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“One of our customers recently told me: ‘All our KPIs are good, but our financial results show something different,” says Ben Reynaert, senior consultant at delaware. “That didn’t really surprise me. Revenue growth is not always accompanied by equivalent growth in profit – while the latter is key for a healthy business. In these cases, the management expects the CFO to offer insights into the operational indicators that have impacted the bottom line and then suggest remedial actions.” That’s where the cost-to-serve (CTS) methodology comes in: CTS helps the CFO pinpoint where the company is making and losing money.
“Put simply, cost to serve is a modeling technique that provides insights into all the costs that organizations incur for delivering a product or service to a customer,” Ben continues. “Unlike traditional accounting methods that calculate the gross margin by subtracting the costs of goods sold from the net sales value, CTS unveils the cost of every customer-driven action. This, from order receipt and the delivery of the product to the customer, and where possible, to the customer’s shelf. It’s an end-to-end cycle.”
So, what’s the role of a company like delaware in this approach? “CTS analysis is performed based on data from the ERP, CRM or planning software. By combining our expertise in IT and finance, we can help companies kick off a CTS project. The first step is always a series of short workshops to assess where CTS can add value. We can then help decide which tools to use to automate the process, provide timely information for swift decision-making and ensure ongoing CTS reporting. The CTS Quick Scan that we launched is, by the way, a great tool to help companies get started. It quickly shows how relevant CTS is for key value chains like sourcing, production, distribution and sales.”
delaware is currently coaching an innovative CTS project in Romania. One of the main objectives is to help the customer understand the impact that day-to-day decisions have on their profit margin. They do that by using real-time CTS indicators. “When the sales team receives an order, for example, they first identify the service level needed (volume, packaging, delivery time, etc.) to fulfil that order before getting a cost estimate. In this way, every stakeholder becomes aware of how the cost to serve impacts the company’s bottom line – a key insight needed to gain a competitive edge in today’s marketplace.”
