
it 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.
Unlike Activity Based Costing (ABC), Cost to Serve is not resource-intensive and focuses on aggregate analyses around a blend of cost drivers.
It 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 prioritisation of short-term actions. Businesses are able to reposition customers and services, and how they are served to improve overall margin.
In the context of supply chain management
Supply chain management
Supply chain management is the management of a network of interconnected businesses involved in the ultimate provision of product and service packages required by end customers...
it can be used to analyse how costs are consumed throughout the supply chain
Supply chain
A supply chain is a system of organizations, people, technology, activities, information and resources involved in moving a product or service from supplier to customer. Supply chain activities transform natural resources, raw materials and components into a finished product that is delivered to...
. 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
Pareto analysis
Pareto analysis is a statistical technique in decision making that is used for selection of a limited number of tasks that produce significant overall effect. It uses the Pareto principle – the idea that by doing 20% of work, 80% of the advantage of doing the entire job can be generated...
curve which highlights those that contribute most to the company's profit and those that erode it.
Unlike Activity Based Costing (ABC), Cost to Serve is not resource-intensive and focuses on aggregate analyses around a blend of cost drivers.
It 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 prioritisation of short-term actions. Businesses are able to reposition customers and services, and how they are served to improve overall margin.
See also
- Pareto principlePareto principleThe Pareto principle states that, for many events, roughly 80% of the effects come from 20% of the causes.Business-management consultant Joseph M...
- Activity based costing
- Carbon to Serve
- Supply chain managementSupply chain managementSupply chain management is the management of a network of interconnected businesses involved in the ultimate provision of product and service packages required by end customers...
Further reading
- 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 & Grocery Council / Focus Information Logistics - 'A Guide to using cost to serve to enable effective customer engagement' http://www.afgc.org.au/cmsDocuments/A%20Guide%20to%20Using%20Cost%20to%20Serve%20publication%20FINAL.pdf