Cost to Serve (CTS)

Cost to Serve is a process-driven accountancy tool to calculate the profitability of a customer account, based on the actual business activities and overhead costs incurred to service that customer. In the context of supply chain management it can be used to analyse how costs are consumed throughout the supply chain. It shows that each product and customer demands different activities and has a different cost profile. The product and customer profiles are often illustrated using a Pareto analysis curve which highlights those that contribute most to the company's profit and those that erode it. Unlike Activity Based Costing (ABC), Cost to Serve is not resource-intensive and focuses on aggregate analyses around a blend of cost drivers. It gives an integrated view of costs at each stage of the supply chain providing a fact-based view to unravel the complexity of multiple supply chains and channels to market. It enables a focus on both long-term decisions and the prioritisation of short-term actions. Businesses are able to reposition customers and services, and how they are served to improve overall margin.