Understanding Cost-to-Serve for Optimizing Efficiencies

Cost-to-serve refers to the comprehensive evaluation of all costs involved in servicing a customer, beyond just the direct costs like freight. It includes hidden costs and other factors that may not be immediately obvious in decision-making, such as supplier penalties. This concept involves taking a full perspective on what it takes to maintain and service a customer, considering everything from carrier selection to compliance with retailer requirements. Understanding cost-to-serve is crucial for making informed business decisions and optimizing overall efficiency.

For those in the CPG and retail industries, comprehending and managing the full cost to serve—including hidden costs and penalties, which for large shippers can amount to hundreds of thousands, or even millions of dollars —is vital in making informed business decisions and maintaining strong relationships with key customers. 

These penalties can affect various departments within an organization, not just the transportation or logistics teams. They might hit the trade, finance, or other operational silos, leading to broader financial implications.

Different retailers have varied penalty structures. Walmart and Kroger, for example, assess penalties based on the total cases shipped over a period, with thresholds determining whether penalties are incurred. Others such as Dollar General may impose flat late fees per purchase order or shipment, potentially leading to multiple penalties for a single shipment if multiple failures occur.

Understanding how penalties are assessed by different customers is crucial for developing strategies to mitigate these costs. It requires a detailed knowledge of each customer’s compliance requirements and proactive measures to meet them consistently.

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At Fetch Freight, we aim to provide insights and strategies to help our customers navigate these complexities effectively. For more information or to discuss how we can help optimize your logistics operations, please contact us.