Understanding the cost to supply is as important as knowing your cost to serve.
By grasping the supplier costs, you can make better decisions that enhance relationships and optimize operations.
Check out the video below to see why this matters and how it can improve your supplier partnerships.
Cost to supply is similar to cost to serve but focuses on the expenses your suppliers incur to deliver goods to your business. This information is critical as it helps develop strategies like reverse logistics and informs pricing decisions. Understanding these costs can reveal whether it’s more cost-effective for suppliers to deliver directly to your stores or through your distribution centers (DCs). Many industries, such as retail, have moved from direct store delivery to DC delivery, charging suppliers a fee for handling and delivering orders.
Importance of Analyzing Supplier Costs
Analyzing supplier costs is crucial for negotiations. By understanding whether it’s cheaper for suppliers to deliver directly to stores or through DCs, retailers can make informed decisions. For example, some suppliers may find that delivering in bulk to a retailer’s DC is more efficient than direct store deliveries. This knowledge enables retailers to negotiate better terms, create cost savings, and establish beneficial relationships with suppliers.
Building Supplier Relationships
To make this work, strong supplier relationships are essential. Collaboration and transparency allow both sides to optimize costs. For instance, retailers with more efficient freight networks may offer to pick up goods, reducing supplier costs. Larger, less frequent orders can also lower warehousing expenses for suppliers. Ultimately, this can lead to win-win situations, where both parties share in the savings.
Encouraging Openness and Collaboration
The key to success is sharing the benefits. When retailers and suppliers work together openly, they can create more efficient systems. However, this process falls apart when one side hoards the savings. For this collaboration to thrive, both parties need to contribute and share the advantages equally.
Related articles on this topic have appeared throughout our website, check them out:
- Cost to Serve Analysis—And the Costs of Neglecting It
- Cost to Serve – A Smarter Way to Improved Supply Chain Profitability
- An 8-point Guide to Understanding Your Cost to Serve
- The Cost to Serve Bangkok Customers… And Why it Matters
Editor’s Note: The content of this post was originally published on Logistics Bureau’s website dated September 04, 2024, under the title “Cost to Supply v Cost to Serve and Why You Need to Understand It“.
