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Home > Cost-to-Serve

Improving Your Cold Supply Chain Cost Management

A well-run supply chain not only enhances customer service, shortens delivery times, and improves the logistics function, but it also saves your company money. In calculating the profitability of a customer account (your “cost to serve”), leveraging consolidation programs and good distribution helps lower expenses to compete more efficiently in the marketplace.

Based on all the activities and costs to meet customer demands, cost-to-serve helps firms determine if their approach to fulfilling customer orders is paying dividends or is actually produce a net loss.

By combining advanced distribution strategies, such as consolidation, with seamless technology, companies gain better transparency into where costs are out of alignment. The result? Better short and long-term decision making and the signals you need to consider migrating away from less profitable accounts.

Mitigating Chargebacks and Service Issues

In addition to the financial costs associated with product distribution, late or missed deliveries can trigger compliance chargebacks totaling as much as 15 to 20 percent of a product invoice. According to the Retail Value Chain Federation, 96 percent of its retail members currently operate compliance programs that include chargeback assessments.

Some manufacturers have compliance departments dedicated to sifting through the complicated issue of chargebacks. With the typical retailer using between 50 and 150 different compliance rules, these departments – and the associated compliance costs – generate billions of dollars in additional costs annually.

The location of Hanson Logistics Chicago Consolidation Center, in the less congested NW Indiana corridor, makes the facility ideal for central states frozen food distribution as well as the consolidating point for national scheduled deliveries.
  • The three Cs of customer satisfaction: Consistency, consistency, consistency.

    McKinsey & Company

Load Consolidation is the Key

While mid-market food manufacturers face numerous obstacles to getting their products to national retailers, the high costs and other drawbacks of LTL shipments can be erased from their list of concerns through strategies like load consolidation. Appealing to both manufacturers and retailers, load consolidation leverages the economies of scale while improving a firm’s ability to profitably fulfill smaller, higher-frequency orders.

And because retailers receive scheduled, consolidated deliveries that align with their own fulfillment strategies, the manufacturer’s relationships with retailers also improve. It’s a win-win scenario for everyone involved.

cold storage

Four Ways to Lower Cost to Serve

By analyzing supply chain activities and costs incurred to meet customers’ product demand, and by leveraging this data, food manufacturers can put themselves way ahead of their competitors – most of which are not conducting these studies. A lower cost to serve can be achieved in several ways, including:

  • Staging forward inventory in a distribution location strategic to your customer base (this is critical for mid-tier processors or those with complex SKU product lines).
  • Using technology to drive efficiencies in ordering (i.e., accuracy in picking, supply chain transparency, etc.)
  • Collaborating or “consolidating” with like vendors in your supply chain to eliminate waste and reduce costs.
  • Striving for scheduled delivery. Work with your customer to determine the optimal frequency for delivery; handle the exceptions as required.

Through accurate cost to serve analysis, companies gain an integrated cost picture for every link in the supply chain – from raw material procurement to final delivery. Using this data, shippers can better position customers and services, improve overall service, and attain higher profit margins.