Grasping supply costs is as crucial as understanding service costs. These expenses impact your pricing and efficiency.
Watch the video to see why knowing these costs is key to better supplier relationships and smoother operations.
Defining the Concept of Cost to Supply
Cost to supply is closely related to cost to serve but flips the focus to your suppliers’ costs for delivering goods to your business. Understanding these costs is just as crucial as knowing your own cost to serve customers. This insight helps you make key decisions, like determining whether direct store delivery or using your distribution center (DC) is more cost-effective. Additionally, by analyzing these expenses, you can assess whether consolidating loads with other orders or suppliers is the right financial move. In industries like retail, many have transitioned from direct store deliveries to using DCs and often charge suppliers a fee for handling and delivering goods.
Why Understanding Supplier Costs Matters
Analyzing supplier costs allows you to make more informed decisions when negotiating. Knowing whether it’s cheaper for suppliers to deliver directly to stores or through your DC can lead to better strategies. I’ve worked with many retailers who use this data to evaluate whether having suppliers deliver in bulk to their DC is more efficient. With accurate cost assessments, both sides can sit down with clear facts and negotiate agreements that create value for everyone involved.
Strengthening Supplier Relationships
To make these strategies work, building strong relationships with suppliers is essential. Both parties need to develop a partnership built on trust and transparency, where costs are openly shared. In some cases, your business might have a more efficient logistics network than your suppliers, allowing you to manage pickups and deliveries at a lower cost. Additionally, encouraging suppliers to send larger, less frequent orders can reduce their warehousing expenses, providing long-term benefits for both parties.
Achieving a Shared Benefit
For this collaboration to be effective, both sides must share in the cost savings. When there’s open communication and teamwork, cost-saving opportunities can be found that benefit both the retailer and supplier. On the other hand, if one party keeps all the advantages, the arrangement can fall apart. Sharing the benefits fosters long-term success and builds a stronger partnership.
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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“.
