How to easily calculate your unit Landed Cost in real-time?
The landed cost or unit landed cost: definition
From an accounting and economic perspective, it is crucial for Supply Chain and Finance organizations to finely master the forecasted and actual landed costs of sold products. Specifically, easily calculating the total landed cost (purchase price + unit transport costs + customs duties) before product procurement and adjusting it close to reality is essential for optimizing inventory valuation and securing product margins.
Limits of the traditional model
Calculating the cost price is a standard feature in most Enterprise Resource Planning (ERP) systems in the market, employing an average approach where standard rates are applied based on often outdated tables (e.g., for a specific product category, transport cost equals X% of the purchase value). This approach faces limitations in the current context:
- The very high volatility of transport costs questions the relevance of an average-based approach.
- The increasing complexity and uncertainties in supply chains have disrupted "monolithic" procurement models.
Now, the cost price of the same product can vary significantly from one procurement order to another, making reliance on projection assumptions crucial.
As supply chains are under pressure, and operational teams must optimize costs, timelines, and environmental impact, providing visibility into reliable product cost prices becomes necessary.
"The cost price is a crucial decision-making criterion. Proper transportation planning cannot be done correctly without control over this element, knowing if decisions and prioritization of certain products make sense for the company from an economic perspective," emphasizes Nicolas Souraqui, Supply Chain Director at JJA, a B2B distributor of household goods.
Forecasted and Real-Time Landed Cost Calculation
At Winddle, we are dedicated to supporting Supply Chain professionals in their new challenges, and mastering costs is a part of it. The recent questioning of the relevance of traditional calculation models presents an opportunity to offer innovative solutions.
In addition to simplifying and ensuring the reliability of reconciling supplier and transport invoices, procurement and purchasing professionals need to calculate the unit landed cost of their products as close to reality as possible. The dedicated module on the platform allows for detailed structuring of all cost lines related to transport and customs that may apply. It determines fine calculation rules and automatically assigns these costs to the product's unit level. As flows are executed, the calculation is updated based on any modifications to the procurement plan, and the data is sent back to the client's ERP system. For example, if a cost price is calculated based on maritime shipment, and for exceptional reasons, the transport is eventually planned as maritime, this can have an impact of over 30% on the cost price of a product! A highly damaging approximation from a business and financial standpoint.
Similarly, when various costs are invoiced gradually, the manual reconciliation of these invoices is not an easy task. The allocation of global invoices, at the product level, to update the cost price is equally challenging.
"Beyond obvious productivity gains, the real-time automated update of our cost prices provides essential insights to our teams for intelligently prioritizing procurement flows, ensuring the reliability of accounting approaches, and the valuation of goods entering stock," summarizes Nicolas Souraqui. In addition to automated calculation, these Winddle features allow for a better understanding of cost structures and precise auditing in case of significant discrepancies between estimated and actual cost prices. It's a continuous improvement process where real-world data feeds into predictive models for increasingly accurate and reliable information.