Cost to Serve

Definition

• The Cost to Serve is the accrual of all costs that single unit of demand incurs as it passes through the supply chain. Starting with the SUPPLY NODE each node and lane a unit passes through will have costs which are added up for a total cost per unit.

Related Formulas

• You can get to total cost for a scenario with the following calculation:
  SCENARIO TOTAL COST = SUM([FLOW] X [COST TO SERVE]) for each individual customer.

Example

• 1,000,000 kg of product gets shipped to Genoa, travels to a plant in Lyon, then to a warehouse in Paris, and then to a customer in Nantes.
  
• Activities for each object between Genoa and Nantes are the following:
  1. Port of Genoa: Ocean = € 0.01 / KG
  2. Lane to Lyon: Intermodal € 0.01716 / KG
  3. Lyon: Manufacturing = € 0.02 / KG
  4. Lane to Paris: FTL = € 0.0222 / KG
  5. Paris:
     • Labor = € 0.014341/ KG
     • Lease = € 383,000 (fixed cost)
  6. Lane to Nantes: LTL = € 0.062279 / KG
• Cost To Serve = 0.01 + 0.01716 + 0.02 + 0.0222 + 0.014341 + 383,000/1,000,000 + 0.062279 =€ 1.2182 / KG
• Total Cost= € 1.2182 / KG * 1,000,000 = € 1.22M

Suggestion: Open a customer in an inspector and look at the service diagram to see how cost to serve is accrued.