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Operational Costing at a Consumer Packaged Goods Manufacturer

 
  • An office products manufacturer set out to understand its cost structure more clearly, with a particular focus on its distribution network.

  • Supply Chain Edge implemented activity-based costing for the company’s warehousing, order fulfillment, transportation, and customer service functions, establishing a sophisticated cost matrix that incorporated multiple variables.

  • As a result, the company was able to segment its customers more effectively and deliver more value to them.

 

A $1.8 billion U.S. office products manufacturer had a product offering with 6,500 SKUs, which were 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 understand more deeply 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 implemented activity-based costing for warehousing, order fulfillment (distribution), transportation, and customer service (order management) functions. A key aspect of the approach was the 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 Supply Chain Edge 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.

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