It is no secret that recent world events have led to significant industry disruptions, causing manufacturers around the world to re-evaluate their operating models and procurement effectiveness. The traditional cost savings mind set is gone, and data has become one of the most valued forms of currency for manufacturing and supply-chain leaders when it comes to measuring and ultimately impacting total cost of ownership and cost-to-serve.
With the cost of raw materials continuing to rise in many industries and still recovering from operational disruptions, there is no better time to cash in on a data-driven cost-to-serve (CTS) strategy.
What is Total Cost-To-Serve in Manufacturing?
To understand the true value manufacturing companies can extract by reducing CTS and how data can help, it is important to start with the basics of how total cost-to-serve is calculated and why it is in fact, not basic at all.
Total cost-to-serve measures costs from the first mile to the last mile and ultimately within reach of your customer in the last 3 feet. There are so many factors manufacturing companies today must include to accurately measure. While profit dollars of your largest customers might outweigh your medium and small-sized customers, your profitability rates might not coincide. Factors such as average order size, product returns, product mix, and conversion costs all contribute to your total cost-to-serve to your customers.
To understand true CTS, companies must uncover both direct costs and opportunity costs. Looking at CTS holistically and understanding the potential missed opportunities not only drives total cost-to-serve down but allows for better decision-making related to overall strategy.
Why is Data so Valuable in Measuring Total Cost-To-Serve?
So why doesn’t everyone implement a total cost-to-serve model? Total cost -to-serve can be difficult to calculate. Some companies lack sufficient time and resources while others are overwhelmed with the vast number of factors to consider. Most often, a customer has poor or non-existent data on opportunity costs, which is the most overlooked component of the total cost-to-serve.
“Knowing your true cost-to-serve, and total profitability by customer, is powerful data when building a strategic plan and for tactical execution to optimize margin dollars.”
Abby Sly, SVP Precision
When it comes to measuring total cost-to-serve, data is currency. The more data is “cashed-in,” the more insights become available. These insights can help to improve productivity, decrease direct and indirect costs, and uncover new opportunities.
Example 1:
Syndicated market data can be used to predict market trends, aid in forecasting, and provide customer purchasing insights that could lead to improved lead times and inventory metrics.
Example 2:
Historical transactional data can be used to form insights on white space or near-neighbor category expansion, directing your resources toward the largest opportunities.
In the manufacturing industry, suppliers and distributors are always searching for ways to bring value to their customers. By adopting a total cost-to-serve (CTS) program, companies can find efficiencies they did not even know existed.
Precision is a leader in B2B market insights and channel sales analytics. We take great pride in being true partners with our clients, leveraging our global industry experience and proprietary statistical Models to help our clients solve complex business problems.
Want to learn more about how partnering with Precision can transform your business? Connect with us at info@precisioncorp.net or visit us at www.precisioncorp.net.