A deep dive into Cost to Serve

 
Cost to Serve or Cost to Deliver has been a concept that we have explored in the past, you can find the last post we published in this link: The importance of Cost to Serve in Supply Chain.

In this post, we are going to deep dive further on this concept and shed some light around the different components that can impact cost to serve.

First things first, a quick reminder of what is cost to serve; It is the total cost of providing a product or service to a customer including all direct and indirect costs.

Direct costs are those that can be directly traced to the production or delivery of the product or service, while indirect costs are those that are not easily traced to the specific product or service but are still incurred in the process of providing it.

Now onto why understanding your cost to serve is important.

By understanding how much it costs to serve each customer, companies can segment their customers and identify potential areas for cost savings. It can also be used to evaluate different pricing strategies and understand how changes in price may impact overall costs ultimately helping organizations to transform unprofitable customers into profitable ones.

But what is the best way to determine cost to serve, and what are the different elements that make up this metric?

There are several elements and categories that need to be captured to be able to analyse cost to serve and have some meaningful data to work with:

1- Customer: Customer services overheads, order management, customer specific services, presales costs etc

2- Sourcing and manufacturing: Sourcing and procurement, cost of goods, production costs, manufacturing costs etc.

3- Warehousing: Picking packing and storage cost.

4- Delivery/Transportation: Transport, last mile delivery, returns and reverse logistics etc.

Finally, how do we put everything together and calculate cost to serve?

This is the easiest part, providing you have managed to do the hardest part which is to identify all the different costs impacting your operations. Once this information is ready, it´s just a question of subtracting from the customer sale price all these different elements, leaving you with a data point that can be compared across all customers in your organization.

The Carbon Footprint of the Food Supply Chain

 

The quantity of greenhouse gases generated by our food can vary considerably across the global food supply chain.

The difference types of food we could eat can have a significant impact on greenhouse gases emissions on the environment.

Across all foods, the land use and farm stages of the supply chain account for 80% of the emissions.

On the other end of the spectrum is transportation. This stage of the supply chain makes up 10% of total emissions on average.

Worldwide, there are approximately 13.7 billion metric tons of carbon dioxide equivalents (CO2e) emitted through the food supply chain per year. Unsurprisingly, beef and other animal products have considerably greater effect on emissions.

For example, one kilogram (kg) of beef results in 60 kg of GHG emissions, making beef the greatest contributor to greenhouse gases. In contrast, the same weight of apples produces less than one kilogram of greenhouse gases emissions.

When it comes to plant-based foods, chocolate is among the highest GHG emitters. One kilogram of chocolate produces 19 kg of greenhouse gases. On average, emissions from plant-based foods are 10 to 50 times lower than animal-based types.