In distribution, fractions of a penny on a sale are a big deal. For this reason, it’s crucial to maintain precision and agility when tracking and calculating inventory landed cost. Without this accuracy, a distributor may have a false view of their business’s profitability and, in turn, make poor purchasing and shipping decisions.
Below, learn how Microsoft Dynamics 365 Supply Chain Management’s Landed Cost Module can help you automatically calculate and track landed costs to save time and avoid financial missteps.
What Is Landed Cost?
Landed cost, no stranger to distributors, represents the fees and other costs associated with shipping an item from start to finish. This amount is made up of more than just the costs of manufacturing and shipping; other landed cost components may include:
- Crating
- Currency conversion
- Customs
- Handling fees
- Import duties
- Insurance
- Payment processing fees
- Tariffs
- Taxes
According to Microsoft, “landed cost often can account for up to 40% or more of the total cost of each imported freight item.” This makes it all the more important to accurately calculate landed costs for your business.
What Are the Challenges in Determining Accurate Landed Costs?
Landed costs are highly variable depending on what the imported products are, where they’re coming from, and even the time of year. These external factors — among others, which we’ll discuss below — make it challenging for distributors to determine exact total landed costs.
Compounding these factors is the current uncertain state of the economy and supply chain. Given inflation, product and material shortages, and heightened shipping costs, managing and being able to attribute the cost of shipping correctly can mean the difference between favorable and poor margins.
Despite these uncontrollable factors, something distributors can control is the way in which they calculate and track the landed cost of goods.
How to Calculate Total Landed Cost
Of course, you can use spreadsheets or good, old-fashioned pen and paper to calculate your landed costs by adding together the unit cost of the product, the shipping and freight costs, customs fees, risk, and overhead.
But keep in mind that manually following a landed cost formula can lead to miscalculations, and, eventually, lost profit. It also doesn’t allow you to quickly respond to changing conditions and costs.
Automation can help you avoid financial missteps that can weaken profitability.
The Landed Cost Module in Microsoft Dynamics 365 Supply Chain Management offers distributors a simpler way to estimate landed costs, allocate landed costs to multiple purchase orders, recognize accruals for items in transit, and more.
Many distributors are wary of a one-and-done solution that eliminates the need for human intervention and quality assurance. The Landed Cost Module addresses this fear, however, by allowing distributors to set criteria — things like order quantity, volume and weight — that will dictate the total landed cost before completing the transaction and processing the order.
Other third-party software exists to help distributors track landed cost estimations. But these tools are typically limited, permitting users to only apply a charge on one single purchase order and allocate it manually across specific line items. A fully automated and customizable solution, however, makes it much easier to understand your profit margin on each transaction.
Why Automate Your Landed Cost Tracking?
Estimating landed costs with increased accuracy provides clearer visibility into your business’s profitability. Automating this task only serves to make you more efficient, precise, and profitable.
Benefits of the Landed Cost Module include:
Item ownership: The Landed Cost Module allows companies to produce invoices before the goods have been received into their warehouses. Even if you have a long lead time for receiving goods, you’ll be able to process an invoice for those items before they’re physically present.
Order tracking: As freight travels to the inbound warehouse, module users can monitor lead times, shipment statuses and estimated delivery dates. This data can be adjusted by purchase order line, giving distributors more control over warehouse planning and logistics.
Customization options: Once the module is set up according to your business needs, landed costs will be calculated based on the rules and variables that you chose. You’ll then be able to understand what those estimated costs are on the front end, before you complete the transaction or even process the order.
Increased margins: Margins are king in the distribution space. When you don’t truly know your total landed costs, you also won’t know what to charge your customers and how much you’re making on each transaction. Conversely, the more visibility you have in regard to your landed costs, the greater opportunity you’ll have to optimize your margins.
Landed cost has a big impact on the pricing of your products, purchasing and shipping decisions, and profitability. Leave the manual work behind and let automation supply you with more accurate landed cost projections faster.
Sikich offers a preconfigured ERP for distributors so you can take advantage of this game-changing automation right out of the gate. To learn how you can implement landed cost best practices in the shortest amount of time, reach out to Sikich today.
