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Cost to serve

Acccountancy tool for calculating the business costs of serving each customer

Acccountancy tool for calculating the business costs of serving each customer

Cost to Serve (CTS or C2S) is an accountancy and financial planning tool used to calculate the profitability of serving the needs of a particular customer account, based on the actual business activities and overhead costs incurred in servicing that customer or customer type. Businesses are able to reposition customers and services, and how they are served to improve overall margin.

Gartner's glossary defines the term as a form of analysis which The Australian Food and Grocery Council describes Cost to Serve (C2S) as

Supply chain management

In the context of supply chain management the tool can be used to analyse how costs are consumed throughout the supply chain. It shows that each product and customer demands different activities and has a different cost profile. The product and customer profiles are often illustrated using a Pareto analysis curve which highlights those that contribute most to the company's profit and those that erode it.

Cost to Serve is considered less resource-intensive than Activity Based Costing (ABC) as it focuses on aggregate analyses around a blend of cost drivers. The tool gives an integrated view of costs at each stage of the supply chain, providing a fact-based view to unravel the complexity of multiple supply chains and channels to market. It enables a focus on both long-term decisions and the identification of easily-achieved process changes to improve profitability. Seifert and Markoff note that

Notes

References

References

  1. "IGD Glossary - Cost-to-Serve". IGD.
  2. Gartner, Inc.,[https://www.gartner.com/en/information-technology/glossary/cost-to-serve Cost To Serve], accessed 11 February 2023
  3. Australian Food and Grocery Council, [https://web.archive.org/web/20080722011805/http://www.afgc.org.au/cmsDocuments/A%20Guide%20to%20Using%20Cost%20to%20Serve%20publication%20FINAL.pdf A Guide to Using Cost to Serve to Enable Effective Customer Engagement], n.d., archived 22 July 2008, accessed 11 February 2023
  4. O'Byrne, R., [https://www.logisticsbureau.com/cost-to-serve-a-smarter-way-to-improved-supply-chain-profitability/ Cost to Serve – A Smarter Way to Improved Supply Chain Profitability], ''Logistics Bureau'', published 14 June 2022, accessed 11 February 2023
  5. Seifert, R. and Markoff, R., [https://www.imd.org/research-knowledge/articles/the-hidden-cost-of-cost-to-serve/ The hidden cost of cost-to-serve], [[International Institute for Management Development]], published August 2018, accessed 11 February 2023
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