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Marlow Busts the Myths About Landed Costs

The 1st quarter is now behind us, and as I have suggested over the past several months, companies are indeed looking at productivity efficiencies by adding new partners to their electronic trading program. In addition, they are looking at new types of data from existing partners. Doing this is a great tactic that will move toward the strategy of having visibility and/or controlling costs. However, many are now looking at “what is my true cost and are we charging the correct price to our customer?”


In order to determine the actual cost of goods, you’ll need to gather up all of the costs associated with determining “landed cost”. There are different costs based on where and how products are purchased –

Domestic Goods –
  • Cost of goods charged by the Suppliers
  • Cost of delivery and handling from 3PL’s or Freight companies

International Goods –
  • Cost of Goods charged by the supplier
  • Financing costs from Banks for Letters of Credit
  • Customs/Duty
  • Consolidation costs
  • Cost of delivery and handling from 3PL’s or Freight companies

For those companies that are already doing this process of calculating Landed costs, many are doing so through spreadsheets, and this is especially true with Imported products. I’m aware of several companies that predetermine (estimate) landed costs for their international products, but never go back to validate how close the estimates were to actual. This is primarily because of the administrative effort required to do this manually.

To assist with gathering this information, I want to remind the audience that all of the data that is needed for this can be provided by your partners via EDI transactions. For domestic purchases, getting an 810 from the supplier is where this information comes from. However your 3PL can also provide an 810 for billing of their services. In addition, carrier information for freight charges can come in the form of a 210 EDI transaction.

Where companies get hung up is with the international products. Most of this is because they believe that receiving electronic invoice information associated with letters of credit will end up flowing into the retailers' Accounts Payable system instead of to another database for analytical purposes. In addition there is a misunderstanding that suppliers or Consolidators that provide the customs clearing process are unable to provide this information electronically. So with this article I want to share that both of these concerns are not true.

Busting the Myth

With the Letter of Credit process, suppliers still create an invoice for clearing the requirements of the LC, so there is no reason this information could not also, or instead, be sent electronically as an 810. The retailer can then route the data based on the indication of the LC payment terms on the 810 to a database instead of the AP system.

An alternative is to have the supplier send the invoice through to the retailer’s bank as an 810. The Bank can then add their fees for financing to their version of the 810 and send that electronically. Again, the data is routed by the retailer into their database, and not AP.

Another option is to have the suppliers (or the retailers expediter) provide a Commercial invoice (information contained includes Duty and custom charges) as an 810. The consolidator/expediter should also be able to transmit an 810, or some other EDI transaction for the cost of moving the goods internationally. And like the domestic counterpart, the domestic movement of the orders from Port to retailer's destination would be a 210 or the like.

A by-product of going through this exercise is that some retailers are now noticing that while Imports may appear to be more cost effective, they may not be. In many cases, the landed cost compared to domestic sources is about the same. In some cases, when the cost of administering an Import model is factored in, the true cost is actually higher.

It's time to think outside the box and realize that EDI data is not just about integrating into the AP system, but can be routed to BI tools where visibility of all parts of the movement of goods and the cost of doing so can be analyzed quickly, and retail prices adjusted in advance of the receipt and sale of the products to consumers.
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