5Landed 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

The following table describes the tasks and processes to support landed cost management. You can access these tasks and processes in the Receipt Accounting work area.

Task Description

Manage Trade Operations

Create and edit trade operations to capture landed cost charges associated with purchase order receipts of material.

Review Purchase Orders for Landed Cost

View material purchase orders from Purchasing and associated charges, and create trade operations for the purchase orders.

Manage Charge Invoice Associations

View invoices that are automatically associated with trade operation charge lines, identify and correct mismatched invoices, create trade operations, and associate them with invoices.

Manage Landed Cost Processes

Schedule the processes to associate and allocate third-party charges to trade operations.

Review Landed Cost Processes

Review landed cost processing details, parameters, and errors.

Manage Trade Operation Templates

Create and edit templates of trade operations and the associated charges.

Reconcile Landed Cost Charges

View PO schedules and receipts where the related third-party charges are over or under-allocated and absorbed, and run the process to adjust the discrepancies.

View Item Landed Cost

Review purchase order receipts of goods, related third-party charges, total landed costs, and the variances between estimated and actual landed costs.

Analyze Landed Cost Charges

Compare and evaluate landed cost trends, including material costs and third-party charges, across business units, inventory organizations, and routes.

Create trade operations to capture landed cost charges associated with purchase order receipts of material. 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. Trade operations are created in the Landed Costs work area on the Manage Trade Operations page.

Create a Trade Operation Template to pre-populate the main fields in Trade Operations for repeat purchases. Templates define the structure for the trade operation, such as charges, reference types, routes, currency, and taxes. Both inclusive and exclusive taxes are supported for landed costs.

To create a trade operation, perform the following steps.

  1. From the Navigator menu, select Receipt Accounting.

  2. From the Landed Costs task list, select Manage Trade Operations.

  3. Click Create Trade Operation and complete the required fields. The fields are described in the following table.

Field Description

Charge BU

The requisitioning business unit for the charge.

Charge Basis

The level where the charge is captured. The charge basis options are as follows:

  • Aggregate. If the charge is the total amount, use Allocation Basis to specify allocation.

  • Per Unit. Fixed rate per unit of items. The charge is entered in the Rate field.

  • Percentage of Item Price. A percentage of the full item price. The charge is entered in the Rate field.

  • Percentage of Other Charges. Percentage of another charge in the Trade Operation. This is a good way to model tax applying to another charge. The charge is entered on the Related Charges lines as follows:

    -Item Value of the source charge

    -Percentage of charge amount

  • Variable Per Unit. Similar to Per Unit but specified against a specific purchase order line schedule. There may be different rates in a charge for different schedules. The Rate is defined directly at the purchase order schedule level associated with the charge line.

  • Variable Percentage of Item Price. Similar to Percentage of Item Price but specified against a specific purchase order line schedule. There may be different percentages in a charge for different schedules. The Rate is defined directly at the purchase order schedule level associated with the charge line.

Allocation Basis

The basis used to allocate the charge to purchase order schedules. The allocation basis options are as follows:

  • Equally. The aggregate charge value is allocated equally across purchase order schedules associated with a charge line.

  • Quantity. The aggregate charge value is allocated in the ratio of quantities present on each of the purchase order schedules.

  • Volume. The aggregate charge value is allocated in the ratio of volumes (represented in terms of the Base UOM) present on each of the purchase order schedules.

  • Weight. The aggregate charge value is allocated in the ratio of weights (represented in terms of the Base UOM) present on each of the purchase order schedules.

  • Item Value. The aggregate charge is allocated in the ratio of item value (purchase order price multiplied by quantity) present on purchase order schedules.

  • Manual Allocation Factor. The aggregate charge is allocated to the purchase order schedules based on the manual factor provided by the user at purchase order schedule level on the charge line.

Value

Identification of associated charge reference, such as bill of lading.

Landed Cost Charges

A trade operation charge is an estimated or actual landed cost charge for allocation to purchase order schedules, and subsequently to receipts. 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. The details regarding the allocation of charges are captured in the charge line Status field. The charge line Status values are described in the following table.

Charge Line Status Description

New

This is the initial status assigned to a new charge line.

Pending PO Schedule Association

The charge line has been successfully saved, but no purchase order schedules have been associated with the charge.

Ready for Allocation

The charge line has been successfully saved and the following conditions have been met:

  • The purchase order schedules have been associated with the charge line.

  • Any applicable per unit and percentage values have been entered in the Rate field.

A warning message will be displayed if the applicable per unit and percentage values have not been entered on a charge line.

You can create a trade operation from a trade operation template to streamline the process. Trade operation templates can be used for repeat purchases. Create a template if you need to create a similar trade operation multiple times. This helps to ensure consistency. Trade operation templates contain information about the supplier, charge lines, reference types, routes, and other related information. Whenever a trade operation is created by using a template, all this information is copied to the trade operation. The user can modify the copied information where required. Trade operation templates are managed in the Landed Cost Management work area on the Manage Trade Operation Templates page.

You can use a Trade Operation to simulate and estimate landed cost charges associated with purchase order receipts of material. You can create a trade operation for an upcoming shipment to capture the landed cost charges incurred for that shipment. The landed cost features provide financial visibility into the supply chain costs, including transportation and handling fees, insurance, duties, and taxes. A significant portion of an item's cost can be comprised of landed costs, and it is important to accurately incorporate them into financial processes and decision making. Trade operations are created in the Landed Costs work area on the Manage Trade Operations page. You can associate a purchase order to a Trade Operation based on various identifiers, including purchase order number or advance shipment notice (ASN).

To create estimate landed costs, complete the following steps.

  1. From the Navigator menu, select Receipt Accounting.

  2. From the Tasks panel, select Manage Landed Cost Processes.

  3. Query for and run the process Prepare Material Purchase Order Data. This process updates the list of approved purchase orders that can be selected for landed costs.

  4. From the Tasks panel, select Manage Trade Operation Templates.

  5. Search for the required template and click the Create from Template button. Enter the Trade Operation Name and save the Trade Operation.

  6. (Optional). Enable the Tentative option for any charge lines that you do not want to be included in receipt accounting distributions. This option is only applicable for estimate costs.

  7. Click on the Associate Default Material Purchase Orders button.

  8. Click on the Select and Add button and search for and select the required purchase order. You can associate a purchase order to a Trade Operation based on various identifiers, including the Purchase Order number or the Shipment Number (ASN). This associates all of the Trade Operation charges to the material Purchase Order specified in the Trade Operation header.

  9. Click Save. When the application has associated the purchase order to the Trade Operation charge lines, the Charge Line Status displays a Ready for Allocation message when you hover over it.

  10. Click on a charge. The Charge Details area of the page shows the purchase order line schedules associated with the charge.

  11. From the Actions menu in the Trade Operation header, select Allocate Charges. The Charge line status is automatically updated, and the message Successfully Allocated is displayed when you hover over the icon. The total amount of each charge is displayed in the Landed Cost Charges area. This is the estimated charge amount that is anticipated to be applied when the items in a Purchase Order are fully received.

  12. From the Actions menu in the Trade Operation header, select Update Status.

  13. Set the Trade Operation status to Open. This informs Receipt Accounting that the charges in this Trade Operation are to be added to the material cost of the items received against the Purchase Orders referenced in the Trade Operation. Create and submit the receipt in the Receiving application.

  14. From the Navigator menu, select Tools, then Scheduled Processes, then run the Transfer Transactions from Receiving to Costing process.

  15. In the Landed Costs work area navigate to the Manage Landed Cost Processes page from the Tasks menu. Select the Allocate Landed Cost Charges process and set the Apply Charges to Receipts option to Yes in the Define Parameters region. Submit the process.

  16. (Optional). From the Navigator menu, select Receipt Accounting. From the Tasks menu select Create Receipt Accounting Distributions.

  17. Select View Item Landed Cost from the Tasks menu. Select the PO number and receipt. The item landed costs displayed include the material and landed cost charges.

Reference Types are used for automatically matching the landed cost charge invoices to the trade operation charges. These are typically the document names that would be used in the business process, and are visible both on the Invoice and in landed cost management, for example, Bill of lading or Shipment number.

Invoices are designated for landed cost processing in the Payables work area. To designate an invoice line as a landed cost, enable the Landed Cost option in the Invoice lines section on the Create or Edit Invoice pages. You can then enter the charge details on the Charge References dialog box. After the invoice lines are accounted, submit the Transfer Costs to Cost Management process to transfer the invoice distributions form Payables to Cost Management for further processing.

You can use a Trade Operation to create landed cost charges associated with purchase order receipts of material. You can create a trade operation for an upcoming shipment to capture the landed cost charges incurred for that shipment. Trade operations are created in the Landed Costs work area on the Manage Trade Operations page. You can associate a purchase order to a Trade Operation based on various identifiers, including purchase order number or advance shipment notice (ASN).

To create actual landed costs, complete the following steps.

  1. Navigate to the Payables work area and create an invoice. Enable an invoice line for landed cost processing by selecting the Enable option on the Landed Costs tab.

  2. Select the References plus icon and add the Charge Name, Reference Type, and Reference Value. These fields will be used to match the invoice line to the Trade Operation charge line. Save the changes.

  3. Select Validate from the Invoice Actions menu. Ensure that the Validation status updates to Validated on the Invoice Summary tab.

  4. Select Post to Ledger from the Invoice Actions menu. Ensure that the Accounting status updates to Accounted on the Invoice Summary tab. Save and close the invoice.

  5. From the Navigator menu, select Tools, and then Scheduled Processes. Search for and select the Transfer Costs to Cost Management process and set the required parameters. The Cutoff Date must be greater than or equal to Invoice creation date. Submit the process.

  6. From the Navigator menu, select Receipt Accounting.

  7. From the Tasks panel, select Manage Trade Operations. Create a Trade Operation and complete the required fields. Save your changes.

  8. Add a charge line to the Trade Operation and complete the Charge References fields. Enable the Automatically Associate on Match option.

    The Charge References information will be used to automatically associate an invoice that has matching reference data.

  9. Select the Enable Automatic Tax Calculation option if you want to use the Tax application to automatically calculate the tax.

  10. Click on the Associate Default Material Purchase Orders button.

  11. Click on the Select and Add button and search for and select the required purchase order. You can associate a purchase order to a Trade Operation based on various identifiers, including the Purchase Order number or the Shipment Number (ASN). This associates all of the Trade Operation charges to the material Purchase Order specified in the Trade Operation header.

  12. Click Save. When the application has associated the purchase order to the Trade Operation charge lines, the Charge Line Status displays a Ready for Allocation message when you hover over it.

  13. Click on a charge. The Charge Details area of the page shows the purchase order line schedules associated with the charge.

  14. From the Actions menu in the Trade Operation header, select Update Status, and set the status to Open.

    This informs Receipt Accounting that the charges in this Trade Operation are to be added to the material cost of the items received against the Purchase Orders referenced in the Trade Operation. Create and submit the receipt in the Receiving application.

  15. From the Actions menu in the Trade Operation header, select Allocate Charges. The Charge line status is updated and displays Successfully Allocated when you hover over the icon. The total amount of each charge is displayed in the Landed Cost Charges area. This is the estimated charge amount that is anticipated to be applied when the items in a Purchase Order are fully received.

  16. In the Landed Costs work area navigate to the Manage Landed Cost Processes page from the Tasks menu. Select and run the Prepare Invoice Data process.

  17. On the Manage Landed Cost Processes page select and run the Associate Invoices to Trade Operation Charges process.

  18. In the Landed Costs work area navigate to the Manage Charge Invoice Associations page from the Tasks menu, and select the required invoice. Set the Association Status to All. The invoice association status is displayed in the Association Details region, including the association attributes, charge line details, corresponding invoice line details, and match status for each charge line.

  19. In the Landed Costs work area navigate to the Manage Trade Operations page. Search for and open the required Trade Operation for editing. The Charge Line Status will be set to Requires Reallocation.

  20. Click on the Allocate Charges button. The actual charges are added to the Trade Operation.

When you run the Associate Invoices to Trade Operation Charges process from the Manage Landed Cost Processes page, the Manage Charge Invoice Associations page is updated. The details regarding charge invoice associations are captured in the Association Status field. The Association Status values are described in the following table.

Association Status Description

New

This is the initial default status.

Associated

The invoice line has been automatically associated to the Trade Operation Charge line.

Manually Associated

The invoice line has been manually associated to the Trade Operation Charge line.

Needs Review

The invoice line has a matching Trade Operation charge line, but you need to review and confirm the association.

Good Match

There are multiple matches between the Trade Operation charge line and the invoice line. The user needs to select the correct match and confirm the association.

Potential Match

Only the Procurement BU, Supplier, and Supplier Site on the Trade Operation Charge line and invoice line match. There are no matches found using the charge references.

No Match

The Associate Invoices to Trade Operation Charges process has been run on the invoice line but a match has not been found.

Canceled

The invoice line has been canceled in Accounts Payable.

Upload Trade Operation Charges in a Spreadsheet

You can use a spreadsheet for bulk data updates to an existing Trade Operation. Add, edit, and delete operations can be performed to update the charge information. You can use a spreadsheet to complete bulk updates for the following:

  • Landed cost charges

  • Landed cost charge references

  • Landed cost related charges

The ADF Desktop Integrator is a prerequisite for capturing charges in a spreadsheet, and can be installed from the Tools section of the Navigator menu.

To capture Trade Operation charges in a spreadsheet, complete the following steps.

  1. From the Navigator menu, select Receipt Accounting.

  2. From the Landed Costs tasks list, select Capture Trade Operation Charges in Spreadsheet.

  3. Download the Capture Charges spreadsheet.

  4. Open the spreadsheet. A pop-up message asks if you want to connect to an application. Click Yes, and enter your sign-on credentials.

  5. Search on the Capture Charges tab for the Trade Operation to be updated. The spreadsheet is populated with the charge lines and corresponding Trade Operation data from the result set.

  6. Perform the required edit, add, or delete operations. The Changed column is automatically updated with a change indicator icon to confirm which rows have been modified.

  7. Click Upload to apply your changes.

  8. Repeat the above steps for any changes required on the Capture Charge References tab and the Capture Related Charges tab.

Compare and evaluate landed cost trends and variances, including material costs and third-party charges, across business units, inventory organizations, and routes. You can view landed cost variances and charge analyses in the Landed Cost Management work area on the Analyze Landed Cost Charges page and on the Analyze Landed Cost Variances page. You can analyze landed cost charges and variances based on key dimensions, such as the following:

  • Item Category

  • Item Name

  • Charge Name

  • Supplier

To analyze landed cost variances, complete the following steps.

  1. From the Navigator menu, select Receipt Accounting.

  2. From the Tasks panel, select Manage Landed Cost Processes.

  3. Run the process Summarize Landed Cost Data.

    This process prepares landed cost data for multidimensional analysis.

  4. From the Tasks panel, select Analyze Landed Cost Variances, and complete the required search fields.

  5. In the View Landed Cost Charges By list select Business Unit.

    The page displays the landed cost charge data, including the accounted amount, estimate amount, and actual amount in an expandable tree table.

  6. Click on the Trends icon to display the data in graph format.

FAQs for Landed Cost Management

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.

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.

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.

Can I create a trade operation with multiple charge amounts in multiple currencies?

Yes, a trade operation can contain charges from one or more service providers in multiple currencies.

The following criteria apply to enable a Charge Invoice for the Associate Charge Invoice task:

  • The invoice line type must be Item, Freight, or Miscellaneous.

  • The Enable option must be selected on the Landed Cost section of the invoice line.

  • Complete the Validate and Post to Ledger invoice actions. The invoice status must be Validated and Accounted.

  • Run the following process from the Tools > Scheduled Processes page: Transfer Costs to Cost Management. This will make the invoices available for processing in Landed Cost Management.

  • Run the following process from the Manage Landed Cost Processes page: Prepare Invoice Data.

  • Run the following process from the Manage Landed Cost Processes page: Associate Invoices to Trade Operation Charges.