While many companies have either made (or are in the process of making) the transition from regional, build-and-sell business models to a global sell-anywhere, build-anywhere, and buy-anywhere model, the current, mainly manual systems still typically require information to flow via spreadsheets, phones, faxes, snail mail, and e-mails within the retailer's different groups. When it is time to place an order, the data is usually no longer current and accurate. The information then has to be revised during the ordering phase, where the vendor might respond with actions based on incorrect assumptions, and one has to go through the vicious cycle again.
Determining the true costs of these activities can also become more complex since, in addition to a nominal purchase price, one has to add freight, taxes, duties, intermediaries' fees, cost of inventory, cost of quality issues (if any), and buyers' time. Landed costs also vary tremendously depending on how the merchandise is shipped, since many supply chains today originate in countries that can provide low-cost manufacturing capabilities, often thousands of miles away from the end market.
In a regional model, companies make parts-sourcing decisions based primarily on per-piece cost and traditional supplier scorecards. In a global model, though, with lengthening supply chains and increasing risk, companies must choose suppliers based on additional factors, such as inbound lead times and associated variability, protection of supply, logistics costs and risk, and inventory expense. Only a thorough analysis of potential scenarios reveals the total landed cost, and poor sourcing decisions could turn out to be counterproductive and may result in increased costs, decreased supply chain flexibility, and customer dissatisfaction.
In other words, an apparent bargain price on paper may not be quite as attractive in reality, since there may be hidden costs to consider in addition to the purchase price of components or per-hour wage rates. Landed cost refers to the total price that the importing company has paid for a resource once it "lands" at its appointed location, such as the incoming dock at the production facility. Imagine the possible, startling differences that might be brought to light with a thorough comparison of the prices of raw materials available in several regional markets around the world.
Again, while the landed cost of domestic items includes the component price plus domestic freight, the landed cost of the same or similar components in a foreign market may include all of the following: purchase price; import duty; international freight; special packaging, travel, and other communications costs involved in acquiring the component; fees and commissions for intermediaries (typically not necessary in domestic purchases); currency exchange and interest costs; costs of hiring or training personnel to deal with export-import complexities, and so on.
Further, determining the relative costs of manufacture and assembly in different markets can be as complex as comparing landed costs for goods. To that end, some vendors provide tools to help companies uncover the true costs of global sourcing to better manage this new business environment. The most recently unveiled i2 Total Landed Cost Sourcing software tool by i2 Technologies is designed to help companies analyze and determine sources of supply for parts, components, and finished products based on all conceivable factors that might contribute to cost and risk. Leveraging this solution with the closed-loop capability to capture all relevant cost elements, represent them in a model, compute and analyze multiple what-if scenarios, and make the best decision, businesses can drive the process with a complete picture of the factors impacting the total cost of a product. Total Landed Cost Sourcing delivers the following capabilities:
* analysis and decision making;
* definitions of cost targets and sourcing constraints;
* automated data management and cleansing of cost, transportation, lead time, inventory, service variability, and network data;
* the ability to make informed sourcing decisions based on supply chain modeling and corporate objectives;
* solid reporting and analytics capabilities for continuous learning and ongoing compliance management;
* supply chain network optimization to calculate variable supply chain costs through strategic network design and inventory optimization;
* the ability to issue RFQs and collect supplier-quoted costs; and
* estimation of total landed costs for all sourcing scenarios while considering optimal transportation routes.
Like its i2 CTO counterpart mentioned previously in The Promise (and Complexities) of Private Labels, i2 Total Landed Cost Sourcing will be available in the i2 Business Content Library, a repository of process and technology solutions based on i2's extensive supply chain domain expertise. The idea here is for organizations to use these solutions without modification and to help accelerate the customization and deployment of composite solutions when necessary.
Determining the true costs of these activities can also become more complex since, in addition to a nominal purchase price, one has to add freight, taxes, duties, intermediaries' fees, cost of inventory, cost of quality issues (if any), and buyers' time. Landed costs also vary tremendously depending on how the merchandise is shipped, since many supply chains today originate in countries that can provide low-cost manufacturing capabilities, often thousands of miles away from the end market.
In a regional model, companies make parts-sourcing decisions based primarily on per-piece cost and traditional supplier scorecards. In a global model, though, with lengthening supply chains and increasing risk, companies must choose suppliers based on additional factors, such as inbound lead times and associated variability, protection of supply, logistics costs and risk, and inventory expense. Only a thorough analysis of potential scenarios reveals the total landed cost, and poor sourcing decisions could turn out to be counterproductive and may result in increased costs, decreased supply chain flexibility, and customer dissatisfaction.
In other words, an apparent bargain price on paper may not be quite as attractive in reality, since there may be hidden costs to consider in addition to the purchase price of components or per-hour wage rates. Landed cost refers to the total price that the importing company has paid for a resource once it "lands" at its appointed location, such as the incoming dock at the production facility. Imagine the possible, startling differences that might be brought to light with a thorough comparison of the prices of raw materials available in several regional markets around the world.
Again, while the landed cost of domestic items includes the component price plus domestic freight, the landed cost of the same or similar components in a foreign market may include all of the following: purchase price; import duty; international freight; special packaging, travel, and other communications costs involved in acquiring the component; fees and commissions for intermediaries (typically not necessary in domestic purchases); currency exchange and interest costs; costs of hiring or training personnel to deal with export-import complexities, and so on.
Further, determining the relative costs of manufacture and assembly in different markets can be as complex as comparing landed costs for goods. To that end, some vendors provide tools to help companies uncover the true costs of global sourcing to better manage this new business environment. The most recently unveiled i2 Total Landed Cost Sourcing software tool by i2 Technologies is designed to help companies analyze and determine sources of supply for parts, components, and finished products based on all conceivable factors that might contribute to cost and risk. Leveraging this solution with the closed-loop capability to capture all relevant cost elements, represent them in a model, compute and analyze multiple what-if scenarios, and make the best decision, businesses can drive the process with a complete picture of the factors impacting the total cost of a product. Total Landed Cost Sourcing delivers the following capabilities:
* analysis and decision making;
* definitions of cost targets and sourcing constraints;
* automated data management and cleansing of cost, transportation, lead time, inventory, service variability, and network data;
* the ability to make informed sourcing decisions based on supply chain modeling and corporate objectives;
* solid reporting and analytics capabilities for continuous learning and ongoing compliance management;
* supply chain network optimization to calculate variable supply chain costs through strategic network design and inventory optimization;
* the ability to issue RFQs and collect supplier-quoted costs; and
* estimation of total landed costs for all sourcing scenarios while considering optimal transportation routes.
Like its i2 CTO counterpart mentioned previously in The Promise (and Complexities) of Private Labels, i2 Total Landed Cost Sourcing will be available in the i2 Business Content Library, a repository of process and technology solutions based on i2's extensive supply chain domain expertise. The idea here is for organizations to use these solutions without modification and to help accelerate the customization and deployment of composite solutions when necessary.
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