11Landed Cost Management

This chapter contains the following:

Overview of Landed Cost Management

Oracle Fusion Landed Cost Management gives your organization financial visibility into your supply chain costs, including transportation and handling fees, insurance, duties, and taxes. These types of charges can compose a significant portion of the cost of an item. Landed Cost Management enables you to incorporate the charges accurately into overall financial processes and decision-making activities. Landed Cost Management initially estimates these costs and later updates them with actual amounts as they become known, allocating them to shipments, orders, and products. This enables you to maximize profits, improve visibility into outstanding liabilities, enhance competitiveness, and ensure that complex trade activities are compliant with regulatory mandates.

Landed Cost Management performs three main tasks:

  • Capture Charges: Landed Cost Management provides the capability to capture charges such as freight, insurance, and so on. These charges are captured and grouped under an entity called trade operation. A trade operation is a logical entity that denotes a single instance of a business transaction or process in which you would like to capture all the charges. An example of this is a single shipment or container.

  • Perform Allocations: Material PO schedules are associated to charges. This denotes the PO schedules that are part of the trade operation or that are impacted by this trade operation. After the PO schedules are referenced to charges on the trade operation, the charge amount is distributed and allocated to the respective PO schedules and further on to the receipts that are performed on those schedules.

  • Create Accounting: The final step is to account for all the charges that were incurred. This is done by transferring all the charge information to Receipt Accounting and Cost Accounting.

Landed Cost Management interfaces with the following applications:

  • Oracle Fusion Purchasing: Landed Cost Management receives the material purchase order (PO) information. The trade operation charges are associated with the PO schedules and allocated proportionately to the PO schedules and receipts.

  • Oracle Fusion Receipt Accounting: Tasks performed when managing landed costs use data from Receipt Accounting, and Receipt Accounting will create the accounting entries to accrue landed cost charges.

  • Oracle Fusion Cost Management: Charges from Landed Cost Management are absorbed as part of the item cost in Cost Management. After the goods are delivered to inventory, the landed cost charges are absorbed into inventory valuation.

  • Oracle Fusion Tax: Taxes may be applicable on the charges coming from Landed Cost Management. The charges are defined in Landed Cost Management. Taxes are automatically calculated, when applicable, by calling the Tax application.

  • Oracle Fusion Payables: In most cases, suppliers send invoices for the services they provide (particularly for freight). When these invoices relate to charges defined in a landed cost Trade Operation, it is possible to automatically associate an invoice amount to a landed cost charge applied to a receipt. For example, when a receipt of items is performed, the bill of lading number from the freight supplier is specified in the receipt. Then when the freight supplier invoice is processed, the invoice line references that bill of lading number. When the freight supplier invoice is interfaced to the landed cost application, the bill of lading number that is common to the receipt and invoice lines is automatically associated. As a result, the landed cost application compares the estimated amount of freight charge in the receipt to the actual amount of freight charge billed in the invoice, and adjusts the cost of the receipt for any calculated cost variance.

Implementing Oracle Fusion Receipt Accounting is a prerequisite for Landed Cost Management. Implementing Oracle Fusion Cost Accounting is optional. If you implement Cost Accounting, the landed cost charges are also visible in Cost Accounting. Several options are available for implementing Landed Cost Management, based on the source of these landed cost charges. You can implement a combination of one or more of these options where the source of the landed cost charges can be:

  • A payable invoice from a service provider or supplier

  • A supplier purchase order for the service

  • An estimate provided by a supplier or any other source

How You Set Up Landed Cost Management

Set Up Landed Cost Management

To set up Landed Cost Management, you must complete the setup tasks displayed in the Setup and Maintenance work area.

  1. In the Setup and Maintenance work area, perform the tasks from the Landed Cost Management functional area.

    • Offering: Manufacturing and Supply Chain Materials Management

    • Functional Area: Landed Cost Management

  2. Perform the setup tasks in the order in which they're listed.

The following table describes the setup tasks to implement Landed Cost Management, and states whether each task is required or optional.

Setup Task Required or Optional Description

Manage Charge Names

Required

Define landed cost charges and configure default attributes. These charges are regular expenses that are incurred while transporting material from the supplier to a receiving location. For example, freight, taxes, duties, handling fee, and so on.

Manage Landed Cost Reference Types

Optional

Define charge reference types representing unique business documents and other references which drive a trade operation.

Manage Routes

Optional

Define routes for classifying similar trade operations into a higher level entity.

Considerations for Setting Up Landed Cost Management

When setting up Landed Cost Management, consider the following:

  • Map landed costs to cost components in Cost Accounting

  • Create trade operation templates

Map Landed Costs to Cost Components in Cost Accounting

In the Setup and Maintenance work area, use the Manage Cost Component Mappings task in the Manufacturing and Supply Chain Materials Management offering to map landed costs to cost elements in cost accounting, and to capitalize landed costs.

Cost elements are the level where you want to track costs through inventory. Use cost component mappings to define cost component groups, which map cost components to cost elements, and to map source cost elements to destination cost elements when items are transferred from one inventory organization to another. The mapping group is referenced later by item cost profiles, which are used to specify cost policies for items.

Create Trade Operation Templates

A trade operation is used to capture and allocate the landed cost charges that are incurred for material shipments. Trade operations can be modeled on a single shipment or a group of shipments. A trade operation template can be used to create trade operations quickly, in cases where a business performs similar trade transactions and makes regular shipments.

Use the Create Trade Operation Template page to set up the most frequently incurred charges, and the amounts for these charges. When you create a trade operation by using the template, all of the charges and related information are automatically copied onto the trade operation.

Charge Names

The landed cost of purchased items includes their material cost as well as supplier and third-party charges incurred to deliver them to their final destination. In the Setup and Maintenance work area, use the Manage Charge Names task in the Manufacturing and Supply Chain Materials Management offering to define landed cost charge names that are used to capture and analyze landed cost charge amounts.

User-defined landed cost charges can include the following examples:

  • Freight and transportation costs, from the supplier to the buyer's ultimate location.

  • Costs associated with the physical preparation of the goods in order for them to be transported such as labeling, picking, packaging and packing goods, including all inventory, distribution center, and warehouse costs.

  • Loading and unloading costs, loading penalties, and other surcharges.

  • Haulage, storage, and detention fees.

  • Equipment and container fees.

  • Sales tax and value added tax (VAT).

  • Import and export charges, import VAT fees, customs brokerage fees, and excise taxes.

  • Port or pier fees, cargo handling fees, and harbor maintenance fees.

  • Currency revaluations, with currency fluctuations and multiple currency conversions.

FAQs for Charge Names

What are landed costs?

Landed costs are the sum of the material costs and the additional landed cost charges associated with the purchasing and receipt of material.

What's a landed cost charge?

Landed cost charges are additional material supplier charges and third party charges that are incurred in the process of receiving material into ownership or possession, including consigned scenarios where custody may be with another party.

Yes, you can modify a charge name before it's associated with a PO schedule or a trade operation. However, you can't modify a charge name after it's associated with a PO schedule or a trade operation.

Landed Cost Reference Types

Landed Cost charge reference types are unique references of trade documents executed as a part of a trade operation.

In the Setup and Maintenance work area, you can access the Manage Charge Names task in the Manufacturing and Supply Chain Materials Management offering. Use the Manage Charge Names task to:

  • Set up Landed Cost charge names.

  • Configure default charge attributes.

  • Define applicable tax attributes, reference types, and analysis groups.

Charge reference types are associated to a landed cost charge during setup to indicate the default business documents that generally drive the charge. The reference types associated to a charge name during charge definition will default to a trade operation charge and to the invoice line when it's classified with a Landed Cost charge name. You can associate one or multiple default reference types to charge names. You can leverage reference types to facilitate invoice association by assigning an appropriate reference type to a charge.

FAQs for Landed Cost Reference Types

Reference types are business documents, such as bills of lading, that are associated with landed cost charges in trade operations to provide an audit trail of the charges. Reference types are also matched with invoices to capture actual charge amounts.

What's a trade operation?

A trade operation is an entity that is used to group landed cost charges expected to be incurred for material shipments. You can create a trade operation for an upcoming shipment to capture the landed cost charges incurred for that shipment. You can also create the trade operation after the actual shipment.

Routes

In the Setup and Maintenance work area, use the Manage Routes task in the Manufacturing and Supply Chain Materials Management offering to define routes through which materials will be transported. Defining routes enables you to group trade operations and analyze global shipping costs. For example, if you assign trade operations to routes, you can answer questions such as what the total costs are to ship goods from China to Singapore and then to the warehouses in India, Australia, and the United States.

Note: Defining routes in Landed Cost Management is an optional setup task.

FAQs for Routes

Landed Cost Management routes are setup entities that you can use to group multiple trade operations. This helps in analyzing the cost of trade operations from a geographical region.