UNDERSTANDING YOUR SUPPLY CHAIN TOTAL COST TO SERVE
BY WADE WICKUS
he evolution of priorities and working capital applied to a supply chain is typically based on a metric that points to a rationale of needed change. To achieve this, an organization must discover where to focus energy in order to get the desired outcomes to meet business goals. The purpose of the Supply Chain Total Cost to Serve (SCTCS) formula is to lay the groundwork for high-level direction. We will cover the idea and basis of what is SCTCS, some useful applications of the formula, and how to manage SCTCS as a metric within your organization. What is the SCTCS formula? Some people refer to this as the total cost of ownership, but in this article, we explore a deeper model that is more end to end. Some also call this “cost to serve,” but again, the formula being shared here is more robust and different. All Inbound Costs – All logistics, receiving, inbound equipment, safety, technology, full-time employees (FTE) staff relating to this area + All Costs to Procure – All inventory variance, inventory costs, tariffs, technology, FTE staff relating to this area +
18 PARCELindustry.com JANUARY-FEBRUARY 2021
All Holding Costs – (Product is stationary) – Storage costs, technology, maintenance, FTE staff relating to this area + All Outbound Costs – Outbound assets, routing/last-mile costs, network design, technology, FTE staff relating to this area + All Return Logistics Costs – Inventory returning, costs to return, technology, FTE staff relating to this area = Total Supply Chain Cost to Serve – Includes all the transactional costs associated with the supply chain process, after the sale of goods is complete Excluded: Sales cost, certain leadership costs (C-Suite), marketing costs, and certain administrative costs. The rationale is that these costs are required to obtain sales and are not related to the transactional qualities of a supply chain process. This formula is dedicated to the supply chain total costs to serve, which focuses on the costs of moving product through the supply chain. Useful Applications of the SCTCS Formula These will be based on a specific timeframe (period, quarter, or year). Organizations can gather useful information by utilizing the formula in the following ways: 1. As a standard metric in total to measure the overall cost dollars of the transactional supply chain. 2. Dividing the SCTCS costs by the total sales dollar amount or reflecting SCTCS totals as a percent of sales dollars.
PARCEL Jan/Feb 2021