Operating in expanded trade areas all over the world calls for a new approach because the requirements differ greatly from those governing domestic trade. Each step in the manufacturing or retailing process raises a multitude of extremely complex cost calculation challenges. Therefore, global corporations doing business around the world with thousands of suppliers and clients are constantly challenged to calculate their costs in an efficient and accurate matter.
For many companies the first challenge is gaining internal information visibility. Companies with a high number of purchases and sales involving great distances and cross-border transactions involving many hand-offs, experience challenges trying to obtain accurate, timely and complete information. The total landed cost of merchandise is more than what is typically displayed on a trade document, like an invoice, and it can surprise a company to realize what exactly constitutes a "total landed cost." The major cost elements include items such as: the price of merchandise, shipping and handling fees, duties, taxes and other government charges.
When several Total Landed Cost Calculator ("LCC") vendors were asked to provide a total cost for a small shipment of t-shirts from a manufacturer in China to a client in Brazil, the results were surprising. Not only was every answer different--the outcome ranged from total costs of $255 to $326 for a $150 wholesale price shipment. More data was needed to make the quote more realistic. Most of these vendors have developed "point solutions," that offer companies the information and analytical tools needed to calculate a total landed cost. But it raised the question, is there a uniform and universal total landed cost possible for every shipment?
1. Need. If your company works with many new SKUs involving different countries, you will have a greater need to catalog, classify and calculate landed cost. In this situation, the need to integrate a LCC with your current systems will be beneficial. Most vendors offer these capabilities and are built on common standards. If you have a low number of new SKUs, an LCC will be still valuable but you don't want to commit to high upfront user fees. Working with a vendor who offers "pay-as-you-go" deals might be the solution.
2. Global Reach. If your company is spread out over several departments in various locations--the need to share information becomes more apparent. Collaboration is key here, and the LCC application needs to be shared with multiple users. In situations where you outsource some or all your classification work, you will especially want to manage the information and share it with everybody involved.
3. Compliance. Trade compliance is the whole process of ensuring that the cross-border trade complies with the exporting country's and the importing country's regulations. Part of this process is the correct classification of products. An LCC tool can support and maintain this functionality if it includes a product catalog. Most LCCs include a "decision tree" classification tool, which can help you with this cumbersome task.
