Your company must track and manage its landed costs to remain competitive in the complex logistics environment. Tracking landed costs ensures companies dealing with imported materials for manufacturing know their total costs, improving profitability and price margin determination.
Integrating the right ERP solution will help manufacturers and distributors calculate landed costs more efficiently. Here is why you need to track your company’s landed costs using ERP.
What Is a Landed Cost?
Landed cost is the total cost incurred when transporting products from the supplier to their destination. Several factors determine the cost, including the product’s price and other direct expenses to obtaining the product.
The landed cost of imported goods will include customs clearance, insurance, storage requirements, and taxes. The sum of all these expenses determines the landed cost for a specific product. It would help to note that the landed cost reflects the total cost of a single unit and not the entire shipment to allow calculating for one product or portion.
What Are the Primary Factors Determining Landed Cost?
Shipping Costs
One main factor when calculating a product’s landed cost is shipping. You must understand how much it costs per unit to deliver a specific package to the consumer, as well as what it costs for you to receive the materials to produce it in the first place.
Factors like shipping zones, delivery speed, and box dimensions help determine your shipping costs. However, you can reduce these costs by seeking better carrier rates and selecting entry ports closer to your warehouses.
Customs and Import Duties
International shipping costs more than in-country shipping because of the customs and import duties involved. It is almost impossible for merchants to escape these fees. These customs and import duty fees affect the overall cost of your product, and you’ll have to pay them at the point of delivery or upfront by the seller.
Insurance
You may need to consider shipping insurance if you are receiving expensive packages. This insurance is an optional service but guarantees compensation if something goes wrong during transit. Insurance costs must factor in the product’s landed cost since you’ll pay extra to insure your materials.
Handling and Payment Processing Fees
Some materials require special handling for safe delivery. You must include the handling and payment processing fees in the total landed costs if you pay for the extra services. Some of these fees may be unavoidable when required for federal compliance.
How ERP Helps with Tracking Landed Costs
Simplify Complex Calculations
Calculating the landed cost for big manufacturing companies can involve complex calculations. Using basic Excel spreadsheets will take forever to comb data from different sources and use advanced formulas to estimate landed costs. It exposes your data to entry errors and is very time-consuming.
You can implement an ERP solution to handle all the complex calculations when determining landed costs. These systems feature several pre-programmed methods to help calculate landed costs more accurately and efficiently, reduce data entry errors, and speed up the calculations.
Identify Hidden Costs
When calculating a product’s landed cost manually, you risk using outdated shipping fees or exchange rates. You are more likely to overlook specific costs if you need to enter the same data every time but from different systems.
Integrating an ERP solution into your operations means you get a complete view of the total cost of delivering materials to your warehouse. The system helps add exchange rates, port duties, freight charges, shipping fees, and clearance costs. It also provides a more practical opportunity to accurately predict the expected profit margins after making sales.
Better Pricing
If you want to keep customers happy through fair pricing, it is high time you consider tracking landed costs with Enterprise Resource Planning. Businesses must fight harder for every dollar of profit because of the skyrocketing shipping costs and price-sensitive customers. It is up to the decision-makers to accurately price their goods by using the ideal techniques.
Your business can no longer afford loose estimations of landed costs, which is why you need an ERP. An advanced ERP solution will provide more certainty around margins and pricing by accurately predicting landed costs.
Customization to Fit the Complex Business Needs
Businesses have varying needs regarding product pricing decisions. Mostly, you’ll have to consider variable costs and other fees on the actual cost of the materials before deciding the product’s final price if you import goods for distribution.
If the imported goods are to make finished products, your business might have more complex needs. You will need to work out the number of finished products from each bundle of raw materials, the labor costs, and overhead before estimating the cost of goods. A practical ERP solution is the secret to giving you a quicker and more efficient approach to product pricing.
Are There Benefits to Calculating Landed Costs in a Business?
Accurately calculating your business landed cost is crucial in increasing profitability and growth. Implementing an ERP solution creates a practical approach to getting more accurate insights into your supply chain and budget. Here are some of the business benefits of calculating landed costs.
Accurate Budgeting
Most businesses use their shipping and manufacturing costs only to calculate profitability. However, using a product’s landed cost guarantees a more accurate profit calculation.
Supply Chain Insight
Landed costs help make your supply chain function leaner by shedding light on any inefficiency. It enables you to identify problems with your supply chain and advise on the best corrective approach.
Informed Business Decisions
You become better positioned to determine which products are worthwhile by knowing the landed cost of a specific product.
Conclusion
ERP implementation is the best way to streamline your landed cost processing. It lets you see all the costs, makes better margin predictions, and quickly reverses budgeted costs when posting invoices.
To get started with landed cost calculations in your business, reach out to us today.
