SCDigest
Editorial Staff
SCDigest Says: |
In addition, Thomchick said none of the participating companies was really doing a good job at taking actual fully loaded landed costs and comparing them to what they had calculated.
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With the huge growth in global sourcing, understanding the “total landed cost” of materials, components or finished goods procured from international sources is critical to making the smart choices about sourcing locations and vendors, and to achieve the potential savings from offshore programs.
With that backdrop, Evelyn Thomchick and colleagues at The Center for Supply Chain Research at Penn State worked with six large companies to better understand how they were calculating total landed costs.
The result – development of a six-category landed cost model – and the surprising finding that none of the six companies included every category in landed cost decisions.
Total Landed Cost Framework
While it may be tempting to think developing and using a landed cost model would not be that difficult, to do it well actually takes considerable effort and technology support. Thomchick noted the following barriers
- The data needed to populate a model is often not readily available
- Execution pressures and time-constraints often preclude sufficient analysis of the data
- Companies often do not continuously monitor and update the landed cost inputs
- Organizational structures inhibit the cross-functional effort needed to build and maintain a landed cost model
The companies in the Penn State research project were all large, with five of the six being at least $10 billion in sales, and the other between $1-10 billion in revenues. The six participants represented companies in the metals, industrial, chemical, high tech and pharmaceutical industries, giving a nice mix of verticals but missing a retail participant, which would have been a nice addition. |