Cost-to-Serve Case Samples from The Smart Cube

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A brief introduction to cost-to-serve and how it can be used to generate more revenue instead of relying on top-line sales.

Transcript of Cost-to-Serve Case Samples from The Smart Cube

Cost-to-Serve Overview and Case Examples

July 2014

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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 specic 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 protable customers? Business impact of Cost-to-Serve: Visibility on customer protability Customer service teams can develop dieren>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

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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 proles 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 proles 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 proled to derive ac>onable insights at the customer level

Cost-to-Serve Analysis Utilities

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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 specic 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 nalizing 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

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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 companys P&L

TSC was required to model the various transporta>on cost components such as product mix, shipment route/customer loca>on, ordering prole and frequency, and develop cost prole 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 prole, trends in transporta>on cost and shia in P&L, through user generated reports

Cost-to-Serve Analysis Transportation

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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.

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