The Problem: The Gap Between Supplier Cost and Customer Profitability

Most companies know what they pay suppliers and what they charge customers. Far fewer understand the full economic cost created between those two points. Supplier lead times, quality losses, inventory requirements, order variability, freight, service commitments, returns, working capital and supply risk can materially change the profitability of a product or customer relationship. These costs often sit across several functions and systems, making them difficult to see and even harder to manage. For these companies, awareness of the problem is not the issue. The real challenge is connecting fragmented cost data across the enterprise to a clear, shared view of where margin is actually created and lost.

This Article Covers:

1. Where margin erosion remains hidden, including why purchase price and gross margin provide an incomplete view, and how broad pricing and service decisions can mask cost differences across customers.
2. Why fragmented ownership across Procurement, Sales, Operations and Finance prevents identified savings from reaching EBITDA.
3. A four-step framework for embedding margin transparency into business decisions, from starting with the decision to embedding the model into management routines.
4. How A&M has applied supplier TCO and customer cost-to-serve analysis across industries, with case examples from industrial cleaning, medical technology, and consumer products.

Margin Improvement Requires Both a Decision-Grade Model and the Discipline to Act on It

TCO and cost-to-serve work best as ongoing management capabilities. The economics change too frequently for a one-time analysis to remain useful for long, making it that much more important to build an enduring capability for strategic collaboration to improve margin transparency. Used together, supplier TCO and customer cost-to-serve connect decisions on both sides of the supply chain to enterprise profitability.

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