Cost to Supply v Cost to Serve and Why You Need to Understand It

I'm always talking about Cost to Serve here.
But let's flip it for a moment to talk about Cost to Supply.
Working with your Suppliers to understand the cost of serving your organisation, allow you to collaborate with Suppliers to review how their costs might be reduced. With the benefits being shared.
This could include alternative distribution channels, order sizes or order frequency for example.

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TIMESTAMPS (in case you want to skip) 👇

0:00 Intro
0:14 Cost to Supply
1:48 Cost to Serve
3:50 Couple of Traps to Look Out For
4:25 Outro

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Cost to Serve and Cost to Supply in Supply Chain Management

In supply chain management, "Cost to Serve" (CTS) refers to the total expenses incurred in delivering a product or service to a customer. This encompasses production, transportation, warehousing, customer service, and administrative costs. By analyzing CTS, businesses can identify the profitability of different customer segments and make informed decisions about pricing, service levels, and distribution strategies. The goal is to optimize operations, reduce costs, and enhance customer satisfaction.

Now, let's flip the perspective and consider "Cost to Supply." This metric focuses on the costs incurred by suppliers in delivering products to a business, specifically their warehousing and transportation expenses. Understanding Cost to Supply is crucial for companies seeking to optimize their supply chain relationships. By working closely with suppliers to understand their costs of serving the organization, businesses can identify opportunities for cost reduction and share the benefits.

For instance, collaboration with suppliers might involve exploring alternative distribution channels, adjusting order sizes, or altering order frequency. These changes can lead to more efficient logistics, reduced costs, and ultimately, shared savings. This collaborative approach not only helps in lowering costs but also strengthens partnerships, leading to a more resilient and responsive supply chain.

The key difference between Cost to Serve and Cost to Supply lies in their focus: while CTS considers the company's end-to-end costs to serve customers, Cost to Supply zeroes in on the supplier's costs in serving the business. By understanding and managing both metrics, companies can make strategic decisions that enhance efficiency and profitability, ensuring that they and their suppliers benefit from cost-saving initiatives.