SUPPLY CHAIN SERVICE STRATEGY

30 | R i g h t S e r v e ™ Cost-to-Serve “Cost-to-serve” is another business buzzword that is rarely formally defined. Since any monetized cost of serving customers is captured in our business valuation, we use the phraseology “cost-to-serve” as a reference to the general difficulty in serving customers. The three factors contributing to that difficulty include (1) compliance, (2) physicality, and (3) variability. Compliance cost-to-serve factors include non-compliance penalties, payment terms, payment history, inventory commitments, and return rates. Physicality cost-to-serve factors include packaging requirements, handling unit requirements, and accessibility of delivery locations. Variability cost-to-serve factors include the frequency of change orders, order size variability, order timing variability, demand notice, and demand forecastability. An example cost-to-serve analysis for a large consumer products company is presented in Figures 3.14 and 3.15.

Compliance

Variability

Physicality

Figure 3.13 Components of a Cost to Serve Analysis