2. INTRODUCTION
• Cost to serve business model is a process-driven accountancy tool
• It helps in the calculation of the profitability of any customer
• It basically gives us the overhead costs that are incurred to service that customer based
on the actual business activities
• It basically gives us the aggregate analysis of the cost profile of each and every
customer
3. HOW DOES A COMPANY USE COST TO
SERVE MODEL
• Company begins with building a cost-to-serve models by setting targets that reflect their
supply chain priorities
• It enables them to model both price leakages and specific costs related to serving their
customer
• Costs are recognized as and when they are incurred during the various activities involved in
manufacturing a product and selling it to the customer
• It involves categorizing customers according to various priority or value criteria for better
management of costs
• It includes CTS in logistics picking, packing and shipping, sales costs, marketing efforts, etc.,
resulting in a customer's net margin
• The end goal is to shift behaviours through insights into what true costs are
4. PARETO PRINCIPLE
• CTS also uses the Pareto Analysis to assess the end results
• It helps stimulate thinking and organize thoughts
• It also helps to identify the top portion of causes that need to be addressed to resolve
the majority of problems
• The application of the Pareto analysis in risk management allows the management of
the Company to focus on those risks that have the most impact on their project
5. Cost-to-serve calculations are
intended to accurately assess the
profitability of a product for each
individual customer
CTS customer profitability helps to
identify the functional areas and
activities that contribute to the costs
for a customer
CTS customer profitability looks
beyond the traditional measures of
revenue and gross margins. It gives
a truer picture of profitability by
including the hidden costs and the
costs that cannot be apportioned by
traditional costing methods
