Understanding Total Landed Cost (TLC):
So, What is Total Landed Cost? Apart from the initial cost in the manufacturing and development of a product, there are other associated expenses, some of which are hidden, until the product lands at doorstep of the buyer. These costs include transportation of the products inland within the home country, recipient country, and at the ocean or air. Additionally, customs duties, taxes, insurance, sea freight costs, rates you will incur due to the different currency strengths for conversion, and also charges paid to the handlers of the product. For instance, if product A costs 5$, sell it at 15$, yet you paid 25$ for the whole process up to delivery, you will have ignored the vital aspect of the Landed cost of the product. In a nutshell, the Product purchasing cost plus the associated cost incurred in bringing the goods from the manufacturing site until Buyer’s at the doorstep, all inclusive, is termed as Total Landed Cost. It is mandatory for all procurement professionals to know the concept of TLC and apply it diligently in making an informed decision while sourcing goods from foreign countries.
Total Landed Cost (TLC) vs. Total Cost of Ownership (TCO)
Total Landed Cost is not the same as Total Cost of Ownership. These are often mixed and not clearly demarcated. It should be noted that TLC is a part of the TCO calculation. TCO is a wider term covering the TLC, storage, training, cost of inventory, maintenance, after-sales support and
In summary, before a final procurement decision is made comparing the prices of foreign supplier with that of domestic, it is essential that the comparison is made on apple-to-apple basis for a fair assessment and also avoid ambiguity attracting audit attention. The selling price of foreign supplier on CFR/CIF incoterms compared to that of local supplier on DAP basis, is definitely incorrect. Price comparisons during imports should factor the pertinent details discussed earlier in this paper and must address the hidden costs. In the sense, all charges incurred till the product reaches buyer’s doorstep must be included for a fair comparison. Below given process flow explains various steps involved in the import process.
What are the key commercial elements of Total Landed Cost?
International logistics are inevitably complicated and present a whole new range of ever changing challenges. Understanding the commercial aspects, included in your calculation, will have a direct impact on your business. Is it difficult to derive TLC? The answer is No. For ex: In order to derive a proper imports’ TLC analysis, total landed cost is sum of three major categories given below:
1. FIXED COST
1.1 The Product Price
1.2 Shipping Costs (Voyage charges by Ocean, Air, Land or Rail)
1.3 Packaging
1.4 Documentation
1.5 Inland Transportation (origin and destination)
1.6 Insurance
1.7 Customs Duties, Taxes etc.
2. VARIABLE COST
2.1 Terminal Handling / Port Charges (origin and destination)
2.2 Customs Clearance Charges
3. SUBJECTIVE COST
3.1 Pre-Delivery Inspection (PDI) charges
3.2 Penalties (Demurrage, detention charges etc.)
3.3 Overhead Costs
Conclusion :
In summary, before a final procurement decision is made comparing the prices of foreign supplier with that of domestic, it is essential that the comparison is made on apple-to-apple basis for a fair assessment and also avoid ambiguity attracting audit attention. The selling price of foreign supplier on CFR/CIF incoterms compared to that of local supplier on DAP basis, is definitely incorrect. Price comparisons during imports should factor the pertinent details discussed earlier in this paper and must address the hidden costs. In the sense, all charges incurred till the product reaches buyer’s doorstep must be included for a fair comparison. Below given process flow explains various steps involved in the import process.
Please click on the link below to download a PDF file:
https://media.licdn.com/dms/document/C4E1FAQFaDx97qT5BKg/feedshare-document-pdf-analyzed/0?e=1569837600&v=beta&t=ssfhnc-AYIlQFb4rvsEgJMhzbRTrQXtVfOZGsLiNw7w
Comments
Post a Comment