Landed cost
Understand landed cost calculations that determine true product expenses by including all costs from purchase through final delivery destination.
Sarah Dotson
What is landed cost?
Landed cost is the total expense associated with getting a product from its point of purchase to its final destination. This comprehensive calculation includes the original purchase price plus all additional costs such as shipping, customs duties, taxes, insurance, and handling fees encountered throughout the supply chain.
Understanding landed costs
Landed cost analysis provides organizations with a complete view of product expenses by considering all costs incurred throughout the supply chain journey. This comprehensive understanding enables businesses to make informed decisions about pricing strategies, supplier selection, and inventory management while maintaining accurate profitability analysis.
Key cost components
Essential elements of landed cost include:
- Product purchase price
- Transportation and freight costs
- Import duties and taxes
- Insurance expenses
- Handling and storage fees
- Currency exchange rates
Business applications
Organizations calculate landed costs to:
- Determine true product profitability
- Set accurate pricing strategies
- Evaluate supplier options
- Optimize shipping methods
- Make informed sourcing decisions
Implementation considerations
Accurate landed cost calculation requires systematic procedures for:
- Comprehensive cost tracking
- Regular updates to cost factors
- Integration with financial systems
- Clear documentation procedures
- Periodic review and analysis
Operational impact
Understanding landed costs helps organizations optimize their supply chain operations, make better sourcing decisions, and maintain accurate profitability analysis across their product portfolio. This knowledge directly impacts pricing strategies, supplier selection, and inventory management decisions.
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