Cost-to-serve model at TATA global beverages leads to a valuable discovery
Thanks to CostPerform, consultancy provider Scala and TATA global beverages gained significant insights and made a discovery that saved the latter a lot of money. Grab a drink and discover what they found out with our software.
First, some background to this story. Manufacturing companies like TATA global beverages have been ‘squeezing’ marginal costs for years, trying to increase the margins on their products. Although cost management and process improvement techniques like LEAN and Activity-Based Costing (one of CostPerform’s solutions) have been around for decades, the logistical part of the business on product level has been neglected. And while most companies know very well what their Cost of Goods is, very few know what the exact costs are after production. Even though improvements were made on the level of total warehousing or total transport, it still is complicated for many companies to assign the real logistical cost value to every single order. Depending on the type of products and distribution, this could result in more than 15% of non-attributed costs.
Differences in costs for cases of over 30% were no exception.
Consultancy provider Scala and TATA global beverages decided to tackle this problem and created a cost-to-serve model with CostPerform that calculates the warehousing and transportation cost for all orders in the UK region. When these costs were analyzed, they discovered surprising customer profitability results. Differences in costs for cases of over 30% were no exception. CostPerform helped both parties to gain insights into the true costs of various channels, customer behaviors, and logistical providers. And, since the cost-to-serve models are based on a flexible framework, it easily uncovered strange and unexpected patterns. This resulted in the discovery of a mistake in the invoices of one of TATA’s suppliers, saving the company enough money to pay for the entire project.