The path of products in the supply chain involves manufacturing, storage and distribution activities in different countries and with different costs. In Shark Optimization we help you improve your profitability at the product / customer level by optimizing the cost-to-serve.
What is the cost-to-serve (CTS)?
It is the analysis and quantification of all activities and costs to meet the demand for the product along the supply chain. The analysis determines the total cost to serve each individual customer at the SKU level and at the indicated service level.
¿What is cost-to-serve optimization?
To increase the profitability of the product-customer, it is necessary to evaluate different supply chain scenarios. We can model scenarios with changes in fixed and variable costs, different transport options to customers, changes in storage and delivery processes, among others, to evaluate profitability at the product level and at the client level. The result is a configuration that reduces fixed costs and produces a more profitable product-customer configuration
Cost analysis to change to a more profitable mode of transport.
A manufacturer of hard drives and data storage solutions wanted to review transport options. Usually their products were mobilized by air and the company suspected that it incurred unnecessary costs. The manufacturer wanted to examine different modes of transport and hub-and-spoke distribution models but new questions were raised:
Will the new model work in the United States and in Europe? Where should the hubs be located? Which providers should be chosen to handle the distribution? How will reverse logistics be handled in the new model?
The current system of direct deliveries to customers was modeled. Then, different scenarios were examined in which part of the volume to Europe and the United States traveled in a multimodal way by sea and land to the final customers.
The analysis considered not only the cost to serve, but also levels of service, adaptability and additional inventory costs associated with each potential design and distribution partners. Finally, an analysis at the product and customer level identified the areas of greatest impact in each scenario.
With the new network design chosen, air transport was changed by sea transport for half of the deliveries. With the change, the high degree of flexibility provided by air transport is maintained, and at the same time there are savings of $ 66 million per year, representing a 24% reduction in annual transportation and distribution costs.
In addition, although the supply chain became longer, the time between placing the order and delivering it to customers is much shorter.
Supply Chain Digitalization
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