Posted in Operations and Supply Chain Terms, Total Reads: 278
Definition: Landed Cost
A landed cost is described as the cost of a product when it reaches the buyer’s end. The total cost making up the landed cost may include freight, insurance, purchase price, custom duties , taxes, levies, transportation fees, custom duties, currency conversion factors, crating, handling and other miscellaneous costs leading up to the port of the destination.
A landed cost or price is calculated using a proforma invoice, which contains all the components contained in a domestic invoice, like the sales terms, items listing and the description of the product.
The entire intention to calculate the total landed cost is to take into account both the hidden and the obvious costs into account. This can thus help in improving the decision making process on how to deliver the products to the end user in the most cost effective manner. Suppose that we have a product which is manufactured in different countries and our purchase decision is based just upon the net purchase cost. Thus, we might be spending much more than we have calculated if we do not consider the customs, transportation costs, taxes, tariffs and other hidden costs. But if we have a clear idea of the total cost, the decision making process will be much easier.
Insight into financial performance is another benefit of calculating total landed cost. By knowing your TLC, you would really be able to see your true expenditures per product and determine ways to improve. There will be better insight into cost and the cost trade-offs associated with your supply chain.