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03/26/2001: Recession threat drives supply chain efficiency

A predicted slow down in the economy coupled with a shake-out in the technology industry is fueling an increased demand for efficient logistics and supply chain management.

Cost-cutting and budget reviews are becoming the norm as the faltering Australian economy starts to take its toll. Similarly, the recent technology shares correction has seen companies become especially cautious about the viability of their ebusiness activities.

According to Logistics Bureau, improving the supply chain guarantees increased efficiency while taking out significant cost.

“As companies address their relative position in the marketplace they are simultaneously seeking methods by which to gain competitive advantage. One method is through measuring the ‘cost to serve’,” said Logistics Bureau Director, Maurice Sinclair.

“Understanding exactly how much it costs to serve each customer, combined with the cost to make, support and supply them, can bring about a full understanding of profitability on an individual customer level when revenue is matched against each customer. Identifying profitable and non-profitable customers is important in any business strategy as it enables the company to embark on a whole range of business strategies.”

Sinclair said any company could apply the cost to serve theory – and it was particularly relevant in ebusiness. In the B2C marketplace, the cost of servicing small customers with small orders was a critical success factor to profitable trading in this environment. He added that there were a number of good examples of etailers who had “got it right”.

“’Cost to serve’ is no great science. The extension of margin per customer is simply calculating the difference between the revenue earned from a customer and all the costs associated with that customer. When you know the cost of serving your customers, you can then identify more viable ways to service them.”

He said that while customers were demanding far more than ever more, it was actually possible to meet these demands, while maintaining a solid fulfilment infrastructure and profitable trading.

“Many dot coms fell down because they over-promised and under delivered. Measuring ‘cost to serve’ and customer margins, enables a company to make more informed decisions about their delivery promise and the cost at which a company is prepared to accept when servicing different customers.”