Cost-to-service analysis

CoreProcess has developed software which pinpoints all ‘downstream’ expenses, effectively measuring key indicators and identifying opportunities for manufacturers to streamline their distribution supply chain and reduce costs.

Called PIM (Profit Impact Manager), the software is relevant for manufacturers of high-volume, low profit-margin food and grocery products.

There is massive complexity in determining the true cost of the ‘downstream’ supply chain. It includes such factors as order size, product shape, carton weight, pallet type, warehousing, handling anomalies, pick costs, loading, transportation, delivery, shrinkage and stock loss.

Some large manufacturers produce 6000 individual products and hold up to 2500 in their distribution centre at the one time. Even products that are similar — such as strawberry yoghurt versus plain yoghurt — will vary in their cost-to-serve. This is because order quantities fluctuate, delivery destinations differ, distances travelled vary, petrol prices change … and not all trucks are dispatched fully loaded.

Yet manufacturers apply the same cost-to-serve allowance to a large supermarket chain which takes delivery of, say, 20 pallets of plain yoghurt at the one central point as they do to an independent operator in a less accessible location requiring just a few cases of the product.

Paradoxically, a large order is not necessarily more profitable than a smaller one. It depends on so many variables.

PIM will accurately identify supply chain costs and pinpoint the profit margins of each product, sold to each customer in each delivery. This information is available to management in easy-to-comprehend graphics.

It’s a simple task to change parameters and pose ‘what if’ scenarios to identify optimum outcomes to that decisions on pricing are based on fact, not fiction.