There is a big difference between “cost to serve” (“CTS”) and “costs per ton-mile.” The former is a measure of how much the product or service will cost to deliver to the customer, while the latter is a measurement of the amount of money that will be needed to ship products or services. CTS is one of the most difficult concepts for logistics managers to understand, and so firms often use costs per ton-mile to measure their effectiveness.
What do we mean by Cost to Serve?
The cost to serve is the total cost associated with providing a unit of service at a particular demand point within a supply chain. The cost to serve is usually calculated by determining the cost per unit at that point within a supply chain and then multiplying it by the number of units. The cost to serve is an important metric to control in an effort to ensure that the expenses are allocated appropriately, as well as the parts of the supply chain that provide the service and the processes to provide the service are optimized. These metrics and calculations require inventory and supply chain data collection, which can be automated by using software that can help with other aspects of logistics. You can try Greenstone for free or similar applications to get solutions for supply chain transparency, performance detection, data collection, sustainability and ESG compliance monitoring, and more.
Why is it important?
One of the most crucial variables for any business supply chain is “Cost To Serve,” or CTS. This is the cost of the product or service that the business is providing to the customer. In other words, the term “Cost To Serve” refers to the cost per unit, or unit cost, that the business is charging its customers. This is a critical metric for businesses, especially for those in the logistics industry.
Cost to serve is a term used to describe the amount that a company needs to charge to cover the cost of services and goods delivered to its customers. This is an important function for companies in an industry that relies on one-to-one services, such as logistics. Businesses usually try to cut down on logistics costs wherever possible, by leveraging new technology to improve efficiency. For instance, some companies may use fleet management software for their operations, which could help in reducing their costs. In this manner, different industries have different costs to serve rules, but the rule itself is universal.
How do you calculate the cost to serve?
The concept of “cost to serve” in logistics has become a pivotal metric, particularly in the context of e-commerce, where streamlined processes are essential. For e-commerce sites, mastering this metric is critical for maintaining competitiveness. Efficient order fulfillment requires a delicate balance, and in which third-party logistics companies, like Shape Fulfilment (and similar companies) can play a transformative role. These third-party providers bring expertise in supply chain management, allowing for cost-effective order processing, inventory optimization, and streamlined transportation.
The calculations are done on the basis of the total cost of production and the lifespan of the product. For example, a product might cost $1 to produce, but if it only lasts for 5 years, then it has a total cost of $5. For the product to be profitable for the company, the total cost should not be more than the total lifetime cost.
In Logistics, Cost To Serve (C2S) is the process of determining the cost of providing a product or service to a client to make a profit. There are different ways of doing it, according to the Logistics Manager. Still, one of the most popular ways is to calculate the cost of providing the service based on the ideal scenario to achieve a certain set of conditions. This is known as the Cost for a “100% Service”, or the “full cost of doing a job.”
How is it being used?
For many companies, the cost to serve is a key metric that requires a lot of attention. If you run a restaurant, it’s useful to know how much it costs to serve each dish at each meal. If you are running a parcel delivery service, it’s important to know how much it costs to serve a parcel. If you are running a parcel delivery service and get a lot of ridiculous complaints, you will require a lot of your customers to pay their bills; you will need to know its cost to serve each customer.
Each product cost would include all expenses incurred in converting raw materials into a finished product, delivered to the customer added with CTS. This is essentially a breakdown of all expenses that determines the price of the finished good. Considering that there would have to be an increase in the base price to turn sales into profits, the product pricing should be done with close attention to detail. Of course, there could be a chance that the product may be exorbitantly priced which could lead to eventual losses due to a lack of sales. So, companies may turn to the use of tools such as Conjointly’s Van Westendorp PSM to prevent potential losses. As a result, production costs, logistic expenditures, and other expenses may be factored in and conveniently priced for the consumer so that the sales volume may not see a decline.
Bus service is an important part of logistics, and it’s something that can be tested in many ways to make sure that it is an efficient service. To start with, we can look at the cost of serving the route. In other words, how much does it cost to deliver the passengers to the station? The service can be operated in different ways-by a single bus or a shuttle service, by a fixed route, or by a demand-response service. Furthermore, it seems imperative for businesses to consider the cost factor associated with a fleet’s fuel consumption. Fuel consumption can be reduced by regular fleet maintenance by increasing efficiency, resulting in a lower cost of service. Therefore, businesses should perform regular maintenance on their fleets and use an optimized CMMS (Computerized Maintenance Management Software) to track maintenance costs and prevent downtime.
It is well known that the cost to serve is the cost of delivering a unit of a service or product to a point on a service or product’s route. For example, when someone orders a pizza in a pizza store, the cost to serve is the cost to deliver the pizza to the person who ordered the pizza.