Having proper supply chain management is a challenge per se for companies that must aim to operate without disruptions, and that adds complexity when other factors are integrated, such as being able to delight customers and grow profitably.
Within the framework of the monthly session of #SoyLogístico , #DesyunandoLogística, the point of “How to reduce the service cost of a connected supply chain?” was addressed, where Juan Carlos Calderón, Key Account Director Retail Industry of Blue Yonder, defined the cost of service (cost-to-serve – CTS) as the cost of satisfying a unit of demand for any client and product.
Based on the proposal made by Juan Carlos Calderón, the CTS is a financial metric used to understand the total cost incurred to deliver a product or service to a customer, where direct costs such as materials and labor are considered, but also indirect costs such as logistics, customer service and returns.
Brenda Hernández, Sr. Director of Logistics Latin America at Mattel , who participated in the panel, explained that all costs must be identified, even considering that there are external and internal factors that impact the operation, “they are not inefficiencies but the chain is connected,” referring to what happens in other latitudes such as the Suez Canal.
In his view, it is essential to be able to identify all costs, including hidden costs, in order to define the cost of service and be able to react.
In this area, Miguel Jiménez, Operations Manager of PINSA Comercial , explained that when you have a service focus, you must define the cost of serving, to stop talking about cost silos.
Juan Carlos Calderón described the critical path to locate the cost of serving, where the first thing is to list all the activities involved in the delivery process such as receiving orders, storage, transportation, handling returns, among others; allocation of direct costs such as transportation and storage, or indirect costs such as administration and public services.
Other points to consider are customer segmentation based on profitability and characteristics, which will allow us to understand the variation in costs between different segments. The costs of all activities should also be added together to obtain the total cost of serving each customer or product segment.
Finally, an analysis of the results must be carried out to identify areas for improvement , to synchronize with pricing strategies, optimize transport routes or improve storage efficiency to reduce costs.
Unidentified cost-to-serve impacts on the supply chain include lost sales and decreased customer loyalty; decreased profitability and loyalty; difficulty synchronizing demand, supply and capacity; insufficient resilience, speed and agility in managing disruptions; and excess buffer inventory and costly expediting.
Miguel Jiménez identified one of the strategies that must be addressed is the alignment with the sales force, to identify all costs, while adding all hidden costs to the logistics accounts, to identify the CTS.
In Brenda Hernandez’s view, incorporating CST into the total cost and even into the P&L (profit and loss), in addition to the benefits in the operation , allows communicating them with customers and defining better market strategies.
