Consumer Packaged Goods Manufacturer Operational Costing
A $1.8 billion U.S. office products manufacturer had a product offering with 6,500 SKUs, sold and distributed to food, drug, and mass merchandise stores and warehouses. The company's supply chain network encompassed two manufacturing and distribution sites.
The manufacturer's customer base was highly diversified in terms of size, order and delivery requirements, seasonal fluctuations, and expectations for price incentives. Facing this diversity, the company recognized the need to better understand its cost structure, with a particular focus on warehousing, order fulfillment, transportation, and customer service.
To help the company achieve this goal, Supply Chain Edge set out to implement activity–based costing for its warehousing, order fulfillment (distribution), transportation, and customer service (order management) functions. A key aspect of our approach was our establishment of a cost matrix that accounted for function, order and delivery type (such as assembly order versus warehouse order), channel, and customer use of promotional offers.
The activity–based costing process we implemented enabled the company to segment customers by value over time, and to increase the value it delivered to them in its pursuit of increased loyalty. In sum, with our help the client had learned that evaluating individual customers' profitability is a critical step along the path to building customer value.
