Consultants in Logistics

Cost to Serve Modelling

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Cost to Serve Modelling

Most companies know the total cost of their warehousing & distribution operations.  Some know their total supply chain costs from point of origin to end user.  However, when it comes to commercial decision making, the majority of companies often view supply chain costs as either a simple percentage of the total amount or a cost per unit.  Relatively few know the supply chain costs in sufficient detail to enable detailed decision making.

The Benefits of Cost to Serve Modelling

Cost to serve modelling is designed to enable decision making on a range of issues including pricing, investment, minimum order sizes, discount structures etc.

The typical questions that cost to serve modelling can answer includes:

  • The supply chain cost of a particular product SKU or product group
  • The cost to serve a particular customer or customer group
  • The cost to serve a particular market or region
  • The impact of changing minimum order quantities or order lead times
  • The impact of direct delivery as opposed to the use of regional warehouses or branches

Cost to Serve Modelling by Davies & Robson takes all the relevant costs within the supply chain to analyse them at storage unit and order level.  Costs can include:

  • Inbound shipment costs
  • Inventory and Storage costs
  • Warehouse activity costs – Receipt, picking and despatch
  • Delivery costs
  • Order processing costs
  • Administrative costs

Once costs have been determined at the lowest unit of storage and activity, they can then be used to cost a particular product or traffic flow.  This level of detailed analysis enables a deep understanding of the costs within the Business upon which commercial and operational decisions can be made.

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