Companies have a lot more potential to be profitable when accurately understanding logistics activity costs. This can be achieved through cost savings by developing Route-to-Consumer strategies with a Cost-to-Serve analysis study; altering the secondary distribution system by applying the correct customer channel/segment service packages.
The topic entails producing a conceptual model to service IMPERIAL Distribution’s (ID) client’s customers in order to achieve cuts in redundant logistic expenditures whilst improving service levels.
Initiating, then working on, and for ID to possibly implement preliminary stages of this conceptual model will happen within the final year project timeframe. Considerations include customer service requirements, reverse logistics, product characteristics, vehicle configuration and region disposition.
The project outcomes should be aligned with sales and commercial models and therefore not seen in isolation, but as a holistic supply chain solution. The venture will seek to perfectly balance logistic operating constraints and customer service levels.
In essence the intended project solution will be done within the Industrial Engineering Departments’ capacity and the possible structure implementation through ID. The project will mainly focus on outbound logistics, including activities and cost associated with primary and secondary distribution.
The best initial approach to take when looking at Route-to-Consumer initiatives is to explore the logistic base costs found in an organisations’ income statements and balance sheets discussed under the Cost-to-Serve section. It is required to observe the cost allocations of secondary distribution (various customer channels) to critically analyse where possible areas for improvements might be.
Customizing Route-to-Consumer Strategies to Cost Effectively
Improve Service Levels to Various Customer Channels
Until recently the pressure on management existed to concentrate on total cost reductions without thinking it might influence areas that does not need savings; Cost-to-Serve (CTS) modelling identifies the improvement opportunities related to logistic service costs.
A Cost-to-Serve (CTS) modelling analysis regarding Route-to-Consumer (RTC) strategies will form the base to determine the business case for potential change. Taking the current operations of the client into account; the Route-to-Consumer strategy will be formulated based on the agreed service requirements by each of these channels.
The Fast Moving Consumer Goods (FMCG) industry partner being studied deals with both national manufacturing and international imports of product. IMPERIAL Distribution has the responsibility of providing logistic services on behalf of the client and further implementing improvement Route-to-Consumer strategies.
The question is what kind of service package along with the type of distribution system should be dedicated to a specific customer channel and region in order for the client and the Logistic Service Provider (LSP) to be more profitable or gain equal benefit?
Cost-to-Serve modelling indicates which customers are beneath a profitable margin and should be altered in order to elevate said customer to a more favourable position.
Thesis (B Eng. (Industrial and Systems Engineering))--University of Pretoria, 2010.