Ep. 327: Colleen Whitmore: How Cost To Serve Analysis Transforms Business Decision Making

Looking to boost your organization’s profitability with smarter cost analysis? In this engaging episode of Count Me In, host Adam Larson sits down with Colleen Whitmore, Partner at Deloitte & Touche LLP and co-author of the Deloitte and IMA article "Unlocking Profitability Insights." Colleen breaks down the ins and outs of cost to serve analysis, sharing why it's a game changer for companies seeking hidden profit opportunities and better decision-making.

 

Hear Colleen’s take on why most organizations still aren’t using these powerful tools, what holds them back, and how advances in technology are making detailed cost analysis more accessible than ever. She shares practical advice on preparing your finance teams for innovation, overcoming common data challenges, and the first steps leaders should take to get started.

 

Whether you’re a finance professional, business leader, or just curious about the latest trends in cost management, this episode will deliver real-world insights and actionable tips straight from an industry thought leader. Don’t miss Colleen’s fresh perspective on how to transform your organization’s approach to profitability!

Creators and Guests

Producer

Adam Larson

Producer and co-host of the Count Me In podcast

Guest

Colleen Whitmore

Partner at Deloitte & Touche LLP

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IMA® (Institute of Management Accountants) brings you the latest perspectives and learnings on all things affecting the accounting and finance world, as told by the experts working in the field and the thought leaders shaping the profession. Listen in to gain valuable insight and be included in the future of accounting and finance!

Adam Larson: 00:05

Welcome to Count Me In. I'm Adam Larson, and today I'm joined by Colleen Whitmore, partner at Deloitte & Touche LLP and coauthor of the Deloitte and IMA article Unlocking Profitability Insights. Colleen is here to break down the concept of cost to serve analysis, a method that digs deep into the actual costs of delivering products and services to customers. We'll talk about why so many organizations haven't embraced cost to serve, what's holding them back, and how new technologies are making it easier for businesses of all sizes to gain valuable cost insights. Colleen shares advice for finance leaders who want to get started and her take on the evolving skills needed in today's teams.

Adam Larson: 00:42

If you're looking for actionable strategies to uncover hidden profitability and drive smarter businesses, this episode's for you.

Adam Larson: 01:07

Well, Colleen, I'm very excited to have you on the podcast today, and we're gonna be talking about some topics in a recent article by Deloitte and IMA, Unlocking Profitability Insights, which you were one of the authors for.

Adam Larson: 01:17

And I figured a nice place to start would be what is cost to serve analysis, and how can it help organizations uncover hidden profitability opportunities?

Colleen Whitmore: 01:27

Sure. So, cost to serve is really an analytical reporting approach, and it really is bringing together operational and financial data to quantify the costs incurred by an organization across the value chain to deliver products or services to customers. And really what differentiates this modeling approach is that the data is analyzed at the product or SKU or service level, so incredible detail. And it includes not only the costs of products or services, but also costs associated with selling the products or services, freight and delivery, and costs associated with any sort of after service expenditures. So, it's bringing that full picture of costs to serve a customer.

Colleen Whitmore: 02:08

The cost analysis then can be organized by product or service, by customer, by region, by delivery channel. So you're able to then do some compare and contrast across a portfolio. And really, one of the benefits here is looking at data across the value chain at that specific level of a product or service gives you that additional transparency into what are the activities and the corresponding costs to serve customers. And then when you pair that with any sort of sales data you have, then you're really able to see the profitability at a very granular level to think about your strategies and what your performance is across different reporting dimensions.

Adam Larson: 02:46

I mean, that that sounds like something that we all should be using within our organizations. Is there a reason why there's not a lot of organizations currently using that kind of analysis? And are there certain barriers to adoption that's stopping them from going that direction?

Colleen Whitmore: 02:59

Yeah, it's interesting. So the joint survey we did with the IMA only found that 38% of respondents were actually using cost to serve analysis. Very low. And what we found, the key challenge is just around the data. You know, these days everybody's got lots of data, but where the challenge is is really accessing it consistently and the level of detail globally across an organization to do analysis.

Colleen Whitmore: 03:23

You've got to have people that are gonna be able to have the background working with these large data sets. Are they gonna be able to build the models in order to use it? And then one of the things that is really a challenge when you think about cost to serve is the fact that as you go further down the value chain, you get to a specific cost for a product or service, there's gonna be the allocation of shared costs and, you know, this may require the development of additional cost allocation strategies that a company currently isn't using. And really to be beneficial, those allocation methodologies should really be based for substantive costs on consumption-based drivers, not your regular percent of revenues or percent of production in order for it to be meaningful. And so, companies may not have the time to develop, to implement, and to maintain those detailed allocation methodologies.

Colleen Whitmore: 04:16

And so that really can be a bandwidth issue in terms of being able to properly implement a cost to serve analysis. Mhmm. And then also, we're on a crusade to educate people on the value of these types of analytics and reporting. So hopefully, you know, we'll increase adoption, that way too.

Adam Larson: 04:32

Yeah. It sounds like it's gonna take some time to get adopting because you gotta get your teams ready and teams are already feeling like they're overworked and like, wait, you're probably put another thing on me, but it sounds like it in the long run, it'll be worth it for the organization.

Colleen Whitmore: 04:47

Yeah. And just having that improved transparency and timely data and having those allocation strategies in place and making sure they're consumption-based as opposed to static measures is really going to be important in terms of being able to understand the the actual use of costs. And so that can be a challenge for organizations. And then frankly, in terms of timeless reporting these days, I mean, it's based on technology solutions. Our joint survey with the IMA, showed that 60% of respondents are using performance modeling tools which is great, but the majority identified spreadsheets as their primary tool and this was followed by ERP software.

Colleen Whitmore: 05:27

But when you think about spreadsheets, there's typically a significant amount of manual data manipulation where you run the risk of errors in terms of your calculations, and again, I mean they're pretty time consuming to use. So, more and more we're seeing that companies really need to use data aggregation and calculation engines to support cost modeling and and some of this analytical reporting in order to get those benefits of timeliness and take some of the manual burden off their finance organizations.

Adam Larson: 05:56

So what are some of the biggest challenges that organizations are facing, you know, in obtaining that meaningful cost data that you've been talking about?

Colleen Whitmore: 06:03

In looking at the survey, having complex or disparate systems really can be a challenge. And I've certainly noticed that obtaining consistent information across multiple ERPs is really a challenge. Also, the ERPs may not be to provide data in the level of detail that's needed for analysis. There can be challenges particularly when we talk about cost- to- serve models, getting information from operations supply chain, they may not capture the data in the level of detail or in the format that's needed for analysis. Systems and processes may be manually intensive such that by the time data is extracted and organized, the train might have left the station just in terms of being able to leverage that for meaningful analytics.

Colleen Whitmore: 06:47

If you don't have something that is meaningful in terms of allocating the cost to the activities, based on drivers that are reflective of use, it's it's going to be tough to to really get that that meaningful understanding of your full cost to serve.

Adam Larson: 07:02

So you've been talking about these models, and we can't talk about having these models and analyzing all this without talking about technology because technology has to be a main part of doing some of that initial analysis because these are such huge datasets. We need that technology. Do you think that the different, modeling tools are evolving? Like, are how are they evolving, and what impact will that have on cost and profitability analysis?

Colleen Whitmore: 07:27

That's exactly right. Companies are looking for more and more granular cost data using larger and larger datasets. Again, cost to serve is a prime example of that. It can't be managed using spreadsheets. So, data aggregation calculation tools are needed.

Colleen Whitmore: 07:42

And certainly, there are more and more of these technologies available in the marketplace and one of the reasons that they're becoming more popular and getting traction is because they're becoming more and more business user- friendly. Instead of having to use computer code of prior decades, these tools now come pre- configured with functions. They can join data sets that are ERP, non- ERP to create analysis. They come with different preset types of calculations or data sorts. So the computer coding skills are not required.

Colleen Whitmore: 08:14

And the other benefit of these tools and really what we're seeing more and more of, is that they can be integrated into a company's systems and the results can then be uploaded for reporting. So you're enabled to get sort of that end- to- end value of taking the data from your systems, having those calculations performed, then putting it into your reporting tools. So there's efficiency, there's reduced risk in terms of a more controlled environment for accuracy, and being able to use different sorts of data, you're able to get that cross- functional view of your analytics. So certainly technology is a big player as these data sets are getting larger and people are interested in faster results.

Adam Larson: 08:54

Yeah. And so as the technology moves faster and as the technology grows, I'm sure that the cost to entry into those technologies is gonna go down to make it more applicable to more and more organizations because the small mom and pop shops will still need to have that cost to serve analysis just like the big organizations.

Colleen Whitmore: 09:11

That's exactly right. As we think about the value of these technologies and what it's doing for companies. It's being able to move the needle in terms of having a more robust strategy. Having that information faster and more proactive to be able to be strategic is definitely one of the values that we see here.

Adam Larson: 09:32

So, how do you measure success? Like, let's say you've implemented these into your organization. What is that measure of success? I know every company is different, but there's gotta be some set level sets.

Colleen Whitmore: 09:43

Yeah. And like with any technology implementation, you

Colleen Whitmore: 09:47

start with comparing the business value case with what you've got and thinking about how your requirements aligned with end results. The thing about finance implementations is that often the results can be more qualitative than quantitative. And so, it's really thinking about whether the implementation resulted in more timely generation of reporting and analytics. And often this is from automation or reduced manual effort, increased agility to adapt to market changes within scenario modeling or forecasting, more improved data quality, more detail had to provide insights for supporting decision making, and frankly increase bandwidth to be, more strategic in terms of the analytics you're doing.

Colleen Whitmore: 10:30

And often we see companies going from spending all their time preparing the analytics to actually being able to look at them and be able to be strategic in terms of making decisions. So really at the end of the day, I think a key measure of success is simply being able to enable better decision making.

Adam Larson: 10:47

Yeah, It definitely can. So are there challenges that people should be aware of when they're trying to adopt these new technologies, especially in the cost management space? And do you have recommendations how they can overcome, maybe some examples of people who have kind of gone through it and how they overcame it?

Colleen Whitmore: 11:03

One of the biggest barriers to entry like we talked about is the cost, but certainly we are seeing the cost of these tools coming down. But another challenge, we talked about bandwidth and certainly having the time to upscale your your workforce to be able to effectively use technologies. As companies and folks are seeing the benefits of efficiencies and the insights that they get from the from the news tools, there's momentum to adopt the technologies to generate additional benefits, and it builds enthusiasm to learn and try new capabilities. And the other thing to bear in mind also in implementing these tools, there does need to be a strategy around the integration. And certainly, these tools do have a lot of capabilities to integrate both the data and the reporting, But sometimes, depending on the age of systems, this does need to be considered.

Colleen Whitmore: 11:51

But certainly we haven't seen a lot of roadblocks.

Adam Larson: 11:54

So what about teams? We've to prepare our teams to upscale them, to prepare them for this new innovation and cost analysis. What are some steps that finance leaders can kind of take to get their teams ready for this?

Colleen Whitmore: 12:04

Here we find that companies that have fostered an environment of continuous improvement are usually more successful implementing new technologies. Their teams just have more of an open mind to improvement from change. Another opportunity or option I've seen is piloting a new technology using a straightforward use case, a small team, and building excitement through the results of that and sharing those benefits can really be helpful. And lastly, sponsoring participation in relevant technology trainings and supporting their application within the finance organization will help adoption and again gather momentum for new applications of a technology. Overall, like I mentioned, a lot of these tools are very user- friendly, they're intuitive, it's not about coding, for example.

Colleen Whitmore: 12:52

And so it really comes down to thinking about the quality of your data and how you want to use it. But usually, the barrier isn't so much the technology, but having the time and the acumen of your folks to try something new.

Adam Larson: 13:09

Do you think that colleges should be teaching this to their students for the next generation so that way when they get to the organizations, they can jump in and start doing it or they can say, "Hey, why aren't we doing this?"

Colleen Whitmore: 13:21

So, I think what's going to happen is a lot of these tools are so user- friendly. I think colleges should really focus on the data requirements. What are the strategies? What are the questions that companies are trying to adopt with the technology? And I don't think it's necessarily spending time at the college level learning how to program these tools because they're going to be so intuitive and user- friendly, but thinking more broadly about what are the types of strategic decisions that are going to advance a company in terms of profitability, in terms of success in the environment in which they're working to reach their strategic goals.

Colleen Whitmore: 14:03

So, I think it's thinking about the use cases and the strategy more so than configuring tools, if you will.

Adam Larson: 14:10

Instead of putting the tool in front of us, teach the concept to get this strategy right so that we're raising up the next leader so that they can begin to sit at the table and say, "Hey, let's have a better cost analysis in our organization as opposed to how we've always done it before."

Colleen Whitmore: 14:24

Yeah, and that's really what we're seeing a lot of companies realize is they need to be retooling their workforce to focus on how can they further performing analytics. It's not so much executing transactions within a finance organization. More and more the technologies, they're able to do that. Know, it can be done with a click of a button with scanning and so forth and automation.

Colleen Whitmore: 14:49

But applying the information from a strategy perspective and an analytical perspective is really where we're seeing companies focus in terms of upskilling their workforce.

Adam Larson: 14:59

So, let's say somebody's listening to this podcast and they're like, "Wow, is my organization doing cost to serve analysis? I wanna improve this reporting. I'm a leader, and I'm like, I don't think we're doing this properly." Where should they begin? What's that first step as they're trying to get started on this journey to have better cost and profitability analysis in their organization?

Colleen Whitmore: 15:17

I would suggest that organizations should start, like we've been talking about, identify what are the key questions they need to answer in order to move their strategy forward. Next, consider what are the current challenges to get those answers. Is it data based? Is it technology based? Or they require a different strategy for collaboration across the organization.

Colleen Whitmore: 15:37

And lastly, really evaluate the potential value to be gained by those insights. And certainly, in working with clients, insight full reporting can be a competitive differentiator. They're able to be more agile, more proactive in their marketplace, which has translated into meeting those strategic goals. And certainly, we have found the cost- to- serve analytics is an effective starting point for that reporting transformation.

Adam Larson: 15:59

Well, Colleen, thank you so much for coming on the podcast. It's been great, kind of unlocking some of the intricacies of the article and kind of hearing your, take on it and, shedding some new light on some of those things. I encourage all of our listeners to download the report, to check the link in the show notes details if you wanna read the full thing and, kind of engage in the conversation and get more into it. So, Colleen, thank you so much for, coming on.

Colleen Whitmore: 16:21

Thank you. I appreciate the time.

Announce: 16:24

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