What is cost to serve?

Cost to serve is an analytical framework used to assess the true cost of meeting customer requirements. The broader objective of determining this cost is to streamline supply chain planning and decision-making to cost-effectively meet customer demand.

A business can use the insights generated in this process to identify — and segment — its customers and products based on profitability. When leaders have a clear understanding of which products and consumers are not profitable, they can better focus business efforts and develop strategies to improve profitability and address the underlying issues.