Empowering S&OP with a dynamic approach to cost to serve

Challenge: linking cost data with S&OP action plans

The goal of sales and operations planning is to define potential upcoming demand and supply conflicts and develop plans of action to tackle each one. However, in practice, most organizations aren’t equipped with the relevant information to do so effectively. More specifically, calculating the financial figures that line up with these plans of action remains a critical challenge. The key to solving this challenge is a strong connection between finance and supply chain – and one of the best ways to nurture this connection is to approach cost to serve in a dynamic way.

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Supply chains as dynamic ecosystems

Cost-to-serve analysis is an increasingly popular methodology used by CFOs to gain a detailed overview of the costs incurred to serve customers. It spans all business processes and is driven by customer behavior, from order receipt and delivery of the product to the customer, and where possible, to the customer’s shelf. These cost-to-serve figures serve as the basis of an action plan to drive business growth. They are particularly useful in learning more about supply chain costs in order to link them with other business costs.

“Cost-to-serve exercises are often one-time efforts,” Kristof explains. “While supply chain costs aren’t static, and this figure quickly becomes outdated due to shifting supply chain parameters. As a result, cost to serve is something that supply chain colleagues must keep up to date to enable informed business decisions.”

Two ways to maximize the value of supply chain insights

In order to bring valuable insights to the business, supply chain controllers require accurate, real-time data. This enables them to provide information about changing parameters, trends and root causes – which serve as rich enablers for decision-making.

To provide them with these insights, it’s necessary to make sure that cost-to-serve insights become part of regular management reporting. This necessitates a structured approach, in which financial and operational figures are integrated to apply standard costs according to the underlying processes.

Secondly, sales and operations planning must involve supply chain controlling. Using cost-to-serve data that delivers insights into customer profitability and trade-off costs, business leaders can make more informed decisions during periodic S&OP meetings. Potential questions that can be answered: “how much will it cost the business to add a new shift at the facility? How much does it cost to add an extra day of safety stock for this product?”

With smart S&OP, the sky is the limit

Not only will cost-to-serve insights empower the decision-making process, but they will also make S&OP processes more agile. After all, supply chain controllers are in a unique position – in the center of finance, sales and supply chain – to bring crucial, objective, well-informed opinions to the S&OP table. To maximize these benefits, a centralized information repository is needed to contain all cost-to-serve data in a single, easy-to-access location.

“Cost to serve is, on all counts, the first step towards an intelligent, value-driven, mature S&OP process – and that’s just the tip of the iceberg. Your business can use it to transform your supply chain operations into the foundation for a transparent, customer-driven value chain in which your business is a trusted, preferred partner,” Kristof concludes.