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JP Doggett

Summary of a discussion hosted on 20th May with Intent members and guest experts Richard Thompson and Dan Levy of CadDo.

Market context and typical challenges
A typical CTS measures logistics, but not the full e2e picture - the ‘field to fork’ measure. This can become very complex very quickly, but more companies are now moving towards measuring this. Why? These calculations can then drive commercial teams to price deals, better inform the budgeting process, inform how customers should be serviced most profitably, and can also feed into ESG reporting. 

  • For many, Covid has brought to the fore the need to consider cost-to-serve vs operational risk of depending on import/export. Where products are manufactured or sourced is being reviewed.
  • Use of CTS tends to be unevenly distributed across parts of the business, typically where costs are high or increasing, for example, in shipping and transport costs at the moment. The Amazon effect where customers expect next day delivery is also driving up transport costs so 'traditional CTS' tends to revolve around the logistics function.
  • When data is available, it's not necessarily complete or transparent and the results are sub-optimal, where a conclusion isn't always obvious.
  • CTS is less commonly used to drive routine discussions and decision-making between functions.
  • CTS does not always drive pricing to customer - yet it can and perhaps should.
  • Looking at CTS further up the supply chain quickly becomes complex.
  • Without data in a usable form readily at hand, the situation has often already changed by the time an analysis can be done.
  • One-off CTS analyses typically only provide a snapshot which, while interesting and possibly informative, rarely becomes actionable as an ongoing tool which limits their practical value.
  • As greater emphasis is placed on supply chain resilience, there is greater need to be able to model the implications of possible configurations of footprints, supplier terms etc. and understand it's impact on the bottom line.

Advice on conducting a CTS analysis

  • COST-to-serve is somewhat of a misnomer as it can overly narrow the focus on the cost side whereas framing it as something like 'cost-to-serve contribution', Holistic Customer Investment or taking an EBIT-level view offers better perspective coupled with and end-to-end view.
  • Incorporate data from other parts of the business in whatever format it is recorded (don’t try to introduce or change data format as this will surely be impeded).
  • Start with the invoice data as a base and go to each function in your organisation to see what data can be pulled to augment this? 
  • Set the CTS rules and get buy-in to allocation methodology. You will find that the warehouse is the most complex area.
  • Ensure CTS is not being used to ‘beat up’ one function. Transparency of CTS data helps defuse a sometimes adversarial dynamic where one function or teams' view is pitted against another, acting as a glue rather than a wedge. This transparency itself often prompts more and better questions which are enriched by different viewpoints.
  • Factor in FTE overhead - e.g. how many planners, how much devotion in customer service? Those FTEs are most often allocated to customers, or geo’s, or products, so these costs can be attributed.
  • Establish the wins for each function and you’ll get the buy-in! How does better CTS insight help each function perform its role better and contribute to the common goal e.g. improving EBIT? Consider extending the potential “wins” to include suppliers who may need to be motivated to support upstream enhancements (open book discussions). This could be particularly significant in the ESG expectations of suppliers.
  • CTS can start in supply chain but often end up in commercial where it is used as a framework for productive negotiation and to drive deals and offers. Sharing this information with customers can help influence how they accept being served, or nudge buying practices in a positive way.
  • Make CTS a living breathing exercise - take data feeds once a month. A one-off exercise tends to land and be ignored because there is no change or measurement for improvement.
  • CTS analysis can then be used as a data feed for other changes, projects or servicing decisions. 

Incorporating ESG metrics into CTS analysis

  •  The process is essentially no different to a standard CTS analysis: start with the data and a transparent rules engine to produce regular routine reports. In time, the rules and reports can be adjusted and fine-tuned and become embedded in the decision-making process.
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