COST CONTAINMENT INITIATIVE Dining Associates Day August 2013.
The cost to serve initiative
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Learn how your company can benefit from the Cost to Serve Initiative. Sonum has successfully implemented Cost to Serve Models in several countries using Acorn Systems software.
Transcript of The cost to serve initiative
Some general information
• To make sure there are no background noises, all attendees are put to
mute
• If you have an urgent question or problems with the connectivity please
raise your hand and someone will help you as soon as possible
• You can post questions via the chat area, we will try to answer all
questions at the end of the presentation
• Thank you for attending
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Agenda
• Introduction Sonum
• Introduction Cost to Serve
• Why does your company need Cost to Serve?
• What does it take to start a Cost to Serve Project?
• References
• Questions
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Introduction Sonum International
Mission
• Our company focusses on Cost to Serve, Planning and Forecasting
• Creating truly value adding solutions, eliminate non-value adding activities in
traditional budgeting & costing processes
• Implement technology as a strong enabler for this change
Services
• Business process (re)design and change management
• Costing & planning model (re)design
• Software selection
• Software implementation
• Project management
• Project recovery
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Introduction to Cost to Serve
What is Cost to serve ?
• Cost to Serve (CtS) is an analysis that calculates the profitability of
products, customers and routes to market. Once Cost to Serve is in
place, it provides a fact-based focus for decision making on service
mix and operational changes for each customer. It’s an end-to-end
visible cycle.
• For example, we’re able to see for a given Customer, the Picking &
Loading cost incurred per Case & Pallet split out by Product Category
and source Distribution Centre
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Gross Sales Value (GSV)
Turnover (TO)
Gross Profit (GP)
Operating Profit
Scope Area 1
Discounts & Trade Terms
Material
Costs* & Bought-in products*
Scope Area 3
Warehouse & Transportation
B. Cost of Goods Sold
A. Trade Terms
Production
Costs*
Scope Area 2
Product Complexity
Other Costs
Other Costs
C. Cost-to-Serve
Scope Area 4
‘Value-Added’
Cost-to-Serve
D. Selling & Marketing Costs
Cost to Serve
* Costs captured as given
Scope Area 6
Selling & Marketing
Costs
Scope Area 5
Ordering & Cash Collection
Introduction to CtS – Typical FMCG
Company P&L Breakdown
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Order Processing Costs 1. Manual Orders
2. Electronic Orders
GL Account Ordering
Total Costs: $22K
Order Processing has two activities:
• Manual Orders
• 5 minutes processing time
• 1000 orders this month
• Electronic Orders
• 2 minutes processing time
• 3000 orders this month
There were therefore 11000 minutes
worth of activity, therefore each order
gets $2 per minutes worth of activity
100% of this GL goes to
Order Processing
Department
Each Manual order gets $2 x 5 min = $10 Each
Electronic Order gets $2 x 2min =$4
Introduction to CtS – Activity Example Ordering
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What will change? True understanding of how profitable customers, products and orders are
Customer Contribution Analysis
Before CtS Model
Customer Contribution Analysis
After CtS Model
P&L (k€) Customer 1 Customer 2
Vol (tons) 640 1040
GSV 1280 2080
TT 220 220
TO 1060 1860
SCC 578 937
COGS 320 450
Other SC Cost 258 487
GP 482 923
A&P 64 111
Indirects Trade 78 93
C. Contribution 340 719
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P&L (k€) Customer 1 Customer 2
Vol (tons) 640 1040
GSV 1280 2080
TT 220 220
TO 1060 1860
SCC 373 1191
Product Cost 278 450
Ordering 8 90
Warehouse 12 301
Transport 65 250
Returns 10 100
Sales 10 32
GP 687 669
A&P 47 128
Indirects Trade 9 71
C. Contribution 631 470
Figure 1 Figure 2
Introduction to Cost to Serve
Improving Profitability through CtS-analysis
• CtS is a well-established approach for learning which customers
and products matter most and how to manage them with proper
cost/service/trade terms balance
• CtS analysis provides an activity driven view of how specific
dimensions (products, customers, channels, ...) consume
resources and incur costs
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Why is it important ?
Why does your company need Cost to Serve?
Source: “Time-Driven Activity-Based Costing:
A Simpler and More Powerful Path to Higher Profits” Kaplan & Anderson and Acorn Systems clients
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What do companies use it for?
• Appeal to more consumers across needs and price points
• Win with winning customers
• Lean, responsive and consumer led value chain
• Agile, cost competitive organization
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What do others say ?
• Sources: (1)AMR - Improving Profitability Through Cost-to-Serve Analysis, (2)‘Overcoming the Cost-to-Serve Trap’ Supply Chain Executive Board
Drove 14% pricing increase
and a 4% increase in sales
volume
Improved logistics capabilities and
enhanced effectiveness of customer
supply chains
Investment of $500,000 reduced BU order-processing time by
more than 90% and reduced the order-to-cash cycle by 30%
Improved product bulk value by 45%, lowered logistics
costs by 50%, and contributed to improved designs which
led to a 29% increase in earnings
Drove first-year returns that were
eight times the initial investment to
the bottom line.
Tracked customer net profitability and
compared it with estimated contract
profitability
Reduced days inventory on hand by more
than 25% and improved account margins by
7.8% in one year
Undisclosed
Health Care
Products
Industry
Average ROI
9 months
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What does it take to start a Cost to
Serve Project?
• What resources are needed?
• Depends on the scale of the Cost to Serve project and the complexity of the
business
• Companies could decide to model one sector of the company first
• A typical Cost to Serve pilot involves the following core team:
• 1 FTE Acorn Modeler
• 0.5 FTE Project Manager
• 0.5 FTE Key Tester
• Involvement from various teams within the company:
• IT Team
• All functional teams included in the CtS model
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References
Unilever talking about their C2S implementation Video at Berlin Conference
2013:
http://www.acornsys.com/resources/UnileverCTS
Hear firsthand how Elkay (www.elkay.com) puts the insights provided by the
Acorn solution to work:
http://www.acornsys.com/resources/deltotal-profitability-management
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Where can your company improve?
Maximize Profit Improve Operational Efficiency
Decrease Costs
PROFIT IMPROVEMENT
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Questions ?
