There is no surer way for a reseller to lay a path to self-destruction than to set product price points at amounts that are lower than the total cost of getting those products into the hands of customers.
While that is usually a fairly easy problem to avoid, it becomes trickier when imported inventory is involved. In that scenario, there are always multiple tangible and intangible costs associated with bringing a product to market. By failing to account for every expense that is incurred from the moment you source your foreign goods through to customer delivery, you risk making less profit on every sale than you otherwise would have.
The key to avoiding this problem lies in calculating the landed cost of your imported inventory.
So what exactly is Landed Cost?
Landed cost is the sum of expenses associated with an imported product or shipment. Put another way, it is the true cost of the goods’ journey from its source location to its final destination. Expenses that commonly comprise landed cost include:
- the original price of goods
- insurance fees
- shipment costs
- customs duties
- payment processing
- currency conversion
- GST and other import charges
- local courier fees, and any other fees and charges incurred along the journey.
Rather than be set in stone worldwide, these costs can vary considerably from one country or supplier to another and be further impacted by exchange rate fluctuations, the time of year that an order is being placed, the volume of goods being shipped and by various other factors both obvious and opaque. Clearly it’s a lot to consider. But it’s crucial to get it right if your business engages in international trade.
Why Landed Cost is important
The benefits of calculating the true cost of an imported item extend beyond simply knowing the right price to charge for a product. By knowing the landed costs of your goods you are in an improved position when it comes to purchasing decisions. When sourcing goods from Australian suppliers it can be fairly straightforward to compare competing providers and determine which one to do business with. But things get more complicated and murkier when foreign suppliers are thrown into the mix. What might seem like a better deal in terms of unit price – for example a product sourced from Asia versus the same item from a domestic supplier – can look a lot less appealing when customs duties, insurance and international freight fees are factored in. The ability to accurately calculate landed cost enables you to be sure that you have chosen the right suppliers for your business.
A further benefit of landed cost calculations is that they offer you the opportunity to analyse every aspect of your inventory supply chain and identify areas where you can cut costs and improve efficiencies. This is because a detailed landed cost report will shine a light on supply chain weaknesses that may otherwise have remained unnoticed. Many supply chain costs are, after all, hidden or nebulous, and won’t leap out at you. A landed cost analysis will enable you to identify those less-obvious expenses, giving you the information you need to make improvements.
You may, for example, discover that when all the costs are added up that it makes no sense to continue to carry certain products in your inventory. Or that it’s now time to negotiate better terms with overseas business partners and other third-party logistics providers. By knowing each and every expense that feeds into your final landed cost calculation you will be able to closely monitor your ongoing costs, fine-tune your supply chain strategies and set your business on the path to increased profitability.
The actions you take in this regard can also increase your competitiveness in the market. If one your main local competitors is selling an item that is identical to one that you stock and was likely sourced from the same merchant, that business’s ability to offer the product for a lower price may be because they have done a better job at keeping their landed costs to a minimum.
Working out your Landed Cost
To accurately work out the landed cost of imported goods you need the right tools for the task. This is of growing importance because with each passing year international logistics operations are becoming more complex and sophisticated. Unfortunately too many businesses today rely on outdated or inadequate software and other technology (or at worst, pen and paper) to get the job done. This can easily result in inaccurate or incomplete landed cost calculations that allow wastefulness and inefficiencies to persist, ultimately leading to a drain on profits.
Companies that understand how critical it is to be able to work out landed costs are increasingly turning to integrated business systems to do the work. Even though this technology comes with a cost, it invariably ends up paying for itself many times over. At the end of the day it’s really fairly simple: the more you can automate your logistics operations the better placed you will be to keep costs down, improve efficiencies and increase supply chain performance. The automation of landed cost calculations can play a huge role when it comes achieving those benefits.
For a wide range of wholesalers, distributors and manufacturers, the landed cost functionality of Jiwa 7 is proving to be a valuable asset. Jiwa Landed Cost is easy to use, powerful and comprehensive in its capabilities. Want to know more about landed cost? Read our White Paper.