Meaning
Operational framework used to monitor and manage the total expenditure incurred to move a product from the supplier to the final destination. This landed cost control system aggregates the purchase price, freight charges and all applicable import duties. It provides the only accurate measure of the profitability of an individual SKU in an international supply chain.
Financial Strategy
Optimization of the supply chain depends on reducing the gap between the estimated and actual arrival costs. When a company implements landed cost control, it gains the ability to compare the true expense of different sourcing locations.
Tax Integration
Management of the value added tax and consumption tax components is a vital part of the process in the Chinese market. Because these taxes are calculated based on the cif value plus the duty amount, landed cost control must account for the compounding effect of these levies. A small increase in the shipping rate can lead to a larger than expected rise in the total tax bill.
Proper management allows a firm to reclaim certain input taxes, which lowers the net cost of the inventory. This data informs the pricing strategy for the domestic market.
Variance Management
Regular audits of freight invoices and customs declarations identify discrepancies that erode margins. If the landed cost control report shows a consistent overspend on logistics, the company may renegotiate contracts with its freight forwarders.
