Remaining profitable in the wake of increased competition and industry consolidation is a challenge facing all distributors today. In our last blog post we discussed the shift in the buyer-seller relationship and why distributors need to focus on enhancing and maintaining excellent customer service to remain competitive. Now more than ever, distributors need to understand the true cost to serve its customers to ensure employees are operating in the most efficient and effective manner–ultimately protecting profit margins. As digital transformation continues to shape the workplace, understanding whether the transformation is truly increasing productivity and achieving efficiency objectives is key to profitability.

Why care about cost to serve?

To identify the value and productivity burden that individual customers have on the business, distributors need to conduct a cost to serve analysis, which takes into consideration both the income and overhead processing costs associated with each account. This is essential as not all customers maintain the same business processes as when they were first defined. Exceptions and error handling involved with managing the customer’s business may ultimately impact productivity and profitability.

Conducting a cost to serve analysis can unveil the true value of each individual client, taking into consideration the income and overhead processing costs tied to each client account. Ultimately, this enables businesses to better serve the most valuable customers and identify those accounts which are a burden on productivity. In doing so, businesses are able to adjust sales strategies accordingly and reallocate resources in order to improve profitability while offering a personalized buying experience which can increase profits by up to 20%.

The right technology for the job.

Embrace technology head on rather than being a late adopter. To conduct a successful cost to serve analysis, distributors need to examine digital transaction activity already in place as well as utilize new solutions to gather important empirical data from across the supply chain network. Looking deeper into digital channels means evaluating transaction management beyond the sale. There may exist exceptions and corrections that must be manually resolved with even the most “digital” of solutions; solutions like EDI or ecommerce sites.

Additionally, technology can be used to examine sales channels that are manually processed like emailed and faxed orders. Recent industry research by Real Results Marketing confirms that 70% of orders are still being placed via email. Understanding the processing effort associated with these orders, as well as exception handling within digital channels already in place is the only way to evaluate a company’s true cost to serve.

Dissecting data that resides in channels such as email, businesses can unlock valuable insights into the costs associated with fulfilling and servicing customers. With the creation of comprehensive customer profiles, executives can now allocate the right resources for each, as well as determine the value that existing digital ordering channels bring.

Completing the analysis.

By analyzing both structured and unstructured data from all touchpoints in the supply chain, businesses can reveal the true costs associated with serving each account. Comparing these costs with the value the sales team provides, allows businesses to fully understand the true cost to serve customers. As not all customers or transaction platforms are created equal, businesses can prioritize their efforts and adjust their order channels to improve overall operational efficiency and customer engagement.

Digital transformation when implemented correctly, can allow distributors to develop a comprehensive overview into customer purchasing habits and employee value. The valuable insights produced from a cost to serve analysis enables businesses to personalize the customer experience, maintain efficient buyer-seller relationships and ultimately boost profitability in an ever-changing digital landscape.