FOCUS 30
T
he consumer sees only the product and the convenience of making a purchase on a channel of choice. When your customer buys a toaster, say, it could be purchased online
and delivered to the home or collected at the nearest store. Equally, it could be bought in a showroom and delivered. In terms of choice and convenience, that’s great news for the buyer, but fl ip the script and look at the same transaction from the retailer’s perspective and the cost challenges quickly become apparent.
Regardless of whether the toaster is picked up in store or delivered, the customer is serviced by a supply chain that runs from manufacturing and packaging through marketing and administration, and on to the logistical challenge of putting that product into the hands of the buyer. As the purchase and fulfi lment options broaden, managing that supply chain becomes ever more complex and costly. Factor in further choices, such as a range of delivery speeds and tariffs, plus a system to facilitate returns, and the costs mount even higher.
So let’s return to our toaster. It’s a comparatively low-value item and as such the costs associated with its progress along the supply chain may be disproportionately large in relation to the price paid by the customer. For the retailer, there is a danger that you’ll end up out of pocket. KPMG’s own research, based on work with a range of consumer goods companies, suggests that over 50% of deliveries the actual fulfi lment cost (warehousing, transport and order capture) account for the same price of the product. The actual cost of those deliveries can vary by as much as 50% region-by-region, depending upon local factors such as the capacity of secondary distribution networks.
This is a concern in an ultra-competitive omni-channel environment. Yes, you want to provide the best possible offering to customers, but not at the risk of the cost to serve becoming uneconomical. So what can be done to square the circle?
RUNNING THE NUMBERS
The starting point is a close analysis of the numbers in order to calculate the total cost to serve across the supply chain, all the way from manufacturing to warehousing and distribution. By scrutinising the fi gures you can establish:
• Key cost-drivers and how customer behaviour infl uences cost and profi tability
• Understand the geographical impact of nationwide vs. regional pricing
• Channels/categories that are most/least costly to serve
• The most/least profi table customers and those most worth future investment
• Levels of investment in and returns from customer service activities
• Functions and processes that do not make signifi cant contributions to profi tability
• Where cost can be reduced without impacting customer service
• Likely impact of changes in customer demands, regulations and other infl uences on companies’ routes to market.
© 2014 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a member fi rm of the KPMG network of independent member fi rms affi liated with KPMG International Cooperative, a Swiss entity. All rights reserved.
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TRANSACTION COST
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