Improve Landed Cost Visibility - Informktforms.gtnexus.com/rs/...improve-landedcost-msi.pdf ·...
Transcript of Improve Landed Cost Visibility - Informktforms.gtnexus.com/rs/...improve-landedcost-msi.pdf ·...
A STRATEGIC IMPERATIVE FOR MANUFACTURERS
Improve Landed Cost VisibilityHow to Automatically Collect, Assemble, Track and Measure Global Supply Chain Cost Actuals as They Occur
Global supply chains require goods to pass through
many stages before they reach the point of delivery.
While manufacturers may have found unit costs suffi-
cient in planning for profitability in the past, today’s
environment requires much more data — most of it
from outside the manufacturer’s four walls.
What’s often poorly projected
as “overhead costs” can
include fees that shipments
incur in transit, at customs, and
inland before delivery. These
costs vary greatly on the back
of demand changes and grow-
ing lead times, causing a large
discrepancy in actual vs. esti-
mates and plaguing manufac-
turers with hours of reactive,
manual data collection.
Companies need to fill in the
blank space where landed
costs can decrease a product’s
margin with real-time analytics.
Without this, they will struggle
to understand the true price of
the products they are sourcing.
Traditional approaches to determining
landed cost often uncover “surprise”
costs after the product is delivered —
too late to make corrective
adjustments.
Impact of Poor Supply Chain Cost Analytics
Without a way to calculate the costs that add up due
to unpredictable demand and long lead times, manu-
facturers end up making decisions based on very little
real-time information. Managing suppliers this way is
difficult; if the true costs of sourcing a product do
become clear, it is only long after the fact.
In this scenario, manufacturers are forced to resort to:
• Piecing together information on actual costs and
lead times
• Choosing suppliers based on unit cost alone
• Guessing at product margins based on past data
• Collecting and managing data manually
• Attempting to make leap-of-faith target delivered
unit costs
The Root of the Problem
There is a widening gap between projected landed
costs and end-of-year actual recaps. This happens
when shipments enter the information “black hole” —
the month or two in which goods travel through an
extended supply chain, often across borders, and no
data is available on their activity. During this time, they
may be picking up drayage, consolidation, deconsoli-
dation, and agent fees that were not included in the
margin calculation. When the product finally reaches
its destination, those fees are noted — however,
there’s no way of knowing how they break down at
the unit level or if the next shipment will incur the
same costs.
1. Costs from many sources in different formats
When a manufacturer has a list of supply chain
partners and cost information in many different
charges, currencies, and other data types it must
deal with several issues:
• Reconciling the different units, formats,
and currencies
• Tracking down late or incomplete information
• Attempting to compare estimates with
incongruent data
2. Difficulty assigning cost to specific product
Charges can come in on varying levels, from order
to shipment to bill of lading. Often these costs are
collected after the fact and never tracked back to
the product line. As a result, manufacturers are
forced to work with:
• Limited information on the SKU level
• Documented costs that are impossible to break
down and allocate to individual products
The Challenge
Companies can’t see all the costs associated with a landed product, so they make decisions based on unit cost alone.
FirstCost
Freight
Duties
FirstCost
Freight
Duties
"Overhead"Drayage
ConsolidationFees
TypicalCost Recap
ActualCosts
AgentFees
DeconsolidationFees
Margin Loss
Traditional software leaves a significant information
gap in the time a shipment leaves origin to the time it’s
delivered. This missing data lowers the accuracy of
any cost or profit projections and makes it difficult to
compare suppliers.
Manufacturers can counter this effect by adopting a
cloud-based platform that allows them to pull real-time
data on their supply chain costs from their network of
logistics partners. This allows them to monitor actual
costs as they are incurred, measure them against targets,
and audit financial performance.
A cloud-based solution automates the capturing of
supply chain costs and connects data to the SKU level.
Managers can then use tactical day-to-day operational
reports for orders and shipments in motion to make
essential supply chain decisions. Landed cost data
becomes a strategic analytical tool for trending
and measurement.
On
Ord
er
At OriginIn
lan
dD
elive
red
In P
rod
uct
ion In Transit In Customs
MonitorAgainst targets/plans Financial liabilities
$
$
MeasureLanded costActual vs. target cost
AuditCharges/invoicesFinancial performance
Actual Costs $
$ $$
From order to delivery, costs must be accurately captured and
factored into expected product margins.
Measure landed cost data on a cloud-based platform.
• Track actual costs and lead times as they occur
• Automate allocation process to apply costs to the
correct level (SKU, shipment, business line)
• Use analysis engine to compare actual against
target estimates
How to use it to improve landed cost estimates:
1. Understand the total cost components of a
SKU/item
2. Compare cost estimates to actual cost per item
3. Make more informed sourcing decisions by taking
actual product margin into account
4. Make adjustments to course correct in real-time
Value Propositions
With good analytics, managers can decide to change
production strategies, bring on new suppliers, and
estimate landed costs based on high-quality data from
their supply chain network. They will have the tools to:
1. Increase profitability
• Lower COGS by accurately measuring total cost
of a part
• Improve labor efficiency and lower admin costs by
eliminating manual processes
2. Improve sourcing activity and target costing
• Accurately measure total cost and actual lead
times against estimates to plan for the future
• Collaborate with partners on reducing costs and
lead times
3. Capture end-to-end supply chain costs including
transportation costs, handling fees, brokerage fees
and document fees for better margin visibility
• Automate landed cost determination (no more
spreadsheets)
• Save time and resources by reducing re-keying of
cost data in AP/GL systems
Supply Chain Cost Analytics and the
Networked Company
To understand true landed costs and how they impact
margins, companies must transform themselves
from silo-based, inward-facing corporate operators
to interconnected, highly agile business network
orchestrators.
NetworkConnectivity
Agility
B
A
Sense more accurately
Operate more e�ciently
Respond faster
Make better decisions
The SolutionIt’s impossible to predict margins on the
SKU level without real-time data from
supply chain partners. Cloud changes
that, fi lling the information “black hole”
with actual costs as they are incurred.