What Customer Orders Really Cost

Abstract

Manufacturing companies facing significant pricing competition need customer cost informations systems (CCISs) that reliably measure the resource costs of serving individual customers. Prices are often set by the market and competition, particularly from foreign imports, and severely restricts marketing’s ability to adjust prices to cover costs. It is important that marketing personnel have access to accurate product and customer cost information. With such information, marketing personnel can make better pricing decisions, identify unprofitable customers, analyze lost bids, educate customers on ways to lower costs, and determine the best mix of products and customers. This article reports the results of a field study conducted at a medium‐sized Midwestern electronics manufacturing plant. The field study supports a useful example of a CCIS that can reliably measure the resource costs of serving individual customers and that can help marketing employees carry out their responsibilities more effectively. The CCIS as described herein identifies, measures and assigns three types of resource costs traceable to customer orders: customer variable costs assigned directly, technology costs assigned by the consumption of time in critical constraints, and human resource cost sassigned by activity‐based costing.

Citation

Campbell, R.J. and Rankin, L.J. (1998), "What Customer Orders Really Cost", American Journal of Business, Vol. 13 No. 1, pp. 41-48. https://doi.org/10.1108/19355181199800004