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The Number 1 Tool to Improve Supply Chain Performance and Business Profitability

Typically up to 20% of your customers and products are loss makers!  And you don’t even know…

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Failing to identify low margin (or indeed negative margin) products, services and customers, will hamper your ability to improve business profitability across the whole portfolio.

We are not making this stuff up. Logistics Bureau’s consultants have been conducting cost to serve audits since 1997 across hundreds of companies in many countries. You might like to note some key facts about those companies:

  • Fact 1: Up to 20% of customer orders made negative profit margins.
  • Fact 2: 5-10 % of the product range made no contribution at all.
  • Fact 3: Up to 12% of customers were totally unprofitable. Usually a range of large and small customers.
It is not about deleting products from the range, or sacking customers, at least not until you have the facts to hand!
  • Note 1: The facts above are based purely on Sales Value – COGS – Logistics costs. Overheads were not even taken into account!
  • Note 2: The hundreds of companies behind these simple facts, ranged in size (annual turnover) from $200 million – $30 billion. No one is immune.
  • Note 3: Of all the companies where we have conducted cost to serve audits, they all had major cost to serve opportunities to improve margin.

Read on to learn more about our approach and some of the resources we have made available for you. If you would like help in understanding cost to serve better, or just someone to bounce some ideas off, feel free to contact some of our key staff directly.

Cost to Serve Approach

Logistics Bureau, our consultants have a number of approaches aimed at identifying cost to serve. We have been actively involved in detailed cost to serve projects since 1997. It could be said that ‘we wrote the book’. Our approaches include:

1. One off ‘audits’ to establish cost to serve issues and identify improvement plans.
2. Installation of specific cost to serve models and reporting software for ongoing use.

(Note that Logistics Bureau is vendor neutral in the software selection)

Levels of Cost to Serve

Cost to serve reviews can be undertaken at a number of levels and can target:

  1. Supply Chain costs
  2. Logistics costs
  3. Distribution costs
  4. or specific functional areas such as warehousing or transport

Cost to Serve (CTS) Consultants

Cost to Serve Objectives

Our objectives for cost to serve assignments, subject to customer need, can include:

  • Identify high and low cost to serve products.
  • Identify high and low cost to serve customers.
  • Re-align distribution channels to minimise cost to serve.
  • Re-align service policies to maximise profits.
  • Establish ongoing reporting of Cost To Serve utilising specialist ‘customer maintained’ software tools.
  • Establish the cost to serve to specific customers or customer groups to support PF/FGP negotiations (see below).
  • Assess the cost to serve impact of mergers and acquisitions.
  • Assess the cost to serve impacts of new market entries.
  • Assess the cost to serve impacts of distribution network changes.

Why do you need to model your Supply Chain, Logistics or Distribution Network Design?

Network ModelThe business requirements of a network will change over time. This can be due to mergers and acquisitions, entering new markets, expanding product ranges or indeed changes to the regulatory environment.

Logistics Bureau’s consultants have conducted 100’s of network studies for a vast range of customers, across a variety of industries and in many countries.

This experience shows us that for companies that have never undertaken such a study or that have undergone or plan to undergo significant change in their Supply Chain, there is a high degree of risk that:
Network Modeling

  1. Network costs could be 10-15% higher than expected norms.
  2. Service lead times may be adversely impacted.
  3. Excessive product damage could be occuring.
  4. Inventory investment is abnormally high.
  5. Product availability is a major issue.

Read on to learn more about our approach and see some articles on the topic, or if you would like help in understanding the topic, or just someone to bounce some ideas off, feel free to contact some of our key staff directly, whose details are shown below.


Network Modeling Approach

Our distribution strategy consultants can determine the optimal Supply Chain or Distribution network to satisfy customer demand at specified service levels and at the lowest cost. Specialist Supply Chain network modeling software is used to allow cost and service optimisation of the network to be established. Networks can be modeled from factory to the consumer, taking into account all the key cost and service drivers such as:

  1. Customer location
  2. Order size and frequency
  3. Transport costs
  4. Transport vehicle types
  5. Transport modes
  6. Warehouse (Distribution Centre) size, location, resources, costs…
  7. Service level requirements
  8. Factory and supplier locations
  9. Ports of entry for imported products
  10. and many more key variables

We have also developed a fast track network test, that uses market based warehouse and transport costs, read more below.

These types of projects are normally carried out as a result of significant business growth, acquisition, or a need to reduce supply chain complexity and costs.

A recent internal review of our work in this area over the last 12 years (100+ projects), indicated that businesses undertaking these projects saved between 4% and 14% of distribution costs.

Supply Chain, Logistics and Distribution Network Modeling, Design & Optimisation - Typical Cost Savings

We have undertaken these projects across a range of Geographies, from Global, SE Asia Regional, Indonesia, Australia, New Zealand, Thailand, and many others.

Supply Chain, Logistics and Distribution Modeling - Network Design & Optimisation - Example Map

Of our 30 professional staff, we currently have 9 who are trained and skilled in this type of supply chain modeling project work.

Distribution networks, or indeed whole Supply Chains can easily be modeled.

Features and Benefits include:

  • Reduced distribution costs
  • Improved understanding of customer service needs and options
  • Improved understanding of service costs
  • Appropriate balance of storage, inventory and transport costs
  • Graphical mapping of customer demand and density
  • Access to leading distribution network modeling tools and methods
  • Also, this type of work is often linked with customer profitability analysis, product profitability analysis and Cost To Serve (CTS) audits

You can see some of the simple but useful graphic outputs at Mapping Products

Behind these graphic outputs lies a comprehensive cost, resource and demand database and optimisation engines, that provide a rigorous cost/benefit analysis.

We have used these models as part of major consultancy projects in industries such as retail, beverages, FMCG, building products, pharma, automotive and many others.

But of course, having the right software tool is only part of the mix!


Test Your Network

Logistics Bureau’s consultants have developed a ‘fast track’ network modeling approach for those companies that merely want to quickly test a range of distribution network options at a high level, or do not have the ability to gather detailed cost data on their own networks at this time.

Based on 100+ similar network studies, our specialist consultants are able to apply market based costs for your warehousing and transport operations. You only need to supply customer locations and demand data to allow a range of network options to be quickly modeled. This approach:

  1. Provides a range of high level network options for comparative decision making.
  2. Provides models in a fraction of the time and cost of more detailed approaches.

For a more detailed network modeling approach, where greater accuracy is required, we suggest taking the full network modeling approach above.


Warehouse Design and Process Improvement

You may also be interested to see our services in the areas of warehouse design and warehouse process improvement.

Companies that Trust Us


Start Making All of Your Customers and Products Profitable

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