Understanding Landed Cost Management

This chapter covers the following topics:

• Oracle Landed Cost Management Overview
• Integration with Other Oracle Applications

Oracle Landed Cost Management Overview

Oracle Landed Cost Management enables you to manage estimated and actual landed cost for an item purchased from a supplier. Using Oracle Landed Cost Management you can determine the "real" costs associated with acquiring items including insurance, transportation, handling, storage costs, container fees, and import or export charges. Knowledge and visibility into these trade costs help organizations better evaluate new product plans, price their items, and negotiate contracts with both suppliers and customers.

Using Oracle Landed Cost Management you can first estimate the landed costs for the items and then you can update those costs with the actual landed costs as they become known. Oracle Landed Cost Management gives you the option to determine and calculate estimated landed costs before the receipt of the items into inventory (Landed Cost as a Pre-Receiving Application) or after the receipt of the item into inventory (Landed Cost Management as a Service). Then when you create and match invoices against those receipts this price information is used to calculate the actual landed costs for the item. Within Oracle Landed Cost Management you can view the estimated and actual landed costs for an item side by side. This gives you valuable information about the landed cost for an item and where cost improvement can made.

During the processing of landed costs using Oracle Landed Cost Management, inventory valuations for various cost methods are maintained providing better visibility into individual items profitability and an organizations outstanding exposure. This data provides insight for item forecasting and budgeting and provides clear evidence of the detailed accumulation of expenses for regulatory requirements and reporting.

For more detailed information on using Oracle Landed Cost Management, see Understanding Landed Cost as a Pre-Receiving Application and Understanding Landed Cost as a Service.

Features of Landed Cost Management

Oracle Landed Cost Management provides several features. A few of the key features are:

• Charge Management

  Oracle Landed Cost Management collects an unlimited number of estimated charges and enables you to configure how theses charges are applied to a shipment line, a group of lines within a shipment, or an entire shipment. It applies these charges based on weight, volume, quantity, or the value of the items being traded. These charges can be categorized by different cost factors which will ultimately govern the behavior in how they are included in a total landed cost calculation. Once actual amounts are received, Charge Management records the new value for comparison with the earlier estimates.

• Landed Cost Calculation

  The Oracle Landed Cost Management Calculation process provides the ability to calculate the estimated landed cost based on charges manually assigned and automatically allocated based on the configuration of the charge lines. It also calculates the actual landed costs by prorating the actual invoices and proportional taxes to obtain the variances between what was estimated and what was charged. Cost components summed in the calculation remain stored at the most granular level for detailed tracking of charge amounts while variances are updated to the appropriate accounts.

• Shipments Workbench

  It is common that the financial flows do not mirror the physical supply chain transactional flows. Oracle Landed Cost Management helps to link these two flows together and provides visibility and traceability from one to the other. With the Landed Cost Management Shipment Workbench, companies can view the real time accrual updates for a particular receipt or shipment. They can validate the accuracy of a suppliers estimate by comparing estimated and actual costs and can view the percentage of a particular cost component for a particular item. Additionally, you can make use of all the flexible Oracle and E-Business Suite tools to meet your own customized reporting requirements.

Benefits from Using Landed Cost Management

Operational Life Cycle

Using Oracle Landed Cost Management will provide your organization with several benefits. Oracle Landed Cost Management will help organizations:

• Maximize Profits

  By illuminating “real” product costs, organizations have the opportunity to identify areas for potential cost reduction. It also helps managers more accurately monitor product performance against profitability targets and ensure estimated costs are in line with actual costs.

• Increase Competitiveness

  When all of the charges, fees, duties and taxes are known, companies can more strategically source products and components from lower cost foreign locations. This also enables them to better justify contracts with vendors or potential customers. Ultimately, they can price goods with the full understanding of the charges associated with bringing an item to market.

• Increase Visibility

  Itemizing and tracking all acquisition costs and material cost elements as they apply to a product enables organizations to better link their product supply flows with their financial processing and reporting. In addition, tracking estimated costs as soon as they are known gives decision makers more insight into their exposure for budgeting and reporting purposes before invoices are ever received.

• Ensure Compliance

  Companies can feel more confident in their financial reports and their cost declarations. This includes accurately calculated taxes and consideration of those taxes whose recovery should be excluded from total cost calculations. Additionally, organizations will adhere to country specific requirements for product specific profitability documentation and income tax calculations.

Integration with Other Oracle Applications

Integration with Other Oracle Applications

Oracle Landed Cost Management integrates with several other Oracle E-Business suite applications during the processing of estimated and actual landed costs for an item. The Oracle E-Business applications that integrate with Oracle Landed Cost Management are:

• Oracle Purchasing

  Purchase order information is the baseline information used to itemize expected shipment or receiving lines on which extended supply chain charges will be applied. Oracle Landed Cost Management provides visibility into Oracle Purchasing purchase order data to build expected shipments for charge application and subsequent landed cost estimation calculations. When entering expected shipments the reference information provided by Oracle Purchasing saves time and decreases errors that might occur without automated access to this information. After the purchase order information is available in Oracle Landed Cost Management, expected values received from the purchase order such as, quantity and price can be edited for estimated cost calculation purposes. Furthermore, all the necessary data is provided to help arrive at an accurate three way match after an invoice for a purchase order line or charge is entered into Oracle Payables.

  Additionally, Landed Cost Management recovers the tax lines associated to the purchase order that was originally calculated by EB-Tax, in order to include the non-recoverable amounts into the landed cost.

• Oracle Purchasing (Receiving)

  Oracle Landed Cost Management integrates tightly with the Oracle Purchasing Receiving module. Landed Cost Management relies on the Receiving transactions to calculate the estimated landed costs for a Landed Cost Management shipment. These estimated landed costs are then forwarded to Oracle Cost Management to update inventory valuations and accounting.

• Oracle Payables

  Invoices created in Oracle Payables provide the actual cost information that supports the actual landed cost calculations that occur in Landed Cost Management.

• Oracle Cost Management and Oracle Process Manufacturing (OPM) Cost Management

  After actual values are received from invoices the actual landed cost is calculated in Oracle Landed Cost Management. The variances between the actual landed cost and the estimated landed cost are determined. Those variances are passed to Oracle Cost Management which in turn updates the proper accounts and valuation. If you are using Oracle Process Manufacturing than you must first run a concurrent program that will pass the variances to OPM Cost Management and that application will in turn update the proper accounts and valuation. Both process and discrete Costing applications follow similar flows: Landed Cost Management calculates the estimated and actual landed costs and the variances, which are used for costing valuation and accounting.

• Oracle Advanced Pricing (Optional)

  Integration with Oracle Advanced Pricing enables you to set conditions for the automatic application of the required charges, fees, duties and taxes for a Landed Cost Management shipment. This means that estimated charges can be applied automatically to a shipment.