The Vital Metric: Why Cost-to-Serve is so Important
Cost-to-serve is a calculation that is more important than ever.
Cost-to-serve (CTS) encompasses the entirety of expenditures required to operate, and is critical for successful inventory management.
This article summarizes some of the points that conversation covered: Watch it here.
This metric, Chris posited, is of the utmost importance for visibility and planning in the supply chain. He explained the “three-S” method and how it yields the right information to calculate cost-to-serve.
The Three-S Method for Cost-to-Serve
Visibility into shipments is what most supply chain leaders are after, but it’s not all they need. In fact, cost-to-serve is a far better illustration of the real numbers of supply chain operations.
The three “S” categories are:
Here’s how each of those relate to CTS:
Each of these three “S”s includes financials, but spend focuses most on cost. What are your costs across modalities? Regions? Operational approaches? Cost varies significantly across all of these, and that cost directly influences your final cost-to-serve number.
Speed addresses two things: how agile a shipment is, and the velocity of a shipment. Maintaining the right inventory is a huge challenge for companies. Getting the right amount of supply to the right place at the right time is key to mitigating major losses.
The last important component is sustainability, which relates to a variety of factors but comes down to how sustainable a specific practice is. Building responsiveness and other social economics of shipping are key to maintaining a thriving function.
When all three of these elements are coordinated and optimized, supply chain leaders will achieve maximum visibility into cost-to-serve. This equips and empowers them to make strategic decisions based on hard facts, not best guesses, and fuels innovation that can last for the long run.
Up next: learn how CTS fits into the bigger picture of transportation spend management maturity — TSM Maturity = Greater Visibility and Control Over Cost-to-Serve (CTS).
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