GT Nexus defines landed costs as “the sum of all expenses to purchase, transport and import goods from one place to another, within a country or across continents, including border fees, duties, taxes, currency differentials, transport costs, insurance, consolidation and/or transloading costs, port handling fees and local delivery charges.”
There are four primary categories of costs comprising total landed costs: the purchase price of goods; transportation and handling costs; duties and fees and logistics expenses, including customs brokerage; and warehousing, drayage, consolidation, packaging, and loss/damage insurance.
With that much complexity, it’s no surprise market demand for landed cost reporting and analysis is so high, said Greg Kefer, director of corporate marketing at GT Nexus.
There are two traditional methods for calculating landed costs, based on a domestic model, but many consider them ineffective in an era of extended supply chains and fast-paced global commerce.
The first, a “to be” approach, uses projections based largely on models, trends, historical experience, estimates and industry averages. The approach is commonly used by sourcing and purchasing organizations to identify the sum total of freight, duties, fees and other sourcing costs.
The second, a “what was” approach, consists of analyzing charges associated with purchasing and importing products well after the products are delivered. The backward-looking approach involves analyzing “batch” invoices that may refer to multiple products or SKUs as well as rolling up data through numerous phone calls, faxes, e-mails and other sources.
Estimates resulting from these methods are often wildly inaccurate, however, and often come too late to take corrective action.
Factors that hinder the accurate and up-to-the-minute reporting and analyzing of landed costs include disparate systems and data elements provided by carriers, forwarders, 3PLs and brokers. Costs and fields may be left out or remain untracked. They might be calculated manually or be based on prorated or consolidated costs or mere assumptions.
For retailers, GT Nexus suggests 10 questions companies should ask to determine true landed costs once goods have made the costly journey from a contract factory in China to domestic store shelves:
- What were my actual costs to buy this product from the supplier?
- What currency was the product purchased in, and what impact did the exchange rate have?
- Did my global supply chain deliver the product efficiently? What were the actual costs for freight transportation and cargo-handling fees?
- What were the costs for clearing the goods from customs for entry into my country?
- What were the taxes and duties paid, when were they paid, and how much were they?
- What was my expense to finance and carry the inventory?
- What were my liabilities to the supplier and for all these other services and fees? When did they accrue?
- When were they paid? Were they paid on time?
- Were all these global costs captured and recorded accurately and promptly and then allocated properly to this particular product, so that pricing could be set correctly?
- Did the product actually make a profit?
Contact David Biederman at email@example.com.